Case law: Business legally bound by contract with supplier, even though employee who negotiated it had no authority to do so

Businesses should ensure that employees – particularly those with titles such as ‘Buyer’ that imply they are authorised to negotiate and conclude contracts with suppliers – are aware of the limitations on their authority to do so, and the procedures they must follow. Otherwise a business risks being bound by contracts the employee did not have authority to make - including those made by email.

A supplier emailed a buyer for a customer business asking them to confirm that the business would buy a specified minimum quantity of the supplier’s goods over a 12 month period. The buyer emailed back saying ‘please go ahead’.

About five months later the business told the supplier that it should not expect any more orders and no more were placed. The business had not bought the minimum quantity of goods mentioned in the emails. The supplier claimed that its exchange of emails with the buyer meant the business was contractually bound to do so.

The business argued that:

• The wording of the emails did not create a legally binding agreement - particularly given that the business had never issued a purchase order.
• The buyer did not have authority to agree the terms in the email as to minimum quantity, so any agreement they had purported to make was invalid.

The court ruled that the buyer had been held out by the business as entitled to negotiate and conclude purchase contracts on its behalf, and the business had not communicated any limitations on the buyer’s authority to do so to the supplier. Nor had the supplier acted unreasonably by assuming the buyer was authorised to confirm the minimum quantity, as the business had previously entered into a similar arrangement in relation to another of the supplier’s products. The business was therefore contractually bound by the buyer’s agreement to buy the minimum quantity specified in the emails

Operative date

• Now

Recommendation

• Businesses should ensure that employees – particularly those with titles such as ‘Buyer’ that imply they are authorised to negotiate and conclude contracts with suppliers – are aware of the limitations on their authority to make legally binding contracts on their employer’s behalf, and the procedures they must follow.

Case ref: Athena Brands Ltd v Superdrug Stores Plc [2019] EWHC 3503