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COMPANY WILL NOT BE USE AS AN INSTRUMENT OF FRAUD

Dictum

It must be stated unequivocally that this court, as the last court of the land, will not allow a party to use its company as a cover to dupe, cheat and or defraud an innocent citizen who entered into lawful contract with the company, only to be confronted, with the defence of the company’s legal entity as distinct from its directors. Most companies in this country are owned and managed solely by an individual, while registering the members of his family as the share holders. Such companies are nothing more than one-man-business; hence, the tendency is there to enter into contract in such company name and later turn around to claim that he was not a party to the agreement since the company is a legal entity.

– MUNTAKA-COMASSIE JSC. Alade v. Alic (2010)

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AT COMMON LAW, PRE-INCORPORATION CONTRACT IS NULL – HOWEVER

At common law a company before its incorporation has no capacity to contract. Consequently, nobody can contract for it as Agent nor can a pre-incorporation contract be ratified by the company after its incorporation -Transbridge Co. Ltd. v. Survey International Co. Ltd. (1986) 17 NSCC 1084; (1986) 4 NWLR (Pt. 37) 576; Edokpolo & Co. Ltd. v. Sem-EdoWire Industries Ltd. & Ors. (1984) 7 SC 119; Sparks Electrics (Nig.) Ltd. v. Ponmile (1986) 2 NWLR 579; Enahoro v.I.B.WA. Ltd. (1971) 1 NCLR 180; Kelner v. Baxter (1867) LR 2CP 174; Natal Land and Colonisation Co. v. Pauline Syndicate (1904) AC 120. The rationale for this rule was stated at page 183 of the report by Erle, C.J. in Kelner v. Baxter in these words: “………………….as there was no company in existence at the time, the agreement would be wholly inoperative unless it were held to be binding on the defendants personally. The cases referred to in the course of the argument fully bear out the proposition that, where a contract is signed by one who professes to be signing ‘as agent’, but who has no principal existing at the time, and the contract would be altogether inoperative unless binding upon the person who signed it, he is bound thereby: and a stranger cannot by a subsequent ratification relieve him from that responsibility. When the company came afterwards into existence it was a totally new creature, having rights and obligations from that time, but no rights or obligations by reason of anything which might have been done before.” The company can, however, after its incorporation, enter into a new contract to put into effect the terms of the pre-incorporation contract – Touche v. Metropolitan Railway Warehousing Co. (1871) 6 Ch. App 671; Howard v. Patent Ivory Manufacturing Co. (1888) 38 Ch D 156.

— Ogundare, JSC. Societe Favouriser v. Societe Generale (1997) – SC.126/1994

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PARTIES BOUND BY CONTRACTUAL TERMS IN ABSENCE OF FRAUD

The well laid down position of the law is that Courts do not rewrite contact for the parties where the terms of the contract are clear. In the absence of fraud, duress and undue influence, misrepresentation, the parties are bound by their contract. It is only parties to a contract that can sue and be sued on it.

– Rhodes-Vivour JSC. Alade v. Alic (2010)

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WHO MAY SUE FOR INJURIES DONE TO THE COMPANY

Jenkins, L.J. in Edwards Vs Halliwell (1950) 2 ALL ER 1084 @ 1066, where His Lordship held inter alia: “The rule in Foss Vs Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and or all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that if a mere majority of the company or association is in favour of what has been done, then cadit quaestio. Thus, the company or association is the proper plaintiff in all actions in respect of injuries done to it. No individual will be allowed to bring actions in respect of acts done to the company which could be ratified by a simple majority of its members. Hence the rule does not apply where the act complained of was ultra vires the company, or illegal or constituted a fraud on the minority and the wrongdoers are in the majority and in control of the company.”

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FRAUD VITIATES; FRAUD MUST BE PLEADED AND PROVED STRICTLY

In the Duchess of Kingston’s Case (1775-1802) All E. R. Rep. 623 at 629 De Grey C. J., held that: “…Fraud is an extrinsic, collateral act, which vitiates the most solemn proceedings of Courts of Justice. LORD COKE says, it avoids all judicial acts, ecclesiastical or temporal.” Again in Fabunmi vs. Agbe (1985) 1 NWLR (Pt. 2) 299, Obaseki, JSC held at page 319 paragraph “C” that: “…Fraud is a serious crime and in civil matters, the particulars must be pleaded and proved strictly.”

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NON-REGISTRATION OF COMPANY CHARGES VOIDS IT

The effect of non-compliance with the provisions of section 94 is quite grave. Non-registration at the Companies Registry of charges created by the company, as opposed to existing charges acquired by the company, destroys the validity of the charge. Unless the prescribed particulars are delivered to the Registrar within 30 days of the creation of the charge, it will, so far as any security on the company’s assets is conferred thereby, “be void against the liquidator and any creditor of the company”. But this is “without prejudice to any contract or obligation for repayment of the money thereby secured, and when a charge becomes void under this section the money secured thereby shall immediately become payable”.

– Augie JSC. Bank v. TEE (2003)

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FOREIGN COMPANY NOT INCORPORATED IN NIGERIA CAN SUE IN NIGERIA

On this appeal, it was argued by counsel on behalf of the respondent that even though it may be a legal entity in its country of incorporation, it had no artificial personality in Nigeria since the Companies Act is silent on whether a company such as the appellant would be allowed to sue or not. That submission is misconceived. The principle of law that a foreign corporation, duly created according to the laws of a foreign state recognized by Nigeria, may sue or be sued in its corporate name in our courts is part of the common law. The suggestion that a foreign company duly incorporated outside Nigeria should first be registered in Nigeria under the provisions of the Companies Act, 1968 (which was then the applicable statute) dealing with registration of foreign companies, notwithstanding that it does not fall into the category of foreign company” as defined by that Act, is too preposterous and patently inimical to international trade to merit any prolonged or serious consideration. It suffices to say that the appellant company which was admitted by the respondent to be a limited liability company with its registered office in Copenhagen properly sued in its corporate name.

— Ayoola, JSC. Saeby v. Olaogun (1999) – SC.261/1993

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