The Sales Clerk Who Bought 200 Bags of Maize
Mavuno Feeds Ltd employs Kariuki as a sales clerk. His written job description covers only taking orders and collecting debts; the Managing Director alone may commit the company to purchases. Over two years Kariuki has several times ordered packaging material from Bidii Suppliers Ltd on Mavuno's official order forms, and Mavuno paid every invoice without objection. In March, without telling anyone, Kariuki ordered 200 bags of maize worth Ksh 1,800,000 from Bidii at roughly 25% above the market price, signing 'for and on behalf of Mavuno Feeds Ltd'. Bidii delivered to Mavuno's store and the storekeeper received and stacked the bags. The board now refuses to pay, arguing Kariuki had no authority and the price was inflated. In January Mavuno had posted Bidii a circular stating that only the MD may place orders, but Bidii's filing clerk misfiled it.
1. Advise whether Mavuno Feeds Ltd is legally bound to pay Bidii Suppliers Ltd.
Read the worked answer
Test to apply: apparent (ostensible) authority. A company is bound where (a) the principal has made a representation that the agent has authority, (b) the third party relied on that representation, and (c) the third party altered its position as a result.
Application:
- Representation: two years of order forms and uncomplaining payment of Kariuki's earlier orders is a clear holding-out, and it continued right up to the March order.
- Reliance and detriment: Bidii supplied Ksh 1,800,000 of maize on the strength of that pattern.
- Internal restriction: Kariuki's job description is an internal limit; it does not bind a supplier who was never told of it.
Effect of the January circular. Notice can defeat a holding-out, but only if it actually reaches the third party. A circular properly addressed but misfiled in the supplier's office is arguable evidence of notice; the stronger view, given that Mavuno went on paying Kariuki's orders and the circular was never followed up or acknowledged, is that Bidii was entitled to rely on the course of dealing.
Conclusion: Mavuno is very likely bound. Alternative route to the same result: by accepting and stacking the goods without returning them, Mavuno ratified the transaction. The inflated price does not by itself void the contract - the board's remedy lies against Kariuki, not Bidii.
2. Assuming Mavuno must pay, advise the board on its position against Kariuki and on the controls that would prevent a repeat.
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Against Kariuki:
- He breached an express term of his employment (no authority to purchase) - grounds for summary dismissal and, in principle, a claim for the loss caused.
- If he signed 'for and on behalf of' the company while knowing he had no authority, he is also liable to Bidii for breach of warranty of authority - but Bidii will prefer to sue the company, which has the money.
- Damages against Kariuki are realistically limited to the excess over market price (about 25% of Ksh 1,800,000, i.e. roughly Ksh 360,000) and are only worth pursuing if he can pay.
Control lessons - the weakness is not that Kariuki was dishonest but that the company let a pattern build up:
- Restrict purchase order forms to named, authorised signatories; keep pads under the MD's control.
- Issue the 'authorised signatories' notice to all suppliers by registered post or acknowledged email, and repeat it annually - an unacknowledged circular is nearly worthless as notice.
- Add a rule that no delivery is accepted without a matching approved purchase order, and make the storekeeper refuse unauthorised deliveries.
- Require a second signature above a value threshold (say Ksh 200,000) so one person cannot commit the company.
- Segregate purchasing from receiving and from payment approval.