Authority of a branch manager and a contract with a minor
Otieno is branch manager of Kariuki Hardware Ltd. His written authority allows him to commit the company to purchases of up to KES 150,000 per order; anything above requires board approval. In March he ordered 40 bags of cement worth KES 320,000 from Supa Traders Ltd, a supplier that had dealt with him for three years and had always been paid by the company. The cement was delivered to the company yard and 25 bags were used on a company site the following week. The board, angry that approval was bypassed, has refused to pay and has suspended Otieno. Separately, the company supplied building materials worth KES 12,000 on credit to Amina, a 17-year-old student, who now says she is not liable because she is a minor.
1. Advise whether Kariuki Hardware Ltd is legally bound to pay Supa Traders Ltd, giving your reasoning.
Read the worked answer
Likely conclusion: the company is bound and must pay KES 320,000.
Route 1 - ostensible (apparent) authority. A company is bound where:
- it represents that a person has authority to contract on its behalf - here, the appointment of Otieno as branch manager and three years of orders that the company honoured and paid;
- the third party relies on that representation - Supa Traders supplied on the strength of the established course of dealing;
- the third party has no notice of the internal limit - the KES 150,000 cap was internal and never communicated. A limitation of authority that is not disclosed to outsiders does not bind them; the indoor management rule protects a supplier who has no reason to suspect an irregularity.
Route 2 - ratification. Even if authority had been exceeded, the company accepted delivery, took the goods into its yard and consumed 25 bags on its own site. Retaining the benefit of a contract with knowledge of the facts ratifies it. A principal cannot ratify part of a transaction and reject the rest; the whole contract stands.
Internal remedy only: the company pays Supa Traders, then deals with Otieno under disciplinary and indemnity provisions. Refusing to pay exposes the company to a claim plus interest and costs.
2. Advise the company on its claim against Amina, the 17-year-old student.
Read the worked answer
Conclusion: the contract is not enforceable against Amina.
Reasoning:
- At 17 she lacks capacity. Contracts with minors are generally voidable at the minor's instance, and a minor is bound only for necessaries - goods and services suited to the minor's condition in life and to her actual requirements at the time of sale.
- Building materials bought on credit are not necessaries for a student. The supply fails both limbs of the test.
- The company cannot rely on ratification after she attains majority unless she gives fresh consideration; mere failure to disclaim does not bind her.
Remedies realistically available:
- Recover the goods if they remain in her possession and are identifiable (restitution of property obtained).
- A claim in tort is generally not permitted where it would indirectly enforce the unenforceable contract.
- Where a supplier can show the minor obtained the goods by fraudulently representing herself as an adult, equity may allow recovery of the goods or their proceeds.
Practical advice: write the KES 12,000 off as a bad debt, and tighten credit control - require a parent or guardian to stand as guarantor, or insist on cash for customers who cannot prove capacity. The commercial judgement is that the cost of litigation far exceeds the debt, so the better investment is preventing a recurrence.