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RATIONALE FOR PRE-INCORPORATION CONTRACT NOT BINDING AT COMMON LAW

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At Common Law, a pre-incorporation contract was not binding on the company because there was no principal on behalf of whom an agent could have contracted. The company was not permitted to ratify or adopt it, and it could not, after incorporation, enforce the contract, nor sue, e.g. for damages for breach of contract – Natal Land etc Co. Ltd. v. Pauline Colliery Syndicate Ltd. (1904) AC 120. These common law rules were a source of considerable inconvenience for the promotion of business.

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

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ANY OFFICIAL CAN GIVE TESTIMONY FOR A COMPANY

Comet Shipp. Agencies Ltd v. Babbit Ltd (2001) FWLR (Pt. 40) 1630, (2001) 7 NWLR (Pt. 712) 442, 452 paragraph B, per Galadima JCA (as he then was ) held that: “Companies have no flesh and blood. Their existence is a mere legal abstraction. They must therefore, of necessity, act through their directors, managers and officials. Any official of a company well placed to have personal knowledge of any particular transaction in which a company is engaged can give evidence of such transaction.”

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A COMPANY IS NOT BOUND BY A PRE-INCORPORATION CONTRACT

It is now a settled principle of company law that a company is not bound by a preincorporation contract being a contract entered into by parties when it was not in existence. No one can contract as agent of such a proposed company there being no principal in existence to bind. It is also settled that after incorporation a company cannot ratify such a contract purported to be made on its behalf before incorporation … But there is nothing preventing the company after incorporation from entering into a new contract to put into effect the terms of the preincorporation contract. This new contract can be in express terms or can be implied from the acts of the company after incorporation as well as from the minutes of its general meetings and board meetings.

— Nnamani, JSC. Edokpolo v. Sem-Edo & Ors. (1984) – SC.89/1983

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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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CAMA MAKES IT POSSIBLE FOR PRE-INCORPORATION CONTRACT TO BE RATIFIED

All that has now changed in this country for section 72(1) of CAMA makes it possible for a pre-incorporation contract to be ratified by a company after its incorporation and thereby becoming bound by it and entitled to the benefit thereof. There seems to be no dispute in this appeal about this conclusion.

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

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PRE-INCORPORATION CONTRACT NOT BINDING IS A COMMON LAW RULE

The rule that the company is not bound by a pre-incorporation contract purportedly made by it on its behalf, even if ratified by it after incorporation, is a rule of common law and not a statutory provision.

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

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APPELLANT CASE WAS BASED ON THE POST-INCORPORATION CONTRACT

The facts averred in the statement of claim which are deemed to be true for the purpose of the objection taken in limine show that the appellant and the 1st respondent company entered into a new contract in the terms of the preincorporation contract after the 1st respondent company had been incorporated. In the circumstance, the rule of company law that a company is not bound by a preincorporation agreement entered into by its promoters and that the company cannot ratify such agreement after its incorporation is inapplicable to the facts of the case as pleaded in the statement of claim. As the appellant alleged that his claim was founded on the post-incorporation agreement whereas the respondents said the claim was based on the preincorporation contract, the dispute cannot be resolved in limine. The issue can only be determined upon the hearing of the case on the merits.

— Bello, JSC. Edokpolo v. Sem-Edo & Ors. (1984) – SC.89/1983

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