➥ CASE SUMMARY OF:
International Textile Industries (Nigeria) Limited V. Dr. Ademola Oyekanmi Aderemi & Ors. (SC.200/1994, 4th Jun 1999)
by Branham Chima (LL.B.)
➥ SUBJECT MATTER(S)
Subject to contract;
Consent of governor.
➥ CASE FACT/HISTORY
The property in dispute in this case is plot No. 98 at No.2 Abudu Smith Street, Victoria Island, Lagos. It is State land covered by Title Certificate No. LO5166 of 1963 which was leased to late Oba Adesoji Aderemi by the Governor of Lagos State under a deed of lease dated 4 June, 1963. It was developed by the said lessee and at his death, it became vested in the 1st to 4th respondents who are his executors/executrix (hereinafter called the landlords). Sometime in February, 1986, the appellant indicated its interest in taking a sublease of the said property. The landlords, acting through their solicitors, made an offer by letter dated 18 February. 1986 (exhibit A-A2) to the appellant.
By June, 1989, it had become obvious that the 5th respondent had begun to assert interest in the property in question. The police had even intervened at the instance of one Lt-General T. Danjuma (rtd) who was alleged to be the chairman of the 5th respondent. It was said that the 5th respondent had made an outright purchase of the property. The police subsequently reached a decision that the matter was a civil one and advised the parties to seek a peaceful resolution of the dispute. What finally emerged was that the landlords had turned their backs on the appellant and sold the property to the 5th respondent.
On 21 December, 1990, at the High Court of Lagos, Ope-Agbe J., granted most of the reliefs claimed but ignored the alternative claim of ₦3,842,099.70 being special and general damages for breach of contract by the landlords. He dismissed the counter-claim in which the 5th respondent sought two declaratory reliefs, a perpetual injunction and ₦1,000,000.00 damages for trespass against the appellant. He considered the effect of the phrase ‘subject to contract’ which appeared on some of the relevant letters from the landlords and held that it did not affect the fact of the existence of a binding contract in the circumstances. As to whether parties could enter into a valid contract for the sale or alienation of land before the Governor’s consent was obtained under s.22 of the Land Use Act, 1978 the learned trial Judge concluded that they could. On appeal, the Court of Appeal (Lagos Division) – Coram Sulu-Gambari, Kalgo and Ayoola JJCA on 13 May, 1993, set aside the judgment of the trial court. It held that there was no contract by virtue of the use of the phrase ‘subject to contract’. It seemed also to have held that failure to obtain the prior consent of the Governor was fatal.
➥ ISSUE(S)
I. Whether the negotiations between the plaintiff/appellant and the 1st to 4th defendants/respondents ever crystallized into a specifically enforceable contract?
➥ RESOLUTION(S) OF ISSUES
[APPEAL ALLOWED, in part]
↪️ ISSUE 1: IN APPELLANT’S FAVOUR, in part.
[THE TERM ‘SUBJECT TO CONTRACT’ IS MEANINGLESS IN THIS CONTEXT; THE CONTRACT CRYSTALISED
‘In the present case, although exhibits A-A2, C-C1, D-D1 and E-E5 carry that phrase ‘subject to contract’, the unseriousness in the use of those words can be seen in exhibit F which finally confirmed the contract and exhibit G which is a receipt for the full 5-year rent. Neither of the two exhibits was marked ‘subject to contract’. That would seem to suggest that the landlords. at that stage, no longer intended to insist on whatever the phrase ‘subject to contract’ was intended by them. But more fundamental in regard to the use of those words in the circumstances of our established conveyancing procedure is the fact that it is clearly unwarranted, as I hope I have earlier demonstrated, to rely on them to frustrate or indeed sabotage by laying ambush with a purely sinister ‘subject to contract’ cudgel, a contract already fully concluded in all material particulars, the terms and validity of which the court can, or ought readily to, ascertain from documents available. The term ‘subject to contract’ has no settled effect – or shall I say no magic effect – yet, in my view, in our existing arrangement and procedure for conveyancing, whenever that phrase is used, it is my opinion that the merit and worth of it should always be open to the court to decide. That is one way of ensuring the integrity of concluded arrangements.’
‘I think it ought to be said with due emphasis that it was not, in any event, open to the landlords to plead on the one hand that there was no valid contract in the circumstances of this case when on the other hand they were receiving benefits from it and committing the appellant to some expenditure arrangement. They had received in advance the full rent for five years. They had put the appellant into possession of the property and had encouraged and permitted it to spend money towards the redevelopment of it. Equity will not permit them to go back on that and get away with what would be regarded as a fraud practised on the appellant. That amounted, at any rate, even if there had been no valid written contract, to an act of part performance. In Caton v. Caton (1866) 1 L.R. Ch. App. 137 at 148, Lord Cranworth, L.C., observed: “The ground on which the court holds that part performance takes a contract out of the Statute of Frauds is, that when one of two contracting parties has been induced, or allowed by the other, to alter his position on the faith of the contract, as for instance by taking possession of land, and expending money in building or other like acts, there would be a fraud in the other party to set up the legal invalidity of the contract on the faith of which he induced, or allowed, the person contracting with him to act and expend his money.” Without a doubt this act of part performance must have a telling effect on the landlords’ reliance on the so-called defence of ‘subject to contract’ formula.’
HOLDING TO ‘SUBJECT TO CONTRACT’ IS INCONSISTENT WITH DRAWING UP A SUBLEASE
‘In exhibits A-A2, C-C1 and E-E5, the landlords were already anticipating the drawing up of a sublease to be approved by the parties. It is true one was prepared by the appellant’s solicitors and sent to the landlords. They failed to execute it and gave no reason for so doing. It turned out that the landlords in the meantime had sold the property to the 5th respondent. It is important to explain that the sublease was not a necessary document for concluding or denoting the contract of sale. It was indeed the document for the conveyance stage, that is, the second stage of the transaction after the first stage, namely, the contract stage, which would have been acquired to alienate the property after the Governor’s consent. The phrase ‘subject to contract’ is not referable to the said sublease and the sublease that was prepared, did not conclude, and was not what could conclude, the contract: see Lockett v. Norman-Wright (1924) All ER Rep. 216 at 219. The real implication of calling for the preparation of a sublease is that an agreement to sell (or the contract of sale) had been concluded. That was the first stage. I wonder if the landlords realise that holding on to ‘subject to contract’ provision is inconsistent with drawing up a sublease. As I did show earlier in this judgment, the second issue culminates in the right of occupancy (formerly known as the legal title) vesting in the sublessee by a conveyance (or deed) subject to the requirement of s. 22 of the Act. I have no hesitation in holding, with utmost respect, that the lower court was in error when it found that there was no binding contract between the landlords and the appellant.’
THE 5TH RESPONDENT HAS A BETTER TITLE
‘The 5th respondent relies on a statutory right of occupancy which prima facie gives it a be a better title to the land than the appellant as long as that subsists i.e. it has not been set aside. The 5th respondent cannot therefore be regarded a trespasser by the appellant on the well-known principle laid down in Aromire v. Awoyemi (1972) 2 S.C. 182; Amakor v. Obiefuna (1974) 1 All NLR 119 and such like cases that where both parties claim to be in possession, possession will be presumed in favour of the party who can show a better title. It is obvious that the appellant has no title it can rely on. The court below was therefore right in setting aside those orders of the learned trial judge.’]
.
.
.
✓ DECISION:
‘I will allow the appeal to the extent of those answers given to the issues raised. Having regard to what I have earlier indicated about the nature of the evidence on record. I think it will be in the interest of the parties that the learned trial judge be directed to assess the damages. I accordingly order that this case be remitted to the Lagos State High Court for the learned trial judge. Ope-Agbe, J., to assess by way of a rehearsing and as a matter of urgency, the damages arising from the breach of contract in this case and to make the necessary order of compensation in damages. The appellant is awarded costs of ₦10,000.00 against the landlords, i.e. 1st-4th respondent.’
➥ FURTHER DICTA:
⦿ THE TWO STAGES INVOLVED IN LAND TRANSACTION – CONTRACT AND CONVEYANCE STAGE
It seems to me that the landlords and the 5th respondent have been unable to distinguish between the two stages involved in transactions of the transfer on sale of an estate in land. it is important to bear this phenomenon in mind in order to be able to appreciate the stage at which the consent under s.22(1) at the Land Use Act, 1978 (hereinafter called the Act) becomes relevant in a bargain to alienate land. The two stages are well known in conveyancing procedure. Parties have to agree to the terms of sale before the property in question is conveyed. In Conveyancing law and Procedure by Barnsley, 1973 edn. page 4, it is stated: “A transfer on sale of an estate in land is divisible into two distinct stages: (i) the contract stage, ending with the formation of a binding contract for sale. (ii) the conveyance stage, culminating in the legal title vesting in the purchaser by means of the appropriate instrument under seal” It follows that it is only after a binding contract for sale is arrived at that the need to pursue the procedure for acquiring title will arise. That is when the obtainment of the necessary consent to alienate the property becomes an issue in order to make the alienation valid. — Uwaifo JSC.
⦿ ‘SUBJECT TO CONTRACT’ MAY BE MEANINGLESS IN A CONVEYANCE
After the parties have signed their respective parts of the formal contract, the exchange of contracts takes a customary form, usually by post. I need not go into that I only need to emphasize that it is clear to me that this procedure of formal contract and the recourse to ‘subject to contract’ do not at the moment, as far as I am aware, fit into our system of land sale particularly as we do not have the equivalent of these General, Special, National and The Law Society’s Conditions. ‘Subject to contract’ in that sense is, in my opinion, no more than an exotic, though convenient, phrase which is employed to meet the various intricate statutory and professional requirements in English conveyancing practice. This is achieved in a common sense approach to meet the intention of the contracting parties by opting to make it a safety device, whatever agreement is reached in land sale subject to contract. The observation of Lord Greene, M.R., in Spottiswoode. Ballantyne and Co. Ltd. v. Doreen Appliances Ltd. (1942) 2 All ER 65 at p. 66 appears to explain the effect of introducing such expression as “subject to the terms of a formal agreement to be prepared” by the solicitor. He said: “the language used here is equivalent to the common and more concise phrase ‘subject to contract’ and if anything is settled, it is that the phrase is one which makes it clear that the intention of the parties is that neither or them is to be contractually bound until a contract is signed in the usual way.” (Emphasis mine) That seems to make the use of that phrase irrelevant and perhaps meaningless in our own situation here unless it can be shown in any particular case that the vendor or purchaser or both had evinced as their intention, a special formal contract to embody terms and conditions which go beyond the mere offer and acceptance implication, to be drawn up and executed. Nothing prevents parties to a contract from deciding to adopt such necessary formalism considered to be in the interest of the bargain. Otherwise, in the usual way as used in Spottiswoode case by Lord Greene M.R. can have meaning only where there has been an established procedure and form of contract of sale agreement. There is authority for saying, by way of a very close analogy, that when a term is inserted in a contract which has no application. it should be regarded as meaningless and ignored or severed from the contract without impairing the contract itself: see Nicolene Ltd. v. Simmonds (1953) 1 All ER 822 where Denning LJ said at p. 825: “A clause which is meaningless can often be ignored, while still having the contract good, whereas a clause which has yet to be agreed may mean that there is no contract at all, because the parties have not agreed on all the essential terms. I take it to be clear law that, if one of the parties to a contract inserts into it an exempting condition in his own favour which the other side agrees and it afterwards appears that condition is meaningless or is so ambiguous that no ascertainable meaning can be given to it, that does not render the whole contract a nullity. The only result is that the exempting condition is a nullity and must be rejected. It would be strange, indeed, if a party could escape everyone of his obligations by inserting a meaningless exemption from some of them.” Of course, it must be conceded that when the phrase ‘subject to contract’ is employed in an appropriate situation, with a clear measure of intention, there can be no valid contract until formal contracts are exchanged. I think that was in essence what Lord Denning M.R. conveyed in Sherbrooke v. Dipple (1980) 41 P and CR 173 at 176 when he observed: “Where parties started their negotiations under the umbrella of the ‘subject to contract’ formula, or some similar expression of intention, it was really hopeless for one side or the other to say that a contract came into existence because the parties became of one mind notwithstanding that no formal contracts had been exchanged. Where formal contracts were exchanged it was true that parties were inevitably of one mind at the moment before the exchange was made. But they were only of one mind on the footing that all the terms and conditions of the sale and purchase had been settled between them, and even then the original intention still remained intact that there should be no formal contract in existence until the written contracts had been exchanged.” — Uwaifo JSC.
⦿ SUBJECT TO CONTRACT BEING HELD MEANINGLESS
However, circumstances have sometimes made the effect of the words ‘subject to contract not inevitable even where that phrase has acquired a firm customary usage with practical justification. One such circumstance occurred in Michael Richards Properties v. St. Saviour’s Parish (1975) 3 All ER 416 where both parties proceeded on the basis that there was a contract. A deposit was made in accordance with the conditions of sale of the property in question. But the letter of acceptance by the plaintiff carried the words ‘subject to contract”. As a result of its failure to complete, the plaintiff, relying on those words to assert that there was no contract, brought action to recover the deposit paid. It was held that the letter of acceptance concluded the contract so that the words ‘subject to contract’ were to be expunged as meaningless. In Law v. Jones (1973) 2 All ER 437, it was decided by the Court of Appeal that the unilateral insertion of the words ‘subject to contract’ into correspondence between the solicitors acting for the parties did not negative the effect of any existing binding agreement, whether oral or written, made between the parties. It is true the correctness of the decision was not accepted later by the same court in Triverton Estates Ltd. v. Wearwell Ltd. (1974) 1 All ER 209. But the case illustrates that if there is any sense in which those words can be considered not to represent what the parties really intended as a result of what they did or said before or after the insertion of those words in any of the correspondence between them, then it would be justifiable to regard them as irrelevant. See also United Bank for Africa Ltd. v. Tejumola and Sons. Ltd. (1988) 2 NWLR (Pt.79) 662 at 701 per Nnaemeka-Agu. J.S.C. obiter. — Uwaifo JSC.
⦿ PART PERFORMANCE DOES NOT CONTRADICT SECTION 22 OF THE LAND USE ACT
I may here answer briefly an aspect of the argument of the 5th Respondent that it was a breach of s. 22 of the Act for the appellant to have gone into possession to do some reconstruction of the property and that therefore it cannot rely on it to insist on a contract. I think this is a clear misconception. To permit an act of part performance is simply one modality of contract formation. It does not transfer possession under s. 22 of the Act in the sense of alienation. It merely creates a cause for the specific performance of the contract. It must not be presumed that s. 22 can operate to do away with the doctrine of part performance. It cannot, lest it be used as an instrument of fraud which it certainly is not meant for. — Uwaifo JSC.
⦿ THE CONTRACT STAGE OF A CONVEYANCE DOES NOT PASS TITLE
The transaction under the first stage, i.e. the agreement or contract stage does not require the consent of the Governor under s. 22 of the Act. This is because when parties enter into a contract for the sale of land, no alienation has taken place as envisaged by the said s. 22. The position of s. 22 of the Act is clearly this: A holder of a right of occupancy may enter into an agreement or contract, with a view to alienating his said right of occupancy. To enter into such an agreement or contract, he does not need the consent of the Governor. He merely operates within the first stage or a ‘transfer on sale of all estate in land’ which stage ends with the formation of a binding contract for a sale constituting an estate contract at best. But when he comes to embark on the next stage of alienating or transferring his right of occupancy which is done by a conveyance or deed, culminating in vesting the said right in the ‘purchaser’, he must obtain the consent of the Governor to make the transaction valid. If he fails to, then the transaction is null and void under s. 26 of the Act. In my view, it is necessary to have these two stages clearly in mind. — Uwaifo JSC.
⦿ DIFFERENCE BETWEEN AGREEMENT TO ALIENATE VERSUS INSTRUMENT OF ALIENATION
I think the distinction between an agreement to alienate land and the instrument by which the alienation lakes place was sufficiently drawn by this court in Awojugbagbe Light Industries Ltd. v. Chinukwe (1995) 4 NWLR (pt.390) 379 in which the Privy Council case of Denning v. Edwardes (1961) A.C. 245 on a similar point was approved. Directing his mind to the issue, Iguh, J.S.C. observed at rages 435-436: “I think it ought to be stressed that the holder of a statutory right of occupancy is certainly not prohibited by section 22(1) of the Act from entering into some form of negotiations which may end with a written agreement for presentation to the Governor for his necessary consent or approval. This is because the Land Use Act does not prohibit a written agreement to transfer or alienate land. So long as such a written agreement is understood and entered into subject to the consent of the Governor, there will be no contravention of section 22(1) of the Land Use Act by the mere fact that such a written agreement is executed before it is forwarded to the Governor for his consent. I agree entirely with Chief Williams, SAN that section 22(1) prohibits transactions or instruments whereby the holder of statutory right of occupancy purports to alienate as a complete action, his right of occupancy by assignment, mortgage, transfer of possession, sublease or otherwise, the absence of the relevant consent of the Governor first and obtained notwithstanding.” — Uwaifo JSC.
⦿ APPROVAL OF GOVERNOR IS NEEDED TO COMPLETE SALE TRANSACTION
When a statute requires ministerial approval for the sale of property, approval to enter into a contract for the sale of that property is not required but approval to complete the sale must be obtained otherwise the sale is invalid: see Awojugbagbe Light Ind. v. Chinukwe (supra) at 426 per Onu, J.S.C. — Uwaifo JSC.
⦿ TRIAL JUDGE SHOULD AWARD DAMAGES TO AVOID PROLONGED LITIGATION
This is against what has been established as the usual practice that in order to avoid undue prolongation of litigation and to prevent unnecessary expenses, the trial judge should always, as a matter of duty, assess damages he would have awarded even if this decision was against the party claiming damages: see Yakassai v. Messrs Incar Motors Ltd. (1975) 5 SC 107 at 115-116. — Uwaifo JSC.
⦿ A DECLARATORY RELIEF IS A CONFIRMATION OF A STATE OF AFFAIR
A declaratory relief is merely a confirmation of what is already the state of affairs or what is likely to be, in connection with the subject-matter of the declaration. In other words, a declaration claimed must relate to some legal right or to a legal interest of which the law will take cognizance. See Nixon v. Attorney-General (1930) 1 Ch. 566 at 674. A plaintiff who seeks a declaratory relief must show that he has an interest or right which forms a foundation for that declaration: see Olawoyin v. Attorney-General Northern Nigeria (1961) 2 NSCC 165 at 169. — Uwaifo JSC.
⦿ WHEN CLAIMING FOR SPECIFIC PERFORMANCE, ALTERNATIVELY CLAIM FOR DAMAGES
He knows that if specific performance which is one option fails, then he can sue for damages which is the other. As the order for specific performance is an equitable remedy and therefore discretionary, it will, in my view, be a grave error of pleading to claim for specific performance without at the same time, in the alternative, claiming for damages. As has been said, even after a decree of specific performance has been granted, it can turn out that the defendant cannot give title to the property sold. In that case a plaintiff who failed to claim for damages in the alternative will be in a quagmire. — Uwaifo JSC.
⦿ IMPOSSIBILITY IS A DEFENCE TO SPECIFIC PERFORMANCE
Impossibility of performance of the contract by a defendant is a defence to a claim for specific performance, even though the contract is unconditional both in terms and in intention. See Ferguson v. Wilson (1866) 2 Ch. App. 77. One such impossibility is when the property, the subject-matter of the contract, has been sold to a third persons: see Denton v. Stewart (1786) 1 Cox Eq. Cas. 258, or where the necessary consent for concluding the transaction has not been, or is likely to be, obtained: see Winscombe Rail Co. v. Donnington Hospital (1866) 1 L.R. Ch. App. 268. it has been held that impossibility of performance does not cease to be a defence to specific performance simply because the impossibility is due to the defendant’s act; see Seawell v. Webster (1859) 29 L.J. Ch. 71 at p. 73 per Kindersley V.C. In such a case, however, impossibility is no excuse for non-performance and the defendant is liable in damages. That is the position equity will take if at law the matter appears closed. — Uwaifo JSC.
⦿ THERE MUST BE IN EXISTENCE A CONTRACT BEFORE THE CONSENT OF THE GOVERNOR
I must point out that the “usual consent of the Lagos State Military Governor” was part and parcel of the terms and conditions of the agreement. There must be an agreement to create a lease before the Governor can give his consent. Put in another way, there must be in existence that which the Governor is to give his consent to. This is the contract stage. What this means is that the agreement or contract does not require the consent of the Governor envisaged under S. 22 of the Land Use Act. The agreement is indeed the document, for the second stage i.e. the conveyance stage which would be required to alienate the property. This, I believe is evident from the provisions of S. 22 of the Act which provides as follows: “22(1) It shall not be lawful for the holder of a statutory right of occupancy granted by the Governor to alienate his right of occupancy or any part thereof by assignment, mortgage, transfer of possession, sublease or otherwise however, without the consent of the Governor first had and obtained. (2) The Governor when giving his consent to an assignment, mortgage or sublease may require the holder of a statutory right of occupancy to submit an instrument executed in evidence of the assignment, mortgage or sublease and the holder shall when as required deliver the said instrument to the Governor in order that the consent given by the Governor under sub-section (1) of this section may be signified by endorsement thereon.” Sub-section (2) of Section 22 has put the matter beyond argument. There must be an instrument executed in evidence of the sublease. That instrument is the deed or instrument between the parties by which the holder of the right of occupancy intend to alienate his right of occupancy by sublease, assignment etc. It is on the strength of this that the Governor may wish to give his consent to the alienation. See Awojugbage Light Industries Ltd. v. Chinukwe (1995) 4 NWLR (Pt.390) 379. The court below was clearly in error when it held as follows: “It is very clear in the circumstances of this appeal that the cardinal issue to the validity of the lease is the consent of the Governor first had and obtained. There is therefore good reason for saying that the issue of consent is a condition precedent in the sublease and so there is no building contract without such consent. There is no consent of the Governor in this case up till the time the parties came to court. This means, in my judgment that there is no binding and enforceable contract of lease between the 1st to the 4th Appellants and the Respondent despite the presence of the 4 certainties i.e. the parties, the property, the length of time, the rent and the commencement date.” On the state of the evidence before the trial court I hold that there was a binding contract between the 1st to the 4th defendants and the plaintiff. It is futile to rely on the clause “subject to contract” since it has not really altered the effect of what was really agreed by the parties. Furthermore, I hold the view that the clause has very little meaning in our circumstance as pointed out in the leading judgment and that a court should be able to decide in any given situation whether there is a binding contract, notwithstanding the reliance on that clause by one of the parties to a bargain. The 1st to the 4th defendants are in breach of this contract the consequences of which have been ably treated in the leading judgment. — Katsina-Alu, JSC.
➥ LEAD JUDGEMENT DELIVERED BY:
S.O. Uwaifo, J.S.C.
➥ APPEARANCES
⦿ FOR THE APPELLANT(S)
Professor A.B. Kasunmu S.A.N.
⦿ FOR THE RESPONDENT(S)
T.E. Williams Esq.
B.A. Sodipo, Esq.
➥ MISCELLANEOUS POINTS
➥ REFERENCED (LEGISLATION)
➥ REFERENCED (CASE)
⦿ THERE HAVE TO BE SOME FORM OF CONSENT BEFORE GOVERNOR’S CONSENT IS SOUGHT
So in Denning v. Edwardes (1961) A.C. 245 at 253 – 254, Viscount Simonds, interpreting section 88(1) of the Crown Lands Ordinance, the provisions of which are in pari materia with section 22(1) of the Land Use Act explained thus:- “It has been argued that the consent of the Governor must be obtained before the agreement is entered into and that subsequent consent is insufficient. Some form of agreement is inescapably necessary before the Governor is approached for his consent. Otherwise negotiation would be impossible. Successful negotiation ends with an agreement to which the consent of the Governor cannot be obtained before it is reached. Their Lordships are of the opinion that there was nothing contrary to law in entering into a written agreement before the Governor’s consent was obtained. The legal consequence that ensued was that the agreement was inchoate till that consent was obtained. After it was obtained the agreement was complete and completely effective.”
➥ REFERENCED (OTHERS)