Background
1. This appeal arises from the lower court's decision in the Milimani CMCC No. 5888 of 2017, delivered on 30th September 2022 where the trial court allowed the Respondent’s Claim for Kshs. 656,959 against the Appellant for goods supplied but not paid for.
2. The Respondent alleged in the lower court that on the diverse dates between the months of March to August 2016, she had been contracted to supply to the Appellant assorted foodstuffs on a 30 days’ credit terms but the Appellant failed to fully settle the invoices within the timelines. To support her claim, the Respondent presented before the trial court, what he alleged to be evidence of LPOs, invoices, and partial payments made by the Appellant.
3. The Appellant filed its defence and denied the existence of any contractual relationship with the Respondent and averred contrary to the Respondent’s allegations, no such goods were ever delivered.
4. The trial court, after evaluating the evidence delivered its judgment on 30th September 2022 in favour of the Respondent, holding that the LPOs and invoices raised and filed were proper, thus upholding the Respondent’s claim against the Appellant Kshs. 656,959, plus interest and costs.
The Appeal
5. Aggrieved by the judgment, the Appellant filed this appeal vide a Memorandum of Appeal dated 28th October 2022 raising the following grounds:-
i. THAT the Learned Trial Magistrate erred in law and in fact in failing to determine whether the Respondent is a registered business that engages in the supplying, selling and distribution of foodstuff.
ii. THAT the Learned Trial Magistrate erred in law and in fact in shifting the burden of proof to the Appellant to prove that the Respondent is not a registered business.
iii. THAT the Learned Trial Magistrate erred in law and in fact by failing to hold that the Local Purchase Orders produced by the Appellant are forgeries and fraudulent.
iv. THAT the Learned Trial Magistrate erred in law and in fact in misinterpreting the Rule in Turquand’s case that the signing of the Local Purchase Orders was an internal issue of the Appellants, yet the Respondent was aware of the internal non-compliance.
v. THAT the Learned Trial Magistrate erred in law and in fact in failing to hold that the Respondent had failed to prove delivery of the supplies.
vi. THAT the Learned Trial Magistrate erred in law and in fact in failing to hold that the Local Purchase Orders, Invoices, and Statement produced by the Appellant do not tally.
vii. THAT the Learned Trial Magistrate erred in law and in fact in disregarding the principle that special damages must not only be pleaded but also proven.
6. The appeal was canvassed through written submissions. The Appellant’s submissions are dated 22nd February 2024, and the Respondent’s submissions are equally dated 22nd March 2024.
Appellant’s Submissions
7. The Appellant submitted that the trial court erred in law and fact by failing to find that the Respondent had failed to prove that she was a registered, and in the business of supplying, selling, and distributing foodstuff as alleged. According to the Appellant, the trial court improperly shifted the burden of proof regarding the Respondent’s registration as a business entity. They argued that under Sections 107 and 109 of the Evidence Act, the burden of proving the existence of the business and its capacity to contract lay squarely on the Respondent, who failed to provide any registration documents.
8. It was further the Appellant’s submissions that that the trial court erred in failing to appreciate that the Respondent did not prove delivery of the subject goods at trial. Respondent asserted that the reliance on LPOs and Invoices alone, without proof of delivery in respect of the underlying goods, is not of itself sufficient. The Appellant cited the case of E.P. Communications v. East Africa Courier Services Limited [2019] eKLR in that regard.
9. The Appellant argued that the trial court erred and misinterpreted the indoor management rule laid down in the case of Royal British Bank v. Turquand (1856), which protects parties dealing with companies from internal irregularities. They contended that the trial magistrate failed to appreciate that the rule does not apply when an outsider is aware of non-compliance with internal formalities or when there is evidence of irregularities that would put a reasonable person on inquiry. According to the Appellant, it was apparent from the face of each of the LPOs that the Appellant’s internal procedures required authorization of the LPOs could only be given by the Appellant’s General Manager.
10. The Appellant concluded by asserting that the trial court erred in its analysis and misapplied the law, resulting in an unjust decision. They therefore urged the court to set aside the trial court's judgment and dismiss the Respondent's claim with costs.
Respondent’s Submissions
11. The Respondent submitted that the trial court was correct in finding that there existed a contractual relationship existed between the parties herein, as evidenced by the Local Purchase Orders (LPOs) issued by the Appellant and the corresponding part payment for the deliveries made by the Respondent. They argued that the LPOs constituted valid offers, which were accepted and performed through the supply of goods, thereby creating binding contracts under the principles of the Law of Contract Act and the Sale of Goods Act.
12. The Respondent contended that the trial court properly applied the Royal British Bank v. Turquand (1856) rule, which shields third parties from internal procedural irregularities within a company. They argued that they had no obligation to inquire into the Appellant’s internal requirements for signing and authorizing LPOs. Once the LPOs were issued and stamped by the Appellant, the Respondent was entitled to rely on their validity.
13. Addressing the issue of proof of delivery, the Respondent submitted that the invoices they produced, which also acted as delivery notes, were sufficient evidence of the goods supplied to the Appellant. They pointed out that the Appellant’s own witness admitted during cross-examination that the invoices bore the Appellant’s official stamp and that payments were made to the Respondent for previous deliveries.
14. The Respondent argued that the Appellant’s claim of forgery and fraud regarding the LPOs and invoices was baseless. They highlighted that the Appellant’s witness confirmed during cross-examination that the LPOs were in the standard format used by the company and bore its official stamp and signature. The Respondent submitted that the trial court correctly dismissed the allegations of forgery and fraud as unsubstantiated.
15. The Respondent further submitted that the Appellant’s internal policies, such as requiring multiple approvals for LPOs, could not be used to defeat their claim. They argued that these policies were not brought to their attention and were irrelevant to the contractual relationship between the parties.
16. On the issue of business registration, the Respondent contended that the Appellant failed to plead or prove that the lack of registration rendered the transactions invalid. They argued that the alleged lack of registration did not negate the existence of the contract or the supply of goods, especially since the Appellant had previously made payments to the Respondent for similar transactions.
17. The Respondent also relied on the email correspondence from the Kenya Revenue Authority (KRA), which confirmed that the Appellant claimed input tax for goods supplied by the Respondent. They submitted that this was clear evidence of the business relationship between the parties and the delivery of goods.
18. In conclusion, the Respondent submitted that they had proved their case on a balance of probabilities by producing LPOs, invoices, and bank statements showing payments made by the Appellant. They urged the court to uphold the trial court’s judgment, dismiss the appeal, and award costs to the Respondent.
Analysis and Determination
19. This being the first appeal, the role of this court is to re-evaluate and re-asses the evidence that was tendered before the trial court in order to draw my own independent conclusions remembering that, unlike the trial court, I did not have the benefit of seeing or hearing the witnesses and give due allowance for that disadvantage. See Selle V Associated Motor Boat Company Ltd (1968) EA 123; Williamson Diamond Ltd V Brown (1970) EA 1.
20. Upon review of the record of appeal, the parties’ submissions, and applicable law, this court finds that the only issue for determination is whether the trial court was right in its finding that the Respondent proved its claim for goods supplied but not paid for against the Appellant.
21. From the record of appeal, I note that the dispute before the trial court was for goods supplied and not paid for. While the Respondent alleged in its pleadings that they supplied to the Appellant assorted foodstuffs on diverse dates between the months of March to August 2016, the Appellant on its part, not only denied ever receiving the goods in question but also averred that there existed no business relationship between the Appellant and the Respondent.
22. To prove her case against the Appellant, I note from the proceedings that the Respondent who testified as PW1 stated that the contract between the parties herein was not written. The witness however produced in evidence copies of LPOs and the corresponding invoices, which she alleged, were in respect of the goods in question. Also produced by the Respondent in evidence were copies of the Invoices from the Respondent to the Appellant, copies of cheques written by the Appellant in favour of the Respondent, and evidence of payments made by the Appellant through the Respondent’s Cooperative Bank of Kenya.
23. The Respondent also produced in evidence copies of email correspondence between the Plaintiff and the Kenya Revenue Authority (KRA) and a spreadsheet summary, evidencing the fact that the Appellant claimed input VAT in respect of the supplies in question from the Respondent.
24. On the other hand, the Appellant, through its sole witness, Mr. Murage Chege (DW1) who adopted his witness statement of 16.11.2018 testified and told the trial court that the Respondent is unknown to the Appellant and that the Respondent had never been engaged as a supplier of the Appellant.
25. It was further the Appellant’s position at trial that the invoices and LPOs were forgeries and that there was no evidence that the LPOs were duly approved by the Appellant’s officers, including its General Manager who was required to have signed and approved any LPO and the consequent deliveries.
26. First, it is critical to note that the general rule is that a contract need not be in writing. In Patrick Njuguna Kimondo vs. Geoffrey Vamba Mbuti [2019] eKLR the court discussed the issue of oral contracts and held thus: -
“I am of the opinion that oral agreements supported by credible evidence can be and are enforceable. All what the law requires is that certain contracts be in writing – Section (3) (3); Short of that, it would be a travesty of justice as most people either knowingly or otherwise transact their businesses upon oral agreements.”
27. From the above decision, it is clear that oral contracts are recognized and enforceable in law. In the instant case, the Respondent testified that she traded under the business name of Shericon Agencies and that there was no written contract between her and the Appellant. According to the Respondent, the Appellant’s officers used to call and send emails asking for the supplies. The Appellant on the other hand denied the existence of any contract or business engagement between the parties herein.
28. The law under Section 107 of the Evidence Act, Cap.80 Laws of Kenya places the burden of proof as to any particular fact on the person who wishes the court to believe in its existence, unless it is provided by the law that the proof shall be on a particular person. The Section provides that; -
“whoever desires any court to give a judgement as to any legal right or liability depend on the existence of facts which he asserts must prove those facts,"
29. Section 109 of the Evidence Act exemplifies the Rule in Section 107 on proof of a particular fact. It is to the effect that, the burden of proof as to any particular fact, lies on the person who wishes to rely on its existence. Whoever has the obligation to convince the court is the person said to bear the burden of proof. Thus, if one does not discharge the burden of proof then one will not succeed in as far as that fact is concerned.
30. In the case of Alice Wanjiru Ruhiu Vs Messaic Assembly of Yahweh [2021] eKLR the court had the opportunity to assert the principles by holding that; -
“The legal burden is the burden of proof which remains constant throughout a trial; it is the burden of establishing the facts and contentions which will support a party's case. If at the conclusion of the trial he has failed to establish these to the appropriate standard, he will lose. The legal burden of proof normally rests upon the party desiring the court to take action; thus a claimant must satisfy the court or tribunal that the conditions which entitle him to an award have been satisfied. In respect of a particular allegation, the burden lies upon the party for whom substantiation of that particular allegation is an essential of his case. There may therefore be separate burdens in a case with separate issues…..
The legal burden is discharged by way of evidence, with the opposing party having a corresponding duty of adducing evidence in rebuttal. This constitutes evidential burden. Therefore, while both the legal and evidential burdens initially rested upon the appellant, the evidential burden may shift in the course of trial, depending on the evidence adduced. As the weight of evidence given by either side during the trial varies, so will the evidential burden shift to the party who would fail without further evidence"
31. The question therefore for this court is, whether the Respondent herein discharged the burden of proof at trial that there was indeed a contract between the Appellant and the Respondent in respect of the supply of the goods in question.
32. It is generally settled that Local Purchase Orders (LPOs) are recognized as indicative of contractual intent. In Isaac Mugweru Kiraba T/A Isamu Refri-Electricals v Net Plan East Africa Ltd [2018] eKLR, the court held that an LPO signifies an offer to purchase goods or services, which, upon acceptance and performance, creates a binding contract.
33. From the record, it is evident that the LPOs submitted by the Respondent bore the Appellant’s official stamp. Further, during cross-examination, the Appellant’s witness admitted the authenticity of the stamps. This admission obviously negates claims of forgery and supports the conclusion that the LPOs originated from the Appellant.
34. It is further evident from the record that the Respondent fulfilled the LPOs by delivering the specified goods, as evidenced by invoices and part payments made by the Appellant to the Respondent.
35. The fact that the Appellant indeed purchased the subject goods from the Respondent is in my view further fortified by the evidence of the email correspondence dated 1st November 2017 from the Kenya Revenue Authority indicating that the Appellant herein claimed input VAT in respect of the supplies in question.
36. Considering and weighing the evidence availed by the Respondent in support of her claim against the Appellant, I am convinced that on a balance of probabilities, the Respondent proved her case against the Appellant. Consequently, I am convinced that there was a business relationship between the parties herein and that the Respondent indeed supplied to the Appellant the goods in question.
37. The argument by the Appellant that the LPOs lacked proper authorization is again not tenable. As rightly found by the trial court, the rule established in the Royal British Bank v Turquand [1856] 6 E&B 327 case (Turquand Rule) protects the Respondent who is entitled to assume that internal requirements and procedures have been complied with.
38. Concerning the delivery orders, the Respondent admitted during cross-examination that no delivery notes were produced. According to the Respondent, the delivery notes were left in the custody of the Appellant’s officers who stamped the Respondent’s invoices. It is however the position of this court that based on the evidence on record in this case, the absence of delivery notes was not fatal to a claim the Respondent’s claim since there were other compelling evidence that supported the delivery and receipt of goods.
39. The Respondent presented multiple pieces of evidence to support delivery, including Local Purchase Orders (LPOs), invoices, bank statements, and cheques showing partial payments made by the Appellant. Notably, during cross-examination, the Appellant’s witness admitted that the LPOs bore the Appellant’s official stamp, and payments were indeed made to the Respondent. This acknowledgment significantly bolsters the Respondent’s claim of delivery.
40. While it is generally correct that invoices and LPOs alone do not prove delivery or receipt of goods as was held in the case of E.P. Communications v East Africa Courier Services Limited [2019] eKLR, the position however does not hold in instances (as the case herein), where other corroborative evidence, including LPOs, invoices, and proof of payments. These documents establish, on a balance of probabilities, that goods were delivered to the Appellant.
41. In this case, I note that the Appellant failed to provide sufficient evidence to prove that the part payments they made to the Respondents were not in fact related to the supplies in question. Further, the Appellant did not avail any evidence at trial contradicting the correspondence from the Kenya Revenue Authority indicating that the Appellant claimed input VAT in respect of the supplies in question.
42. In the premises, this court finds, as the trial court did, that there was a valid contractual relationship between the Respondent and the Appellant and that the Respondent supplied and delivered to the Appellant the goods in question. The issuance of LPOs, fulfillment of orders, and part payments collectively satisfy the essential elements of a contract under the Sale of Goods Act and common law principles.
Determination
43. The upshot of the foregoing is that the appeal is hereby dismissed with costs to the Respondent.
SIGNED DATED and DELIVERED IN VIRTUAL COURT
THIS 27TH DAY OF FEBRUARY 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant
..………. for the Appellant
………...for the Respondent