(Being an Appeal against the Judgment of Hon. A. N. Ogonda, SRM in Milimani Chief Magistrate's Civil Suit No. 6881 of 2018 delivered on 2 nd October, 2023 and posted in the CTS on the 15 th October, 2023)
Introduction.
1. The 1 st Respondent instituted Milimani Chief Magistrate's Civil Suit No. 6881 of 2018 against the 2 nd Respondent and the Appellant claiming the sum of Kshs.3,473,690/-.
2. It was the 1 st Respondent’s case that the Appellant through its director, the 2 nd Respondent, purchased air tickets through a purchase order of USD 50,000. That the air tickets were duly delivered. However, despite several demands, the said amount was not paid and instead the Appellant issued dishonored cheques.
3. In its statement of defence, the Appellant confirmed that the 2 nd Respondent was its director at the material time however it argued that it was not privy to the agreement between the 1 st Respondent and the 2 nd Respondent and that the 2 nd Respondent was not its agent
4. Having considered the evidence adduced before the court, the trial Magistrate found that the 1 st Respondent engaged with the Appellant through the 2 nd Respondent who had represented himself as the director of the Appellant throughout. The trial court was of the view that the 1 st Respondent was an agent of the Appellant and that the Appellant was liable under the agreement. It proceeded to enter judgment in favour of the 1 st Respondent against the Appellant and the 2 nd Respondent jointly and severally for the entire sum of Kshs,3,473,600/- plus interest and costs.
5. The Appellant, being dissatisfied with the aforementioned judgement appealed against it on the following grounds:
“ 1. The Learned Magistrate erred in law and fact, disregarded the evidence adduced by the Appellant and arrived at an erroneous conclusion that an agreement allegedly made between the 1 st and 2 nd Respondents before the Appellant was incorporated was binding on the Appellant.
2. The Learned Magistrate erred in law and fact and misdirected herself by inferring an agency relationship between the Appellant and the 2 nd Defendant which never existed.
3. The Learned Magistrate erred in law and fact by failing to give effect to the doctrines of privity of contract and consideration thereby arriving at an erroneous finding.
4. The Learned Magistrate generally erred and misdirected herself in law when she abrogated her duty to adjudicate the case as per evidence produced and as per the law and facts in holding the presumption that the 2 nd Respondent had apparent authority from the Appellant.
5. The Learned Magistrate erred in law and in fact in arriving at a decision that was against the weight of evidence on record and weight of law and as a result, arrived at an erroneous decision; particularly on the presumption of agency in favour of the 2 nd Respondent and thus holding the Appellant liable for the actions of the 2 nd Respondent.
6. The Learned Magistrate erred in law and fact by failing to take into account relevant factors and as a result, her decision is wrong for disregarding the effects of pre-incorporation contracts.
7. The Learned Magistrate erred in law and fact by taking into account irrelevant and extraneous factors, hence he reached an erroneous verdict .”
6. Based on the foregoing, the Appellant prayed to have the appeal allowed and the trial court’s judgement set aside entirely. The Appellant further prayed for an award of costs in this appeal and in the lower court.
Appellant’s submissions.
7. The Appellant filed written submissions dated 23/9/2024 in support of its appeal. It was submitted that the 1 st Respondent failed to prove the existence of a contract with the Appellant, as there was no written agreement, no evidence of an oral agreement, and no proof that the Local Purchase Order (LPO) or invoices were issued to or received by the Appellant. It further argued that the 2 nd Respondent had neither actual nor ostensible authority to bind the Appellant and that the alleged LPO was a pre-incorporation contract incapable of binding or being ratified by the Appellant.
8. The Appellant also contended that the 1st Respondent failed to establish an agency relationship, as the evidence relied on, including business cards, shared contacts and photographs, did not amount to representations by the Appellant.
9. On quantum, the Appellant submitted that the claim for special damages had not been strictly proved since the 1 st Respondent relied solely on invoices, which were insufficient to prove payment or actual loss. It therefore urged the court to dismiss the suit with costs.
1 st Respondent’s submissions.
10. The 1 st Respondent opposed the instant appeal through written submissions dated 18/5/2025. It was submitted that the trial court correctly found that the 2 nd Respondent was a director and agent of the Appellant, arguing that the Appellant's own pleadings admitted as much and that its subsequent attempt to deny the relationship was inconsistent with its pleadings. It further contended that the evidence, including the purchase order, company stamp, newspaper advertisement, business card, CR12, photographs and WhatsApp communications, demonstrated that the 2 nd Respondent acted with the Appellant's actual or ostensible authority.
11. The 1 st Respondent argued that these representations induced it to enter into the agreement and perform its obligations, thereby giving rise to estoppel, which precluded the Appellant from denying the 2 nd Respondent's authority or the validity of the contract. It also maintained that the Appellant's argument that it lacked capacity because it had not yet been incorporated was untenable, as it had already held itself out as an existing company and conducted business, and in any event the rule in Turquand's Case protected third parties dealing with officers clothed with ostensible authority.
12. The 1 st Respondent further submitted that it fully performed its contractual obligations by procuring and supplying air tickets worth Kshs. 3,473,600, while the Appellant failed to honour its payment obligations and instead issued dishonored cheques. It argued that the Appellant never disputed the supply of the tickets or the amount claimed before the trial court, and that its defence was merely an attempt to evade liability after benefiting from the contract. The 1 st Respondent therefore urged the court to uphold the trial court's finding that there was a valid and binding contract and dismiss the appeal with costs, and affirm the award of Kshs. 3,473,600 together with the decretal reliefs.
Analysis and determination.
13. I have analyzed the record of appeal dated 9/9/2024, the submissions of the parties and the Appellant’s grounds of appeal. I am of the view that the issue for determination is whether the learned Magistrate misdirected herself in law and fact by concluding that an agency relationship existed between the 2 nd Respondent and the Appellant, thereby holding the latter liable for the 2 nd Respondent's conduct.
14. The 1 st Respondent submitted that it entered into an agreement with the 2 nd Respondent who acted on behalf of the Appellant for the purchase of air travel tickets via a purchase order. The Appellant submitted that any such agreement was entered into by the 2 nd Respondent in his own capacity.
15. During the trial, DW1 testified that the 2 nd Respondent was not the director of the Appellant, however in the Appellant’s amended statement of defence produced on page 183-185 of the record of appeal, it was stated that the 2 nd Respondent was a director. During cross examination DW1 testified that the 2 nd Respondent was a director of the Appellant despite stating that he had not held any position in the company during his examination in chief. This is seen in the proceedings which were produced in the supplementary record of appeal dated 20/2/2026.
16. Further, during the trial, the 1 st Respondent produced an advertisement published by the Appellant in the Daily Nation Newspaper of 8 th May, 2018, which identified the 2 nd Respondent as the contact person for the Appellant's Kenyan office. The advertisement listed the telephone number 0723541642 as the company's contact. That same telephone number appears in the Appellant's CR-12 and is also reflected on the 2 nd Respondent's business card, where he is described as a Director of the Appellant. A copy of the advertisement and the business card were produced on page 177 and 167 respectively of the Record of Appeal.
17. Further the 1 st Respondent produced photographs of events held by the Appellant in which the 2 nd Respondent appeared alongside the other directors of the Appellant. This is seen on pages 152-156 of the Record of Appeal.
18. Having considered the circumstances above, particularly the admission in the amended statement of defence and the fact that no evidence was tendered to prove that the 2 nd Respondent had resigned as a director at the material time, I find that the trial court did not err in holding that the 2 nd Respondent was a director of the Appellant.
19. In the Court of Appeal case of P. K. Langat & Andrew A. Mondoh v Raphael M. A. Juma [2001] KECA 289 (KLR) it was held:
“ It is trite that directors are in the eyes of the law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors. Hence, where directors make a contract in the name of or purporting to bind the company, it is the company - the principal - which is liable on it, not the directors; they are not personally liable unless they undertook personal liability .”
20. In the instant case the contract for the purchase of air tickets worth USD 50,000 was entered into between the 1 st Respondent and the Appellant through the 2 nd Respondent who was its director. The Appellant having permitted the 2 nd Respondent to hold himself out as its representative, the Appellant cannot now avoid liability to an innocent third party who dealt with it and the 2 nd Respondent in good faith.
21. The law equally protects third parties who transact with companies through their apparent agents. In R.M. Patel & Partners v Rift Valley Agricultural Contractors Limited & Another 2021, the High Court reaffirmed the principle in Royal British Bank v Turquand 1856 119 ER 886 that a person dealing with a company is not required to inquire into the regularity of its internal management and is entitled to assume that the company's internal procedures have been complied with. That principle has since been codified under Section 34 of the Companies Act, 2015, which provides that a person dealing with a company in good faith is not bound to inquire into any limitation on the powers of the directors to bind the company and is presumed to have acted in good faith unless the contrary is proved.
22. In the circumstances, I find that the Appellant dealt with the 1 st Respondent through the 2 nd Respondent, who possessed apparent authority to bind the company. There was no evidence that the 1 st Respondent acted otherwise than in good faith or had notice of any limitation on the 2 nd Respondent's authority. Accordingly, the contract was binding upon the Appellant notwithstanding any undisclosed internal restrictions on the powers of its directors.
23. In the circumstances, I find no reason to interfere with the trial court’s judgement Delivered on the 2 nd October, 2023 and posted on the CTS on the 15 th October, 2023. The Appeal herein is dismissed with costs to the 1 st Respondent.
Judgment delivered, dated and signed virtually at Nairobi
this 18 th day of September, 2026.
In the Presence of :
Lispa – Court Assistant
Mr Kipkorir holding brief for Mr.Kiplagat……………… for the Appellant
Miss Gitonga holding brief for Mr. Kiarie Mungai … for the 1 st Respondent
N/A ………………………………………………….. for 2 nd Respondent
Introduction.
1. The 1 st Respondent instituted Milimani Chief Magistrate's Civil Suit No. 6881 of 2018 against the 2 nd Respondent and the Appellant claiming the sum of Kshs.3,473,690/-.
2. It was the 1 st Respondent’s case that the Appellant through its director, the 2 nd Respondent, purchased air tickets through a purchase order of USD 50,000. That the air tickets were duly delivered. However, despite several demands, the said amount was not paid and instead the Appellant issued dishonored cheques.
3. In its statement of defence, the Appellant confirmed that the 2 nd Respondent was its director at the material time however it argued that it was not privy to the agreement between the 1 st Respondent and the 2 nd Respondent and that the 2 nd Respondent was not its agent
4. Having considered the evidence adduced before the court, the trial Magistrate found that the 1 st Respondent engaged with the Appellant through the 2 nd Respondent who had represented himself as the director of the Appellant throughout. The trial court was of the view that the 1 st Respondent was an agent of the Appellant and that the Appellant was liable under the agreement. It proceeded to enter judgment in favour of the 1 st Respondent against the Appellant and the 2 nd Respondent jointly and severally for the entire sum of Kshs,3,473,600/- plus interest and costs.
5. The Appellant, being dissatisfied with the aforementioned judgement appealed against it on the following grounds:
“ 1. The Learned Magistrate erred in law and fact, disregarded the evidence adduced by the Appellant and arrived at an erroneous conclusion that an agreement allegedly made between the 1 st and 2 nd Respondents before the Appellant was incorporated was binding on the Appellant.
2. The Learned Magistrate erred in law and fact and misdirected herself by inferring an agency relationship between the Appellant and the 2 nd Defendant which never existed.
3. The Learned Magistrate erred in law and fact by failing to give effect to the doctrines of privity of contract and consideration thereby arriving at an erroneous finding.
4. The Learned Magistrate generally erred and misdirected herself in law when she abrogated her duty to adjudicate the case as per evidence produced and as per the law and facts in holding the presumption that the 2 nd Respondent had apparent authority from the Appellant.
5. The Learned Magistrate erred in law and in fact in arriving at a decision that was against the weight of evidence on record and weight of law and as a result, arrived at an erroneous decision; particularly on the presumption of agency in favour of the 2 nd Respondent and thus holding the Appellant liable for the actions of the 2 nd Respondent.
6. The Learned Magistrate erred in law and fact by failing to take into account relevant factors and as a result, her decision is wrong for disregarding the effects of pre-incorporation contracts.
7. The Learned Magistrate erred in law and fact by taking into account irrelevant and extraneous factors, hence he reached an erroneous verdict .”
6. Based on the foregoing, the Appellant prayed to have the appeal allowed and the trial court’s judgement set aside entirely. The Appellant further prayed for an award of costs in this appeal and in the lower court.
Appellant’s submissions.
7. The Appellant filed written submissions dated 23/9/2024 in support of its appeal. It was submitted that the 1 st Respondent failed to prove the existence of a contract with the Appellant, as there was no written agreement, no evidence of an oral agreement, and no proof that the Local Purchase Order (LPO) or invoices were issued to or received by the Appellant. It further argued that the 2 nd Respondent had neither actual nor ostensible authority to bind the Appellant and that the alleged LPO was a pre-incorporation contract incapable of binding or being ratified by the Appellant.
8. The Appellant also contended that the 1st Respondent failed to establish an agency relationship, as the evidence relied on, including business cards, shared contacts and photographs, did not amount to representations by the Appellant.
9. On quantum, the Appellant submitted that the claim for special damages had not been strictly proved since the 1 st Respondent relied solely on invoices, which were insufficient to prove payment or actual loss. It therefore urged the court to dismiss the suit with costs.
1 st Respondent’s submissions.
10. The 1 st Respondent opposed the instant appeal through written submissions dated 18/5/2025. It was submitted that the trial court correctly found that the 2 nd Respondent was a director and agent of the Appellant, arguing that the Appellant's own pleadings admitted as much and that its subsequent attempt to deny the relationship was inconsistent with its pleadings. It further contended that the evidence, including the purchase order, company stamp, newspaper advertisement, business card, CR12, photographs and WhatsApp communications, demonstrated that the 2 nd Respondent acted with the Appellant's actual or ostensible authority.
11. The 1 st Respondent argued that these representations induced it to enter into the agreement and perform its obligations, thereby giving rise to estoppel, which precluded the Appellant from denying the 2 nd Respondent's authority or the validity of the contract. It also maintained that the Appellant's argument that it lacked capacity because it had not yet been incorporated was untenable, as it had already held itself out as an existing company and conducted business, and in any event the rule in Turquand's Case protected third parties dealing with officers clothed with ostensible authority.
12. The 1 st Respondent further submitted that it fully performed its contractual obligations by procuring and supplying air tickets worth Kshs. 3,473,600, while the Appellant failed to honour its payment obligations and instead issued dishonored cheques. It argued that the Appellant never disputed the supply of the tickets or the amount claimed before the trial court, and that its defence was merely an attempt to evade liability after benefiting from the contract. The 1 st Respondent therefore urged the court to uphold the trial court's finding that there was a valid and binding contract and dismiss the appeal with costs, and affirm the award of Kshs. 3,473,600 together with the decretal reliefs.
Analysis and determination.
13. I have analyzed the record of appeal dated 9/9/2024, the submissions of the parties and the Appellant’s grounds of appeal. I am of the view that the issue for determination is whether the learned Magistrate misdirected herself in law and fact by concluding that an agency relationship existed between the 2 nd Respondent and the Appellant, thereby holding the latter liable for the 2 nd Respondent's conduct.
14. The 1 st Respondent submitted that it entered into an agreement with the 2 nd Respondent who acted on behalf of the Appellant for the purchase of air travel tickets via a purchase order. The Appellant submitted that any such agreement was entered into by the 2 nd Respondent in his own capacity.
15. During the trial, DW1 testified that the 2 nd Respondent was not the director of the Appellant, however in the Appellant’s amended statement of defence produced on page 183-185 of the record of appeal, it was stated that the 2 nd Respondent was a director. During cross examination DW1 testified that the 2 nd Respondent was a director of the Appellant despite stating that he had not held any position in the company during his examination in chief. This is seen in the proceedings which were produced in the supplementary record of appeal dated 20/2/2026.
16. Further, during the trial, the 1 st Respondent produced an advertisement published by the Appellant in the Daily Nation Newspaper of 8 th May, 2018, which identified the 2 nd Respondent as the contact person for the Appellant's Kenyan office. The advertisement listed the telephone number 0723541642 as the company's contact. That same telephone number appears in the Appellant's CR-12 and is also reflected on the 2 nd Respondent's business card, where he is described as a Director of the Appellant. A copy of the advertisement and the business card were produced on page 177 and 167 respectively of the Record of Appeal.
17. Further the 1 st Respondent produced photographs of events held by the Appellant in which the 2 nd Respondent appeared alongside the other directors of the Appellant. This is seen on pages 152-156 of the Record of Appeal.
18. Having considered the circumstances above, particularly the admission in the amended statement of defence and the fact that no evidence was tendered to prove that the 2 nd Respondent had resigned as a director at the material time, I find that the trial court did not err in holding that the 2 nd Respondent was a director of the Appellant.
19. In the Court of Appeal case of P. K. Langat & Andrew A. Mondoh v Raphael M. A. Juma [2001] KECA 289 (KLR) it was held:
“ It is trite that directors are in the eyes of the law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors. Hence, where directors make a contract in the name of or purporting to bind the company, it is the company - the principal - which is liable on it, not the directors; they are not personally liable unless they undertook personal liability .”
20. In the instant case the contract for the purchase of air tickets worth USD 50,000 was entered into between the 1 st Respondent and the Appellant through the 2 nd Respondent who was its director. The Appellant having permitted the 2 nd Respondent to hold himself out as its representative, the Appellant cannot now avoid liability to an innocent third party who dealt with it and the 2 nd Respondent in good faith.
21. The law equally protects third parties who transact with companies through their apparent agents. In R.M. Patel & Partners v Rift Valley Agricultural Contractors Limited & Another 2021, the High Court reaffirmed the principle in Royal British Bank v Turquand 1856 119 ER 886 that a person dealing with a company is not required to inquire into the regularity of its internal management and is entitled to assume that the company's internal procedures have been complied with. That principle has since been codified under Section 34 of the Companies Act, 2015, which provides that a person dealing with a company in good faith is not bound to inquire into any limitation on the powers of the directors to bind the company and is presumed to have acted in good faith unless the contrary is proved.
22. In the circumstances, I find that the Appellant dealt with the 1 st Respondent through the 2 nd Respondent, who possessed apparent authority to bind the company. There was no evidence that the 1 st Respondent acted otherwise than in good faith or had notice of any limitation on the 2 nd Respondent's authority. Accordingly, the contract was binding upon the Appellant notwithstanding any undisclosed internal restrictions on the powers of its directors.
23. In the circumstances, I find no reason to interfere with the trial court’s judgement Delivered on the 2 nd October, 2023 and posted on the CTS on the 15 th October, 2023. The Appeal herein is dismissed with costs to the 1 st Respondent.
Judgment delivered, dated and signed virtually at Nairobi
this 18 th day of September, 2026.
In the Presence of :
Lispa – Court Assistant
Mr Kipkorir holding brief for Mr.Kiplagat……………… for the Appellant
Miss Gitonga holding brief for Mr. Kiarie Mungai … for the 1 st Respondent
N/A ………………………………………………….. for 2 nd Respondent