➥ CASE SUMMARY OF:
Societe Generale Favouriser Le Development Du Commerce Et De L’industrie En Franc v. Societe Generale Bank (Nig.) Ltd (1997) – SC
by “PipAr” Branham-Paul C. Chima.
Supreme Court – SC.126/1994
➥ JUDGEMENT DELIVERED ON:
Friday, April 4, 1997
➥ AREA(S) OF LAW
➥ PRINCIPLES OF LAW
⦿ 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.
⦿ 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.
⦿ 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.
⦿ RATIONALE FOR PRE-INCORPORATION CONTRACT NOT BINDING AT COMMON LAW
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.
⦿ CAMA ALLOWS COMPANIES TO RATIFY PRE-INCORPORATION CONTRACT
The intention of the legislature in enacting sections 72(i), 624(i), and 626 of CAMA is quite clear. It is relevant to re-emphasis that the rule of construction of statute is to adhere to the ordinary meaning of the words used according to the intent of the legislature. The provisions of sections 624(1) and 626 make it abundantly clear that existing companies who wish to ratify pre-incorporation contract agreements could do so because the Act (CAMA) applied to them. In section 650(i), the interpretation of words used in part A of CAMA, “Company or existing company means: a company formed and registered under this Act or, as the case may be, formed and registered in Nigeria before and in existence on the commencement of this Act”. — U. Mohammed, JSC.
➥ LEAD JUDGEMENT DELIVERED BY:
⦿ FOR THE APPELLANT
⦿ FOR THE RESPONDENT
➥ CASE FACT/HISTORY
Sometime in 1976 Dr. Abubakar Sola Saraki, Dr. E.A. Ikomi, Mr. N.A.B. Kotoye and Societe General Favouriser Le Development du Commerce et de L’industrie en France (who is the appellant in the appeal now before us and shall hereinafter be referred to as the appellant) agreed to form a bank in Nigeria to be known as Societe Generale Bank (Nigeria) Limited.
On 7th July, 1976 the three gentlemen and the appellant executed a written agreement wherein the parties are referred to as “founders” of the bank to be incorporated. The agreement contains a number of articles, one of which, Article 11 provides: “If any difference or dispute shall arise between the parties as to the construction of the agreement or as to any matter or thing of whatsoever nature arising thereunder, or in connection thereunder, or in connection therewith, such dispute or difference, shall be referred to the Arbitration and final decision of a person to be agreed between the Parties or failing Agreement within 14 days (fourteen) after either party has given to the other a written request to concur in the appointment of an Arbitrator, a person to be appointed on the request of either party by the President of the International Chambers of Commerce in Paris according to its rule.”
The bank was incorporated, under the Companies Act, 1968, in December, 1976. At a meeting of the Board of Directors of the new bank, id est, Societe Generale Bank (Nigeria) Ltd. (hereinafter referred to as the respondent) the agreement of the 7th July 1976 was ratified. The appellant acted as Managers to the new bank. It would appear that the relationship between the appellant and the respondent soured in consequence of which the latter terminated the management arrangement and instituted an action in 1989 at the High Court of Lagos State.
On being served with the writ, the appellant brought a summons at the trial court, praying for an order that: “all further proceedings in this action be stayed under the inherent jurisdiction of the Courts and/or under Section 5 of the Arbitration Law, Cap. 10 Volume 1 of the Laws of Lagos State.”
The summons contained the grounds for the application and was supported by an affidavit to which was annexed the agreement of 7th July, 1976. There was a further affidavit to which was annexed the minutes of the meeting of the board of directors of the respondent held at the Federal Palace Hotel, Victoria Island Lagos on 8th March, 1977 at which said meeting the agreement of 7th July, 1976 was ratified.
The summons came before the High Court of Lagos State on 25th January, 1990 for hearing and the learned trial Judge (Adeniji, J) after heating arguments from learned counsel for the parties, in a ruling delivered by him on 24th April, 1990, granted the application and stayed further proceedings in the action. The respondent was dissatisfied with the ruling and appealed to the Court of Appeal which Court allowed the appeal. The appellant has now appealed to this Court against the decision of the Court of Appeal. The respondent too cross-appealed against that part of the decision of the Court of Appeal wherein that Court adjudged the agreement of 7th July, 1976 to be “pre-incorporation contract”.
➥ ISSUE(S) & RESOLUTION(S)
[PRELIMINARY OBJECTION TO CROSS-APPEAL: SUCCEEDED]
In the cross-appeal, the respondent, as cross-appellant, contends that the agreement of the 7th July, 1976 (hereinafter is referred to as the 1976 agreement) is not a pre-incorporation agreement and that for that reason the Court of Appeal, that is, the Court below, as well as the trial High Court, erred in treating that agreement as a pre-incorporation contract. The appellant, who is respondent to the cross-appeal, submits by way of preliminary objection to the cross-appeal, that the respondent/cross-appellant cannot be permitted to entirely repudiate the position it adopted and maintained before the lower courts.
RULING: IN CROSS-RESPONDENT’S FAVOUR.
A. THAT THE CROSS-APPELLANT ALREADY AGREED IN THE LOWER COURTS THAT THE AGREEMENT IS A PRE INCORPORATION CONTRACT
“At the trial High Court the position taken by the Cross-appellant was that the 1976 agreement was a pre-incorporation agreement.” “The two courts below both considered the agreement as such and based their respective judgments on that basis. The cross-appellant now seeks in its cross-appeal to contend that the agreement, in law, is not a pre-incorporation agreement. I do not think it is open to the cross-appellant to put up such a case in this court.” “Applying the principle in that case to the case now before us I must hold that it is not open to the respondent after building up his case in the two courts below on the premise that the 1976 agreement was a pre-incorporation contract to now turn round in this Court and put up a case that that agreement is not a pre-incorporation agreement. For this reason alone, the cross-appeal ought to fail.”
I. Whether by the combined effect of sections 72, 624 and 626 of the Companies and Allied Matters Act 1990 (hereinafter referred to as simply as CAMA) the 1979 agreement is binding on the respondent, the latter having ratified same after its incorporation in 1977?
RULING: IN APPELLANT’S FAVOUR.
A. THAT THE CAMA APPLIES TO THE RESPONDENT AS IT WAS AN EXISTING COMPANY THEN
“Since Section 624(1)(b) applies section 72(1) to all companies existing at the time CAMA came into force and the respondent was one of such existing companies, and since it is a matter of general practice that companies, immediately after their incorporation, ratify contracts made on their behalf before incorporation, the law must intend that section 72(1) would apply to pre-incorporation contracts already ratified by existing companies as well as to such contracts yet to be ratified. In my respectful view this is the only logical and reasonable construction to be placed on section 72(1) when read along with section 624(1) (6). If it were to be otherwise, the law maker would have provided that in the case of existing companies section 72(1) would only apply to pre-incorporation contracts that may subsequently be ratified.”
B. RATIFICATION DONE BEFORE CAMA ACT IS VALID
“The issue here has nothing to do with retrospectivity of a statute but with the construction to be placed on its provisions. I do not think section 651(2) of CAMA helps the respondent either. On the contrary, if anything, it makes the ratification by the respondent of the 1976 Agreement to have effect as if it was given under the Act (CAMA). This further reinforces my view that in the application of section 72(1) to existing companies, ratification of a pre-incorporation agreement need not be after the coming into force of the Act; it preserves equally ratification done before the Act.”
C. THE ARBITRATION CLAUSE IN THE PRE-INCORPORATION AGREEMENT BINDS THE RESPONDENT
“With the conclusion I have just reached that section 72(1) read along with section 624(1)(6) applies to the respondent, I must hold that the court below was in error to hold as it did. I must equally hold that as the 1976 agreement was ratified by the respondent after its incorporation and as the agreement is validated by section 72(1) of CAMA the respondent is bound by the arbitration clause in that agreement and the learned trial Judge was right, therefore, in ordering a stay of proceedings of respondent’s action pending the outcome of arbitration between them.”
REFERENCED (LEGISLATION): Section 72(1), 624(1), 651(2) CAMA.
“I, therefore, allow this appeal and set aside the judgment of the Court below. I restore the order of the trial High Court. I award to the appellant N1,000.00 costs of this appeal and N1,000.00 costs of the appeal in the Court below.”
➥ MISCELLANEOUS POINTS
➥ REFERENCED (CASE)
➥ REFERENCED (OTHERS)