Fact Cover Engineering (Pvt) Ltd v United Builders Merchant (Pvt) Ltd

The plaintiff claimed US$5,423.00 for two commercial trolleys it allegedly manufactured and delivered to the defendant in April 2011. The plaintiff averred that the defendant's Director of the Timber Department, Mr Mandinga, placed a verbal purchase order for the trolleys to carry trusses, and that Mr Muzondo (the defendant's logistics director) approved the order. The trolleys were manufactured to specifications after viewing a sample at PG, and were delivered on 21 April 2011 as evidenced by a signed delivery note. The defendant denied placing any order, claimed it attempted to return the trolleys but the plaintiff refused to accept them back, and stated the trolleys remained in storage unused. The defendant argued that Mr Mandinga had left employment on 30 June 2010 (before the alleged April 2011 order), that no written purchase order existed as required by its procurement policy effective 31 January 2011, and that Mr Mandinga had no authority to place such orders as he was not in the procurement department.

• Whether the defendant placed an order for two trolleys making it liable to pay US$5,423.00 to the plaintiff
• Whether a verbal purchase order by an employee binds a company in the absence of compliance with internal procurement procedures
• Whether the plaintiff discharged its burden of proving the existence of a verbal contract on a balance of probabilities
• The application of section 12(a) of the Companies Act [Chapter 24:03] regarding presumption of regularity and the rule in Turquand's case
• Whether the plaintiff had actual or constructive knowledge of the defendant's internal procurement policy

The plaintiff's claim was dismissed with costs.

A party alleging the existence of an oral contract bears the burden of proving that contract on a balance of probabilities. Where a company employee is alleged to have placed a verbal purchase order, the party relying on that order must adduce sufficient evidence to prove: (1) that the employee actually placed the order; and (2) that the employee was employed at the material time. The mere testimony of the party alleging the contract, in the absence of corroborating evidence from the employee allegedly placing the order or other witnesses, is insufficient to discharge this burden. While section 12(a) of the Companies Act provides that third parties may presume a company's internal regulations have been complied with (the rule in Turquand's case), this presumption does not relieve the party alleging a contract from proving the basic elements of that contract's formation. Previous dealings between parties in different contexts (e.g., repairs and maintenance versus capital procurement) may be distinguished and do not necessarily establish authority for all types of transactions.

The court observed that the obvious disadvantage of an oral contract is that it is not easy to prove. The court commented that it was unfortunate the plaintiff was under the mistaken belief that the duty was on the defendant to prove when Mr Mandinga left employment, when the burden actually lay with the plaintiff to prove Mr Mandinga was still employed at the material time. The court noted that it did not see how the plaintiff failed to call Mr Mandinga and Mr Muzondo as witnesses, seeing that they were no longer employees of the defendant and would presumably have been available to testify on the plaintiff's behalf.

This case is significant in Zimbabwean (and by extension South African) company law for its application of the Turquand rule and section 12(a) of the Companies Act regarding ostensible authority of company employees. It emphasizes that while third parties are entitled to presume internal company regulations have been complied with, the party alleging a contract still bears the evidential burden of proving the contract's existence, particularly where oral contracts are concerned. The judgment highlights the importance of calling all available witnesses to corroborate oral agreements, especially where those witnesses are no longer employed by the opposing party and would be available to testify. It also demonstrates the court's willingness to distinguish between different types of transactions (repairs and maintenance versus capital procurement) when considering a company's past dealing practices as evidence of authority.