Business Law Textbook 2017

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BUSINESS LAW IN NIGERIA: CONTEMPORARY ISSUES AND CONCEPTS
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Business Law in Nigeria: Contemporary Issues and Concepts Nwosu, Uchechukwu Wilson (Ph.D)
BUSINESS LAW
IN NIGERIA:
CONTEMPORARY ISSUES AND CONCEPTS
Nwosu, Uchechukwu Wilson Esq. (Ph.D)
i
First Published, 2017
© Nwosu, Uchechukwu Wilson Esq. (Ph.D)

Institute of Public Policy & Administration Series
University of Calabar, Calabar – Nigeria.
Copyright Reserved
All rights reserved. No part of this publication may be

reproduced, stored in a retrieval system, or transmitted in any
form or by any means electronic, mechanical, photocopying,
recording, or otherwise, without the prior written permission of
the author.
ISBN: 978-007-335-3.
Published by:
..................................................................................
..................................................................................
..................................................................................
Promoted by:
Dandy Nwosu Educational Foundation
Plot 421 Rob Ekwem Crescent
Off Nkwerre Street
Works Layout, Owerri – Imo State, Nigeria,
West Africa.
08037050009; 08037050010; 08052555366.
uchey2000@yahoo.com; uchey2014@gmail.com
ii
CONTENTS
Dedication.....................................................................................ix
Foreword........................................................................................x
Preface.........................................................................................xii
Acknowledgements.....................................................................xiv
Table of Cases.............................................................................xv
Table of Statutes.........................................................................xxi
Acronyms...................................................................................xxv
Chapter One
Introduction to Law
Meaning of Law.............................................................................1
Sources of Nigerian Law...............................................................7
Hierarchy of Nigerian Courts.......................................................20
Chapter Two
The Law of Contract
Introduction..................................................................................25
Sources of Nigerian Law of Contract..........................................27
Types of Contract.........................................................................28
Elements of a Contract.................................................................31
Enforceable and Unenforceable Contracts...................................51
iii
Contractual Capacity....................................................................53
Terms of a Contract.....................................................................56
Discharge of Contracts.................................................................59
Remedies for Breach of Contract.................................................62
Chapter Three
Agency
Introduction..................................................................................68
Types of Agency..........................................................................71
Liability of Principal and Agent..................................................80
Duties of an Agent.......................................................................83
Duties of the Principal.................................................................85
Termination of an Agency Relationship......................................86
Chapter Four
Sale of Goods
Introduction..................................................................................89
Essential Elements of a Contract of Sale.....................................90
Sale Distinguished from Other Transactions.............................106
The sale of Goods Act and e-Transactions................................110
The Seller‟s Obligations............................................................114
The Buyer‟s Obligations............................................................120
Remedies and Rights of the Seller.............................................124
Buyer‟s Remedies......................................................................129
Loss of Right to Reject where there is Acceptance...................135
Special Commercial Contracts...................................................136
iv
Chapter Five
Hire-Purchase
Introduction................................................................................141
Financing of a Hire-Purchase Transaction.................................147
Nature of Hire-Purchase Transactions.......................................150
The Hirer‟s Right to Terminate the Agreement.........................152
The Minimum Payment Clause.................................................152
Benefits of a Hire-Purchase Contract........................................154
The current state of the Law on Hire-Purchase in Nigeria........156
Distinction between a Hire-Purchase Transaction and a Sale... 163
Chapter Six
Consumerism
Introduction................................................................................169
Global Consumer Protection......................................................173
Consumer Protection in Nigeria.................................................176
Conclusion.................................................................................191
Recommendations......................................................................191
Chapter Seven
Nigerian Company Law
Introduction................................................................................194
Restrictions on Aliens................................................................196
The Investment and Securities Act, 2007..................................202
The Local Content Act, 2010.....................................................203
Types of Business Organisations...............................................205
v
Registered Companies...............................................................211
Registration Procedure...............................................................212
Incorporation Documents...........................................................213
Historical Development of Company Law in Nigeria...............218
Chapter Eight
The Memorandum of Association
Introduction................................................................................222
The Name of the Company........................................................226
The Registered Office of the Company.....................................227
The Business or Objects of the Company..................................232
Restrictions on the Powers of the Company..............................235
Types of Companies..................................................................235
Liability of Members.................................................................236
The Authorized Share Capital....................................................239
Association and Subscription Clause.........................................240
Compliance with Stock Exchange Regulations.........................241
Distribution of the Memorandum and Articles of Association..241
Alteration of the Memorandum of Association.........................242
Chapter Nine
The Articles of Association
Introduction................................................................................251
Contents of the Articles of Association.....................................253
Alteration of the Articles of Association...................................260
Contractual Effect of the Articles of Association......................263
vi
Chapter Ten
Consequences of Incorporation
Introduction................................................................................270
Legal Personality.......................................................................270
Perpetual Succession..................................................................283
Common Seal.............................................................................284
Corporate Criminal Liability......................................................285
Chapter Eleven
Promoters and Pre-Incorporation Contracts
Promoters...................................................................................292
Pre-Incorporation Contracts.......................................................296
Chapter Twelve
Partnerships
Introduction................................................................................309
Advantages of a Partnership......................................................313
Duties of Partners.......................................................................315
Disadvantages of a Partnership..................................................317
Types of Partnerships.................................................................320
Kinds of Partners........................................................................321
Dissolution of a Partnership.......................................................322
Structure and Characteristics of a Partnership...........................324
vii
Chapter Thirteen
Banking, Negotiable Instruments, and Secured Credits
Introduction................................................................................326
Types of Banks..........................................................................329
Nature of a Banker – Customer Relationship............................331
Negotiable Instruments..............................................................333
Secured Credit Transactions......................................................337
Functions of Security.................................................................338
Attributes of a good Security.....................................................339
Types of Security.......................................................................339
Mortgage....................................................................................339
Lien............................................................................................348
Letter of Hypothecation.............................................................350
Guarantees..................................................................................350
Domiciliation of Contract Proceeds...........................................353
Perfection of Security................................................................354
Discharge of Security.................................................................354
REFERENCES..........................................................................355
viii
DEDICATION
I dedicate this work to the trinity that gave me life:
God Almighty;
Dandy Uwalaka Christian Nwosu of blessed memory; &
Margaret Igboekwunma Nwosu.
ix
FOREWORD
The book Business Law in Nigeria: Contemporary Issues and

Concepts is a concise volume on Business Law in Nigeria. It is written
in a very simple and readable form for both Lawyers and Non-Lawyers.
Though concise, yet it is paradoxically comprehensive on the legal
topics it treated.
The word „Business‟ is defined in Black‟s Law Dictionary (6th edition)

as “employment, occupation, profession, or commercial activity
engaged in for gain or livelihood”. It is “activity or enterprise for gain,
benefit, advantage, or livelihood”. „Business Law‟ encompasses
Commercial Law which has been defined as “a phrase used to designate
the whole body of substantive jurisprudence applicable to the rights,
intercourse, and relations of persons engaged in commerce, trade, or
mercantile pursuits”.
Thus, while Commercial Law is more restrictive, and basically deals

with commercial contracts such as Agency, Arbitration, Bailments,
Bills of Exchange and Negotiable Instruments, Bills of Sale, Carriers,
Hire-Purchase, Insurance, Money Lending, Partnership, Sale of Goods,
and International Commercial Transactions; „Business Law‟ as
demonstrated in this book is more generous as it covers all the above
and still extends to many more aspects of law which are relevant in
everyday business life like Law of Contract, Company Law, Law of
Banking, as well as the Nigerian Legal System.
Against this background, and having seen this work at draft stage I have
no doubt that the outcome is a product of keen, and extensive study by a
scholar and active researcher whom I have known from his childhood
days. The author‟s background as an Industrial Sociologist and a Legal
Practitioner no doubt positively enhanced both his appreciation and
obvious mastery of the organizational behaviour of corporations in the
arena of business. This uncommon combination offers a balanced view
of the issues and concepts and provides the reader with a unique
perspective needed to construct and support an independent assessment.
This phenomenal text was created to provide citizens with a high

quality educational resource in their various fields of endeavour. That is
obviously why it was designed to ensure a clear perception of basic
x
principles of Business Law, not just for Lawyers and Students offering
Law courses, but for all classes of individuals and organizations. The
aim is to give the reader an insight into a variety of the important
themes in the area of Business Law cutting across the trinity of
Contract, Commercial, and Company law while intelligently situating
them within the framework of the Nigerian Legal System. The writing
style and chronology of presentation are simply spellbinding.
The author starts by introducing the concept of law and its sources,
explains how businesses are formed; the meaning, nature and types of
contract; agency and partnership arrangements; domestic and
international buying and selling of goods; e-transactions; risk, funding,
and secured credits by banks and other financial institutions; rights and
duties of parties thereto; what laws regulate their activities in the
process; and curiously delves into the adequacy or otherwise of the
existing legal framework. He further notes instances where it is obvious
that Nigeria is behind the competitive curve such as the obvious lack of
contemporary and fully autochthonous Sale of Goods, Hire-Purchase,
and Illiterates Protection legislations in the country despite the wasteful
budgetary provisions for funding of the National Assembly. In so
doing, he shows how the courts, regulatory agencies and the legislature
in Nigeria have aided businesses, perhaps inadvertently, through
ambivalence, indifference, and poor supervision.
This piece is a necessary handbook for those who are in search of

knowledge for survival in this business world. The topics are well
written, and will be of immense assistance to Business minded people. I
recommend it to all who may come across the book and equally thank
the author for requesting me to write a Foreword to this well articulated
textbook.
Hon. Justice B.A. Njemanze (Rtd.)

Former Chief Judge of Imo State.
xi
PREFACE
In the nine years that have passed since 2008 when I published my
last textbook on Administrative Law there has been an enormous
outburst of developments in Nigerian legislation as well as at the
International law level in virtually all areas. Businesses have grown
bigger, and a corporate outlook is for most people, the major focus.
Life itself has become even more complex, and for many, more
stressful. The one protection we all have in the arena of business is
the law. That is why this book is on Business Law. If you want to
stand up for yourself against our economic and political masters, you
have to know your rights. Only this can protect you against
corporate giants that routinely exploit individuals and small
businesses.
This book is for the articulate, the determined, and those who
believe that knowledge is power. Never before have lawyers been so
necessary, but sadly never have they been so expensive.
Unfortunately, state Legal Aid has become meaningless to most
people in this country given their penchant for exploiting the masses
who are the real victims of the business world and this work is
aimed at them. It is indisputable that the cost of going to law these
days or even seeking legal advise regarding consumer protection can
be prohibitive, hence the need for this text.
Primarily, its purpose is to help you to be your own lawyer, while

recognizing the necessary limitations and the occasions when you
inevitably have to seek expert help. It is directed at an audience of
reasonable intelligence and average education who have the desire
and ability to stand up for themselves. This is especially because in
countless situations in everyday life today, people need to know
what the position of the law is in order to be able to protect their
legitimate business interests. This is not a manual that would be
xii
boring and unreadable, but a readable book which will give one the
basic knowledge to enable you whenever possible battle for yourself.
I have practised at the Bar and served at both the domestic and
continental parliaments in addition to lecturing for almost two
decades and so my interest is not just to protect litigants like the
typical lawyer does, but to arm the citizen upfront to tread carefully
in the slippery realm of business to avoid exacting litigation.
However, this book is not comprehensive. I have chosen instead
those topics which I think will be of most value to my target readers.
You may not find endless discussions on facts of each case law as
would appear in typical law books such as my earlier works, but you
will find basic principles, concepts, ratio decidendi, and ideas
regarding the law, court system, contract, agency, sale of goods,
hire-purchase, partnerships, company law, banking, negotiable
instruments, consumer protection, etc., with each put in their
historical and social contexts, spiced with basic case law to enhance
understanding and appreciation of the issues.
While it is conceded that there are other law books on these various
subjects available in the bookshops, most are however tailored along
typical legal traditions and targeted at lawyers and perhaps strictly
law students. My aim here as usual is to give everyone irrespective
of their background the particular kind of information that they
require in one single volume which, at the moment they cannot
easily find elsewhere. To this my specialized and ironically wide
range of audience, I also believe with every sense of modesty that
this book is more readable, more reliable, and more compact. In
general terms, the law is stated here as of 1 st October, 2017. I have
done my best to make it as accurate as possible although I can accept
no liability to anyone for its concise nature.
Nwosu, Uchechukwu Wilson Esq. (Ph.D)
xiii
ACKNOWLEDGEMENTS
I suddenly came to understand that because of the way in which the

law has developed in Nigeria, Business Law has been a Cinderella
for a number of other branches of law, and that it was so rarely given
centre stage that in order to uncover underlying principles, it is
necessary to collect fragments from several other disciplines
particularly Company law, Commercial law, Law of Contract, Law
of Banking and Negotiable Instruments, as well as the Nigerian
Legal System and piece them together into a coherent whole. This is
what I have endeavoured to do in this book. Rereading it in its final
form, I am tempted to feel that its epigraph should be that seldom in
the field of legal scholarship has one person written in one book on
so many areas of law all at once. I therefore plead in mitigation of its
concise nature that the work makes up in depth what it lacks in
breadth and I am not unhopeful that this work has addressed an area
hitherto neglected by scholars presumably owing to lack of time.
The ideas and concepts which are developed in this book are very
much my own, and I do not wish to besmirch the good name of any
of my friends or colleagues with them. I will however like to
acknowledge a debt of gratitude to five Law Professors who in the
course of my postgraduate program independently, yet
unconsciously provided me with a target to aim at by proving that
difficult points of law could also be the most tremendous fun. They
are: U.U. Chukwumaeze, Ossy Nwebo, Nnamdi Obiaraeri, Reginald
Onuoha, and Ine Nnadi. I am more grateful to them for intellectual
support than I can ever say.
Finally, I cannot resist mentioning my wife and kids who have had
to put up with the endless reading and writing that takes forever. I
must promptly register my gratitude for their special tolerance.
Nwosu, Uchechukwu Wilson Esq. (Ph.D).
xiv
TABLE OF CASES
Abba v. S.P.D.N.L.(2013) All FWLR (Pt. 708) Pg. 812

@ 815–817…............................................................................99
Ababio II v. Nsemfoo (1947) 12 W.A.C.A. 127...................................17
Abacha v Gani Fawehnimi (2000) 6 N.W.L.R.(Pt.660) 247;
(2001) AHRLR 172 (Ng.SC 2000); (2001) 51 WRN, 29…….19
Adeniji v. Starcola Ltd (1972) 1 SC 202.............................................293
Adams v. Lindsell (1818) 1 B&A. 681.................................................36
Adelaja v. Fanoiki (1990) 2NWLR (Pt. 1310 Pg. 137.........................101
Afrotec Technical Services (Nig) Ltd v. MIA & Sons Limited & Anor
(2000) L.P.E.L.R. – SC.132 /1992...........................104,129,151
AH v. Alesintoye (2000) 6 NWLR (Pt.660) 177 S.C...........................61
Akerele v. Atunrase(1969) 1 All NLR 201........................................101
Alade v. Alic (Nig) Ltd. (2010)19 N.W.L.R. (Pt.126) 111 at 143.......309
Alumaco Manufacturing Company Nigeria Limited v. Oshodi / Isolo
Local Government Unreported Suit No. M/10/83- Lagos High
Court.......................................................................................281
Amadi v. Thomas Alpha and Co. Ltd (1962) 6 N.L.R. 106...............115
Amusan & Anor v. Bentworth Finance (Nig) Ltd.
(1966)N.M.L.R. 276..............................................................143
Angu v. Attah (1916) P.C. (1874-1928) 43...........................................17
Ashibogun v. Afprint Nigeria Limited (1985) N.C.L.R. 400.............267
Associated Distributors Ltd v. Hall (1938) 2 K.B. 83........................153
Bagot Pneumatic Tyre Co. v. Clipper Pneumatic Trye Co.

(1902) 1 Ch. 146.....................................................................301
Baker v. Jones (1954) 1 W.L.R. 1005..................................................49
Balfour v. Balfour (1919) 2 K.B., 571.................................................48
Banque De L‟ Afrique Occidentale v. Habu, Iliasu and Savage,
in Re Northern Nigeria Marketing Board (Garnishee)
(1964) N.N.L.R. 30.................................................................278
Baroda v. Iyalabani Ltd (2002) 40 W.R.N., 13..................................273
Batalha v. West African Construction Company Ltd.
(2002) F.W.L.R. (Part 109) 1612 at 1628................................12
xv
Bentworth Finance (Nigeria) Ltd v. De Bank Transport Ltd

(1968) 3 A.L.R. Comm. 52.................................................... 142
Beta Computers (Europe) Ltd v. Adobe Systems (Europe) Ltd
(1996) SLT 604.......................................................................96
Boardman v. Guinness Nigeria Ltd (1980) N.C.L.R. 109.................189
Buckley v. Law Society (No.2) (1984) 1 W.L.R., 1101......................308
Buko v. Nigerian Pools Company (1968) N.M.L.R.196......................50
Carlill v. Carbolic Smoke Ball Co. (1893) 1Q.B.256...........................32
Cassaboglou v. Gibb (1883) 11 QBD 767..........................................109
Central London Property Trust Limited v. High Trees House
Limited (1947) K. B. 130. (1947) K. B.130.............................42
Cohen v Nessdale (1981) 33 All E. R. 118...........................................38
College of Medicine v. Adegbite(1976) 5 SC 149................................99
Cooden Engineering Co Ltd v. Stanford (1953) 1 Q.B. 86...............153
Danjuma v. Standard Co. Nigeria Ltd (1922) 4 N.L.R. 52...............123
Dario v. Giovanni Sartori & Company Limited (1960) L.D. 471.....301
Day Morris Associates v. Voyce (2003) EWCA Civ. 189;
All ER (D) 368........................................................................36
De Medina Norman (1842) 9 M & W 820 at 827..............................121
Dixon v. London Small Arms Co Ltd (1876) 1 App Cas 633............110
Donoghue v. Stevenson (1932) H.L.31..............................................171
D.O. Williams v. U.A.C. Ltd. (1937) N.L.R. 134 t 135......................143
Dunlop Nigeria Industries Limited v. Forward Nigeria Enterprises
Limited and Farore (1976) 1 A.L.R. Comm., 243................277
Edokpolo & Company Ltd. v. Sem-Edo Wire Industries Ltd.
(1984) 7 S.C., 119...................................................................297
Emmanuel Fijabi Adebo & Fijabi Adebo Holdings Limited v. NBC
Plc and NAFDAC Unreported Suit No. LD/13/2008….......………..190
Enahoro and Co. Ltd and Enahoro v. Bank of West Africa Ltd.
(1971) N.C.L.R. 180..............................................................297
Eperokun v. University of Lagos (1986) 4N.W.L.R. (Pt.34) 162
at 193......................................................................................11
Erlanger v. New Sombrero Phosphate Co.
(1878) 3 App. Cas. 1218........................................................296
Esso Petroleum v. Customs & Excise (1976) 1 W.L.R.1;
xvi
1 All E.R117....................................................................49, 108

Ex Parte Chalmers. (1873) L.R. 8 Chan. App. 289 at 292.................128
Foss v. Harbottle (1843) 2 Hare, 461.................................................283
Galbraith & Grant v. Block (1922) 2 K.B. 155..................................116
Garba v. Sheba International (2002) 1N.W.L.R.
(Pt. 748) 372 at 401................................................................294
Global Transport Oceanico S.A. v. Free Enterprises Nigeria Ltd
(2001) F.W.L.R. (Part 40) 1706 at 1722..................................11
Gluckstein v. Barnes (1900) A.C., 240..............................................294.
Goldmark Nigeria Ltd & Ors v. Ibafon Company Ltd & Ors
(2012) L.P.E.L.R. - SC, 421/2001..........................................304
Haston Ltd v. A.C.B Plc (2002) 39 W.R.N., 1 at 2.............................283
Helby v. Mathews (1895) A.C.471...............................................142,152
Hill & Sons v. Edwin Showell (1918) 87 LJKB 1106........................110
Horst & Co. v Biddell Bros (1912) A.C.18.........................................120
Howard v. Patent Ivory Manufacturing Company
(1888) 38 Ch. 156...................................................................301
Howell v. Coupland (1876) 1 Q.B 258.................................................98
Hughes, King (Nigeria) Ltd v. Ronald G Harris
(1972) 2 I.I.L.R., 63................................................................265
Iloabachie v. Philips (2000) 14 NWLR (Pt.686) 43 C.A.....................61
IMB v. Makham (2001) 34 W.R.N. 47 at 48......................................283
Imperial Hydropathic Hotel Co. Blackpool v. Hampson
(1883)23 Ch.D.,1....................................................................264
In the Matter of Saltgitter (W.A) Limited and In the Matter of the
Companies Decree 51 of 1968 (1973-74) F.R.C.R. 215;
(1975)N.C.L.R. 149...............................................................261
J.B Bekederemo v. Palmolive (Nig.) Ltd (1976) 6 S.C. 35.........120,121
Jeune v. Queens Cross Properties Ltd (1973)3 ALL E.R., 97.............65
Jones v. Padavatton (1969) 2 All E.R.616...........................................48
Joseph Patrick Damodu v. B. Anderson & Co. Ltd
(1972) 1 All N.L.R. (Pt.1) 409 at 420....................................115
Kehinde v. Registrar of Companies (1979) 5 F.R.C.R. 101...............216
Kelner v. Baxter (1866) L.R. 2 C.P., 174.............................268, 296,298
xvii
Lagos Chamber of Commerce (Inc) v. Registrar of Companies

(1952-55) 14 W.A.C.P. 197....................................................227
Lasisi v. Registrar of Companies (1976) 7 S.C. 73;
(1976) 1 F.N.R.101 S.C..........................................................216
Law v. Jones (1974) Ch. 112................................................................38
Marine Contractors Co. Inc. v. Hurley
(1974) 365 Mass, 280, 285-6....................................................29
Matco Ltd. V. Sante Fe Development Co. Ltd(1971) 2 N.C.L.R. 1...100
McGregor v McGregor (1888) 21 Q.B.D., 424 ...................................48
McPherson Thom, Kettle & Co. v. Dench Bros
(1921) V.L.R. 437..................................................................122
Melhado v. Porte Alegre Railway Co.
(1873-74) L.R. 9 C.P., 503.....................................................268
Merritt v. Merritt(1970) 1 W.L.R., 1211..............................................48
Mini Lodge Limited v. Ngei
(2011) All FWLR (Pt.505) Pg. 1806 – 1810............................90
Mustapha & Co. v. S.C.E.I. (1921) N.L.R. 69...................................118
Nads Imperial Pharmacy v. Messrs Siemsqluese & Sons & Anor
(1959) L.L.R.21.....................................................................119
Nathaniel Ebelamu v. Guinness Nigeria Ltd.
(1980) I.P.L.R. 538.................................................................188
National Rivers Authority v. Alfred McAlphine Homes East
(1944) C.L.R., 760..................................................................287
Newbourne v. Sensolid Ltd (1954) 1 Q.B., 45....................................306
Nigerian Bottling Company Ltd v. Okwejiminor
(2008) N.I.P.J.D. 51................................................................189
Nigerian Bottling Company v. Olarewaju
(2007) All F.W.L.R. (Pt. 364) 360. .......................................188
Obikoya v. Peter Ezenwa, and Malik Mattar
(1968) 2 All N.L.R. 133.........................................................264
Ogugu v. TheState (1994) 9 N.W.L.R. (Pt. 366) 1...............................19
Onojefegwono v. Agunbiade & Anor (Unreported) High Court,
Benin, Suit No. B/5/75...........................................................151
Onuekwusi v. Registered Trustees of Christ Methodist Church
(2011) 2-3 M.J.S.C. Pt.1.........................................................273
xviii
Osemobor v. Niger Biscuits Co. Ltd. and Nassar & Sons

(1973) N.C.L.R. 382..............................................................190
Parker v. Clark (1960) W.L.R 286; (1960) 1 All E. R.93....................49
Payne v. Cave (1789) 3 Term. Rep. 148...............................................33
Phillips v. Abou-Diwan (1976) 2 F.R.C.R., 24...................................280
Phonogram v. Lane (1982) Q.B. 938.................................................298
Pickford v. Grand Junction Railway & Co. (1841) 8 M&W.372......121
Pinnel‟s Case (1602)5 Co. Rep. 117a...................................................44
Police v. Adamu Yahaya (1942) 16 N.L.R., 98..................................288
Punch (Nig) Ltd v. Jumsum (Nig) Ltd
(2011) ALL FWLR (Pt. 567) pg. 1806 – 1810.........................89
R v. African Press (1957) W.R.N.L.R., 1...........................................288
Rainbow Estates Limited v. Tokenhold Limited and Anor
(1998) New Property Cases, 33................................................65
R v. Birmingham and Gloucester Railway Company Ltd
(1842) 3 Q.B., 231, 114 E.R., 492..........................................287
Re Moore and Co Ltd v. Landauer and Co.(1921) 2 KB 519...........102
Re: Great Wheal Poolgooth Ltd (1883) 53 LJ Ch. 42........................293
Robinson v. Graves (1935)1 K.B. 579; (1935) All E.R. 935..............107
Royal Mail Estates Ltd v. Maples Teesdale
(2015) E.W.H.C., 1890 (Ch.)................................................299
R v. The Great North of England Railway Company Ltd
(1846) 9 Q.B., 315, 115 E.R., 1294........................................287
Rubicon Computers Systems Ltd v. United Paint Ltd
(2000) 2 T.C.L.R....................................................................103
Rugby Group Ltd. V. Proforce Recruit Ltd.
(2005) EWHC 70 (QB)...46
Salomon v. Salomon & Co Ltd (1896) A.C., 22.................................273
Samuel Aro v. Joe Allen & Co. Limited (1979)2 FNR 292...............144
SGF v. SGB (Nig.) Ltd (1997) 2 N.W.L.R. (Pt.497)........................303
Shipton, Anderson & Co. v. Weil Bros & Co. (1912) 1 K.B. 574.....117
Spellman v. Spellman (1961) 1 WLR., 921..........................................48
Spicer (Keith) Ltd v. Mansell (1970) 1 W.L.R., 333..........................293
St. Albans City and District Council v. International Computers
Ltd (1996) All ER 481. (1996) All ER 481..............................97
xix
Stephen v. Build Co. Nigeria Limited (1968) 1 All N.L.R., 183.......307
Taylor & Martin, Inc., v. Hiland Dairy, Inc.,

(1984) 676 S.W.2D 859, 871 (Mo. Ct. App.)........................111
The Beta (1865) 3 MOO PCC NS 23, 25............................................308
Thomas Young & Sons Ltd v. Hobson & Partners
(1949) 65 T.L.R., 365.............................................................119
Trade Bank Plc v. Bralux (Nig) Ltd (2000) 13 NWLR (pt. 685)......328
Twycross v. Grant (1877) 2 CPD 469 at 541......................................292
UBN PLC v. Integrated Timber and Plywood Products Ltd.
(2000) 12 NWLR (Pt.680), 99................................................328
Wachukwu v. Cooperative Bank of Eastern Nigeria Ltd
(1974) N.C.L.R., 387; (1975) 5 U.I.L.R., 373;
(1974) 1 A.L.R., Comm. 9…………………………………..268
Williams v. Carwardine(1833) 5C&P. 566; (1833) 4B&Ad. 621........39
Wood v. Odessa Waterworks Co. (1889) 42 Ch.D. 636.....................266
xx
TABLE OF STATUTES
Advertisement (Hire-Purchase) Act of 1957,

United Kingdom.....................................................................144
Banks and Other Financial Institutions (BOFI) Act,
Cap. B3 L.F.N., 2004 (as amended) ..............................327, 331
Bill of Exchange (BOFE) Act, Cap B8 L.F.N., 2004
(as amended) ..................................................................331, 327
British Companies Act, 1862 ............................................................274
Central Bank of Nigeria (CBN) Act, 1958,
Now Cap. C4 L.F.N., 2004.....................................................331
Companies Act 1989 of the United Kingdom....................................232
Companies Act, 1968.........................................................................219
Companies Act, 2006 of the United Kingdom………………….....232
Companies and Allied Matters Act,
Cap. C20, L.F.N., 2004………………………………..289, 343
Companies Code, 1963 of Ghana……………….…………………307
Companies Decree No.51 of 1968.....................................................261
Companies Ordinance, 1912 UK..............................................194, 219
Companies Ordinance, 1922 UK..............................................194, 219
Companies Ordinance, 1929 UK......................................................219
Constitution of Kenya, 2010………………………………….……174
Constitution of the Federal Republic of Nigeria (CFRN), 1999
(as amended)…………………………………3, 20, 22, 55, 196
Consumer Protection Act of England……………………………..192
Consumer Protection Agency Law of Lagos State, 2014...............183
Consumer Protection Council Act,
Cap. C25, L.F.N., 2004..........................................176, 191, 192
Consumer Protection Council Decree No. 66 of 1992....................289
Copyright, Design, and Patents Act, 1988 UK..................................96
Counterfeit and Fake Drugs and Unwholesome Processed
Foods (Miscellaneous Provisions) Act, Cap.
C34, L.F.N., 2004...................................................................176
Criminal Code Act, Cap. C38 / 39, LFN, 2004.................................176
Customer Protection Law No.8 of 2008, Qatar...............................175
Economic and Financial Crimes Commission Act, 2004...............290
Electric Power Sector Reform Act, 2005.........................................186
xxi
English Companies (Consolidation) Act, 1908................................219

Environmental Sanitation Edict 1994, Edo State............................289
Exchange Control Act, 1962.............................................................197
Factors Act, 1889, Laws of the United Kingdom........................93, 141
Failed Banks (Recovery of Debts) and Financial Malpractice
in Banks Decree, Cap. F2, Vol.4., L.F.N., 2004...................289
Fair Credit Billing Act, 1974 USA...................................................173
Fair Credit Reporting Act, 1970 USA.............................................173
Federal Environmental Protection Agency Act,
Cap. F10, Vol.6 L.F.N., 2004.................................................289
Federal Fair Debt Collection Practices Act, 2010 USA..................173
Food and Drugs Act, No. 21 of 1999,
Now Cap. F32 L.F.N., 2004...................................................289
Food and Drugs Decree of 1976........................................................289
Foreign Exchange (Monitoring and Miscellaneous Provisions)
Decree No. 16 of 1995...........................................................199
Foreign Jurisdiction Acts, 1890-1913.................................................15
Hire-Purchase Act, 1938 of the United Kingdom.............................144
Hire-Purchase Act, 1965 Later No.3., 1970......................................146
Hire-Purchase Act, Cap. H4 Laws of the Federation
of Nigeria, 2004......................................................................144
Illiterates Protection Act.....................................................................55
Immigration Act, 1963......................................................................197
Immigration Act, 2015.....................................................................197
Industrial Policy of Nigeria, 1989....................................................197
Interpretation Act................................................................................15
Investment and Securities Act (No.45), 1999.................................203
Investment and Securities Act, 2007................................................202
Investment Company Act, 1940 of the USA....................................295
Joint Stock Companies Act of 1856 .................................................219
Judicature Act......................................................................................13
Lagos State Consumer Protection Agency Law of 2014................183
Land (Perpetual Succession) Act Cap. 98 L.F.N., 1958...................304
Land Instruments Preparation Laws................................................56
Land Use Decree, 1978 (Now Cap. L5 L.F.N., 2004.........................340
Legal Practitioners’ Act......................................................................56
Local Content Act, 2010 (as amended)....................................197, 203
National Agency for Food and Drug Administration and
Control (NAFDAC) Decree No. 15 of 1993 as amended
by Decree No. 19 of 1999, Now Cap. N.1 Laws of the
xxii
Federation of Nigeria, 2004............................................178, 289

National Insurance Commission Act, 2006.....................................179
Nigerian Communications Commission, Act, 2003........................180
Nigerian Cooperative Societies Act, No.12 of 1997 (as amended)
Now, Nigerian Cooperative Societies Act, 2004....................208
Nigerian Enterprises Promotion (Issue of Non-Voting
Equity Shares) Decree No. 34 of 1987.................................199
Nigerian Enterprises Promotion Act,
Cap. N117, L.F.N., 2004........................................................220
Nigerian Enterprises Promotion Decree 1972.................195, 198, 280
Nigerian Enterprises Promotion Decree 1977.........195, 198, 200, 220
Nigerian Enterprises Promotion Decree 1989 ................197, 199, 200
Overseas Companies (Execution of Documents and
Registration of Charges) Regulations 2009........................300
Partnership Act 1890, United Kingdom....................................310, 316
Partnership Law, 1958......................................................................310
Partnership Law, P1 Laws of Lagos State of Nigeria, 2015.............310
Penal Code(Northern States) Federal Provisions Act,
Cap. P3, L.F.N., 2004.....................................................288, 289
Personal Income Tax Act, Cap. A2, L.F.N., 2004............................208
Petroleum (Drilling and Production)
Regulations 1969, 1988, 1996, 2006.....................................204
Petroleum Act Cap. P10 L.F.N., 2004...............................................204
Pharmacist Council of Nigeria (Pharmacy) Act, 2011 ..................179
Price Control Act Cap.P28, L.F.N., 2004..........................................179
Qatari Consumer Protection Law No. 8 of 2008.............................175
Sale of Goods Act, 1893. (A British Statute of General
Application).........................54, 89, 91, 114, 126, 141, 167, 176
Securities and Exchange Commission Decree No. 29 of 1988.......197
Securities and Exchange Commission Decree No. 71 of 1979.......197
Standards Organization of Nigeria (SON) Decree
No. 56 of 1971, Later Cap. S9, L.F.N., 2004,
Now the SON Act, 2015................................................182, 289
Statute of Frauds 1677........................................................................52
Trade Malpractices (Miscellaneous Offences) Decree
No.67 of 1992.........................................................................289
Truth in Lending Act, 1968 USA.....................................................173
Uniform Deceptive Trade Practices Act, 1966 USA.......................174
United Nations Convention on Contracts for the International
Sale of Goods (CISG)............................................................89
xxiii
United Nations Guidelines for Consumer Protection, 1985...........177

Unsolicited Goods and Services Act, 1971 of Great Britain............109
Utilities and Charges Commission Act, 1992,
Now Cap. U17, L.F.N., 2004.................................................179
Weight and Measures Act, Cap. W3, LFN, 2004.....................179, 289
REPORTS
Office of Fair Trading (OFT) Annual Report, 2013.......................173

US Consumer Reports, 2015.............................................................176
xxiv
ACRONYMS
AGM - Annual General Meeting.

BBWA - Bank of British West Africa.
BOFI - Banks and Other Financial Institutions.
BOFE - Bill of Exchange.
CAMA - Companies and Allied Matters Act.
CFRN - Constitution of the Federal Republic of
Nigeria.
CAC - Corporate Affairs Commission.
CISG - Contracts for the International Sale of Goods.
CIF - Cost Insurance and Freight.
CPC - Consumer Protection Council.
CBN - Central Bank of Nigeria.
CSCS - Central Securities Clearing Nigeria.
EDI - Electronic Data Interchange.
EXW - Ex Works, Ex Warehouse.
EFCC - Economic and Financial Crimes Commission.
EU - European Union.
FTC - Federal Trade Commission (US)
FDI - Foreign Direct Investment.
FPI - Foreign Portfolio Investment.
FOB - Free on Board.
FOR - Free on Rail.
FOT - Free on Truck.
HPA - Hire Purchase Act.
ISA - Investment and Securities Act.
xxv
IOCs - International Oil Companies.

ICA - International Cooperative Alliance.
ICAI - Institute of Chartered Accountants of India.
LFN - Laws of the Federation of Nigeria.
NAFDAC – National Agency for Food, Drug Administration
and Control.
NCC - National Communications Commission.
NERC - Nigerian Electricity Regulatory Commission.
NCD - Nigerian Contents Division.
NNPC - Nigerian National Petroleum Corporation.
NEPD - Nigerian Enterprises Promotion Decree.
NSE - Nigerian Stock Exchange.
OFT - Office of Fair Trading.
OAU - Organization of African Unity.
POS - Point of Sale.
PHCN - Power Holding Company of Nigeria.
PITA - Personal Income Tax Act.
SON - Standards Organization of Nigeria.
SEC - Securities and Exchange Commission.
SGA - Sale of Goods Act.
SAN - Senior Advocate of Nigeria.
SOGA - Statute of General Application.
UCC - Uniform Commercial Code.
VANs - Value Added Networks.
xxvi
CHAPTER ONE
INTRODUCTION TO LAW
Meaning of Law
Law is a system of rules that a particular group, community, or

country recognizes as regulating the actions of its members and
which may be enforced by the imposition of sanctions. It is a rule
that is created and enforced through social or governmental
institutions to regulate behaviour. The purpose of law is to
maintain social order, uphold justice, and prevent harm to
individuals and property. While some laws are based on ethical,
moral or religious principles otherwise known as natural laws,
others are based purely on the authority of the legislature or
sovereign and so referred to as positive law. Either way, they are
usually enforced by the police and entire criminal justice system
including the courts, prisons etc. Against this background, it may
be concluded that laws are rules of conduct that have binding
legal force and effect which are prescribed, recognized and
enforced by controlling authority.
According to Kelson, law is a coercive technique of social

control. H.L.A. Hart describes it as a system of rules authorized
by a rule of recognition; while R.M. Dworkin states that law is an
interpretive attitude towards adjudication. Summing up, one is
left with no other option but to agree with Hart1 that few
questions concerning human society have been asked with such
persistence, and answered by serious thinkers in many diverse,
strange and even paradoxical ways as the question „what is law‟?
1
H.L.A. Hart, The Concept of Law, London: Oxford University Press, 1971,1.
1
However, despite the positive law view that laws are commands
by the sovereign, some scholars insist that there is much more to
the concept of law than the rules in a legal system. Thus, the
essential feature of law is obligation.2 This probably led Lon L.
Fuller to conclude that law is inseparable from morality. The
obligation is of a moral nature and derives from the Natural law
which is the foundation of all laws.
Various kinds of law exist across the globe. For administrative

reasons, it helps to think of the law as being compartmentalized
into categories. This classification into types helps lawyers,
judges, and other experts involved in the administration of justice
to interpret the law. The classification into groups is equally
helpful in the application of precedents since similar situations
usually attract similar solutions. It is also noteworthy that in
modern legal practice, the type of law in some instances
determines the particular court that will hear the matter.
The following are some of the major classifications of law

applicable in most jurisdictions:
Public law and Private law: Whereas public law relates to

matters that affect the entire community or society, instances of
which include criminal law, environmental law, and
administrative law, private law as the name implies is confined to
the more private transactions of individuals or legal personalities.
Instances will include laws dealing with property ownership,
employment contracts, and matrimonial causes.
Civil law and Criminal law: Civil law deals with the protection
and enforcement of the rights of individuals in instances where
2
Omoregbe, J., An Introduction to Philosophical Jurisprudence, Lagos: Joja
Educational Research and Publishers Limited, 1994, viii.
2
there is no element of criminality in the alleged violations. This

includes tortious breaches, laws dealing with property rights or
ownership, and employment contracts as well as issues arising
therefrom. Criminal law on the other hand relates to matters of a
criminal nature which usually affect the stability and peacefulness
of the community. Where there is an infraction of a criminal law,
the state is saddled with the responsibility of prosecuting the
offender even when a private citizen is the victim. Instances
include cases of theft, rape, murder and robbery.
Common law and Statute law: Historically, the Common Law

referred to laws that were common to all the British territories
that made up the United Kingdom. These laws were found to
operate in England, Scotland, Ireland, and Wales among others.
However, recent judicial attitudes tend to show that the term now
refers mostly to laws that are developed in response to the rulings
of the court. Conversely, a statute is a law that is developed or
passed by an act of Parliament. They are formal legislations made
by the legislature in the ordinary course of their legislative duties.
State and Federal law: State laws operate within the boundaries
of the state whose legislature developed them. Instances include
the Rent laws passed by the various state Houses of Assembly in
Nigeria. Federal laws however apply throughout the country and
include such statutes as the Criminal or Penal Codes, the
Evidence Act 2011, the 1999 Constitution of the Federal Republic
of Nigeria, and the Cybercrime Act 2015.
The above is however not the only classification used when

considering laws. While they may severe as broad categories, the
law is further classified into different types on the basis of nature
and focus. The following are the examples of the most common
types of law:
3
Torts law – This is the law relating to violations of civil rights in

the form of trespass, nuisance, defamation, and negligence. The
remedy for such infractions is usually in the form of injunctions,
damages, declarations, etc.
Family law – This branch of law is concerned with marriage,

divorce, separations, adoption, guardianship of minors, access to
and custody of children, division and settlement of property, and
the payment of maintenance.
Commercial and Consumer Protection law– While

Commercial law is the body of laws that apply to the rights,
relations, and conduct of persons and businesses engaged in
commerce, merchandizing, trade, and sales, Consumer protection
law is designed to protect the consumers against improperly
described, damaged, faulty, and dangerous goods and services,
and unfair trade practices.
Taxation law – The law of taxation relates to the assessment and

determination of the quantum of tax that individuals and
organizations are required to pay to the government each year and
the consequences of default.
Law of Contracts – This is the body of laws that govern oral and
written agreements associated with exchange of goods and
services, money and properties, agency and employment
relationships, etc to the extent that such agreements are
enforceable by law.
Constitutional law – This is the body of laws which define the

role, powers, and structure of the different entities within a state,
the branches of government, as well as the basic rights of the
citizens. It evolves from the constitution and sets out the
fundamental principles according to which a state is governed.
4
Labour law – This branch of law which mediates in the

relationship between workers, employing entities, trade unions,
and government generally regulates the rights and responsibilities
of both employers and employees particularly as it affects
conditions of service.
Environmental law – This branch of law is concerned with the

impact that the behaviour of individuals and corporate
organizations has on the environment as well as the consequences
of their failure to avoid polluting the ecosystem.
Equal Opportunity law – This is the branch of law which deals

with issues relating to all forms of discrimination, both at the
work place and in the society generally.
Land law - This is the form of law that deals with the right to
use, alienate, or exclude others from land. In many jurisdictions,
these kinds of property are referred to as Real Estate or Real
Property, as against personal property.
Administrative law – This branch of law governs the activities

of administrative agencies of government. Its scope encompasses
the procedures under which these agencies operate as well as
external constraints upon them in the course of rule making,
adjudication, or the enforcement of a specific regulatory agenda.
Law of Equity and Trusts – While Equity may be defined as a

body of rules, principles, and remedies initially developed and
administered by the English Court of Chancery before 1873,
Trusts law is the set of rules that have been established to regulate
situations in which one party places trust in another to look after
their affairs, usually for the benefit of a third party called the
beneficiary.
5
Company law – Company law is the branch of law that deals

with legislation under which the formation, registration or
incorporation, governance, and dissolution of a company or firm
is administered and controlled. As such, it is the law relating to
the creation and operation of companies and businesses.
Jurisprudence – This refers to the study and theory of law with

particular reference to the principles on which the law is based. It
derives from and goes back to the latin term “prudential juris”
which literally means “skill in law”, from which was derived the
later latin formation “jurisprudentia”, and subsequently the word
“jurisprudence”.
Banking and Insurance law – Banking law covers the various

regulations governing financial institutions. It involves everything
from customer dispute and complaints against the bank, to
complex litigation between domestic and foreign institutions.
Insurance law on the other hand is the practice of law surrounding
insurance, including insurance policies and claims.
Law of Evidence – This is also known as the rules of evidence

and encompasses the rules and legal principles that govern the
proof of facts in legal proceedings. The latitude of this area of law
covers the quantum of evidence needed; the quality of such
evidence or proof required; and the nature of the said evidence.
International law – This refers to the set of rules generally

regarded and accepted as binding in the relationship between
states and between nations. It covers the entire body of laws,
rules, or legal principles that are based on customs, treaties, or
legislation which control or affect the rights and duties of nations
in relation to each other.
6
Conflict of laws– This is the branch of law which has its focus on
the study of the dissimilarities or discrepancies between the laws
of different legal orders such as states or nations with regard to
the applicable legal rules and principles in a matter that each legal
order wishes to regulate either at the domestic or international
level. Conflict of laws is also referred to as Private International
law.
Law of Intellectual Property – This area of law regulates

intangible rights by protecting the products of human intelligence
and creation such as copyrights, patented inventions, trademarks,
and trade secrets. Businesses use intellectual property law to
protect innovative and marketable works created by them.
Legal system – This area of law refers to the set of laws of a

country, and the ways in which they are interpreted as well as
enforced. It generally elaborates the rights and responsibilities of
individuals and institutions in a variety of ways. It equally covers
the organizations and people in a country or area who work in the
area of law.
Law of Arbitration – Arbitration, otherwise known as Mediation

law is an Alternative Dispute Resolution process usually
involving impartial persons without recourse to a court trial.
When parties submit to arbitration, they agree to be bound by and
to comply with the decision of the arbitration panel.
Sources of Nigerian Law.
By sources of Nigerian law we mean the origin of what has today

made up the entire body of laws that apply within, and to Nigeria
generally. For academic purposes, the sources of Nigerian law
7
may be categorized into two major groups to wit: primary sources

and secondary sources. While the primary sources include; (a)
The constitution, (b) Legislation, (c) Case laws or Precedents, (d)
English Law, (e) Customary law (f) Islamic law, and (g)
International law. The secondary sources are Law reports, Law
textbooks, Law digests, Legal periodicals, Law dictionaries, Law
columns of newspapers, and recently, the Internet. It is important
to note that while primary sources have binding force in Nigeria,
the secondary sources do not. Our concern here however is with
the primary sources and each will be examined more closely.
The Nigerian Constitution – According to Professor Wade3, a

constitution is a document having a special legal sanctity which
sets up the framework of the principal or main functions or organs
of government of a State and declares the principles governing
the operations of these organs. It is a selection of the legal rules
which govern the government of any country. The constitution is
the fundamental, basic or organic law of the land, which lays
down the foundation and the structure of the political society in
which it operates.
In Nigeria, the Constitution of the Federal Republic of Nigeria

1999 as amended is the one in force till date despite the plethora
of ongoing and proposed amendments. Section 1(1) of the said
constitution states that „this constitution is supreme and its provisions
shall have binding force on all authorities and persons throughout the
federal republic of Nigeria‟.
To further give credence to this position, Section 1(3) of the same

constitution further provides that „if any other law is inconsistent with
the provisions of this constitution, this constitution shall prevail and that
other law shall to the extent of the inconsistency be void.‟
3
Wade, E.C.S, and Phillips, G., Constitutional Law, London: Longman, 1960.
8
Legislation – This is a deliberate exercise of law making powers

by a person or persons legally or constitutionally empowered to
do so in a political dispensation. In Nigeria, the power to make
legislations are conferred on the National Assembly at the federal
level, the various State Houses of Assembly at the state level, and
the Councillors equally do so at the Local Government Council
levels. Legislation is broadly categorized into Primary and
Secondary legislation.
Primary legislation refers to that made in direct exercise of

legislative powers by a principal law making organ of the country
state, or any part thereof. Different terms are used to describe
legislations depending on the body or level at which it is made.
They include: Act – which is a law made by the National
Assembly for the federation or any part thereof during a
democratic dispensation; Decree – which refers to a law enacted
by a military administration/government at the federal level for
the federation or any part thereof; Law – legislations which are
made by state Houses of Assembly in Nigeria are simply referred
to as „Laws‟; while Edicts refer to laws made by the military
administration at the state level.
Secondary legislation, otherwise known as subsidiary legislation,

delegated legislation, or statutory instrument(s) refers to the
exercise of legislative powers by an agency subordinate to and at
the instance of the legislature. The aim is to reduce the burden on
the legislature while allowing experts and administrators to
handle the minute details of rule making. In recognition of the
likelihood of abuse of such delegated powers however, two
principles guide the exercise of delegated legislative powers. The
first is the principle of „delegatus non protest delegare‟ which is to the
effect that delegated powers cannot be further delegated by the
delegate; and second, the principle of „ultra vires‟ which
9
presupposes that the delegate cannot exceed the extent of the

delegated power.
Case Law or Precedents – In Common Law systems, case law

or precedents otherwise known as „authorities‟ is a principle or
rule established in a previous legal proceedings which becomes
either binding or persuasive on lower courts or other tribunals in
subsequent cases in which the issues, facts, or circumstances are
similar. The procedure usually is that where courts of record
decide cases before them, the reason for their decision and
necessary analysis, referred to in legal parlance as the „ratio
decidendi‟ then constitutes a precedent and will henceforth become
binding on lower courts on the hierarchy of courts. Further
analyses that are not strictly necessary to the determination of the
current case are called „obiter dicta‟, which constitute persuasive
authority but are not strictly binding.
Against this background, judicial precedent has been defined by

Mitee4 as previous judgments or decisions officially documented
by the court, usually published in law reports, used as legal
authorities for deciding subsequent cases in line with their rationes
decidendi via the common law doctrine of stare decisis. Its
importance derives from the increasing relevance of Legal
Realism tailored in the fashion of American jurisprudence
according to which the provisions of statutes are not settled law
until they have received the blessing of judicial pronouncement as
4
Mitee, L.E., „Nigerian Judicial Precedents as a source of Nigerian law‟,
Nigerian Law Resources, 2012,
http://nigerianlawresources.com/2013/08/14/nigerian-judicial-precedents-as-a-
source-of-nigeria-law/, accessed, 02 August, 2017.
10
to their meaning, nature, and scope. Thus, it is the courts that put
life into the dead words of statutes5.
For this doctrine to operate, there must exist a settled and

universally acceptable hierarchy of courts as well as easily
accessible, comprehensive, regular, and reliable Law Reports
containing the decisions of the courts6. The doctrine is thus a
necessary judicial practice in any system that operates the
Common Law, and recognizes the need to have a definite
hierarchy of courts. Extolling the importance of this time-
honoured doctrine, Oputa J.S.C. in the Supreme Court case of
7
Eperokun v. University of Lagos opined that:
„standing by a previous decision which has not been proved to be

perverse, or to have been decided per incuriam or proved to be
faulty legally or procedurally has a lot of advantages. It fosters
stability and enhances the development of a consistent and coherent
body of law. In addition, it preserves continuity and manifest respect
for the past. It also assures equality of treatment for litigants
similarly situated. It likewise spares the judges the task of re-
examining rules of law, or principles with each succeeding case,
and finally, it affords the law a desirable measure of predictability‟.
In further endorsing this decision several years later, Kalgo J.S.C.

referring to the above statement while delivering the lead
judgment of the Supreme Court in Global Transport Oceanico S.A. v.
8
Free Enterprises Nigeria Ltd declared: ‘I entirely agree with this
statement and wish to add that it also helps to maintain some legal order
within judicial systems’. The Court of Appeal equally stressed the
5
Gray, J.C., The Nature and Sources of Law (2nd edition), USA: Columbia
University Press, 1909.
6
Mitee, L.E. Op.cit.
7
(1986) 4 N.W.L.R. (Pt.34) 162 at 193.
8
(2001) F.W.L.R. (Part 40) 1706 at 1722.
11
need to uphold this time honoured doctrine in the case of Batalha

9
v. West African Construction Company Ltd.
English Law – When Britain colonized Nigeria, English law was

thereupon introduced to apply to all the territory constituting what
later came to be known as Nigeria. The received English law
comprised of the Common law, the doctrines of Equity, Statutes
of General Application (SOGA) in force in England on 1st
January 1900, English Statutes, and Subsidiary legislation on
specific matters, and the general law of England that was
introduced, or received into Nigeria before 1st of October, 1960
such as English Statutes, Orders in Council which applied directly
to Nigeria, a number of which remained in force having not been
repealed. Equally inclusive and indeed significant were laws
made by the local colonial legislature and which were necessarily
treated as part of the Nigerian legislation.
According to Park10, these products of the local institutions

established originally by the British authorities are further
subdivided into two categories to wit: Local legislation, and
Nigerian Case Law. It is noteworthy that both the Common Law
and the doctrines of Equity are in reality types of case law. The
different types of statutes making up the third category are
however versions of enacted law. For a better understanding of
the subject matter, an examination of each of the major
subdivisions will be pertinent:
The Common Law – This previously referred to the law that was
common to the whole of the United Kingdom, as opposed to
purely local systems but over time developments in the legal
9
(2002) F.W.L.R. (Part 109) 1612 at 1628.
10
Park, A.E.W., The Sources of Nigerian Law, London: Sweet & Maxwell,
1963, 2.
12
system have altered its meaning to be the basic law of the land
which was developed by the judges of the old Common Law
courts.11 Its distinctive characteristic is that it is almost entirely a
development of the judges while its principles are to be
discovered in previous cases as against any comprehensive code.
It is noteworthy that factors of interpreting previous cases and

distinguishing others in deserving situations clearly conferred a
considerable discretion upon later judges, and it is by means of
them together with the technique of extending and adapting
previous rules to cover new situations that the courts have
developed the system that came to be known as Common Law.
However, while the Common law was a complete system in

England that always had an answer to every situation given the
elasticity of the discretion of the judges, in Nigeria the position is
different in the sense that while the Common Law forms the
residual law on some matters, on others the customary law fulfils
that role. The Common Law therefore forms the major part of the
law of many countries, especially those with a history as British
territories or colonies. It is notable for its inclusion of extensive
non-statutory law reflecting a consensus of centuries of
judgments by working jurists.
Nevertheless, classical Common Law judges did not see

themselves as making law even though they always adopted a
deliberative process wherein discourse played a key role. Key
factors in the creation of modern Common law were: the gradual
irrelevancy of manor courts and the end of feudalism; the
development and distribution of the printed word; and formalized
education of lawyers. This then led to the development of what
later came to be known as Judicial Precedents otherwise known
11
The Courts of King‟s Bench, Common Pleas, and Exchequer.
13
as stare decisis. This practice became more prevalent as court

records became more detailed, the court system itself became
more organized, and consequently commonly used decisions
became accepted as being grounded in the law.
Equity – Unlike the Common law which was developed by the

Common Law judges in the three Common Law courts, Equity
was developed by the Lord Chancellor in the English Court of
Chancery. Nevertheless, just like the Common law, Equity is
equally a case law system and although at its inception it was
administered in each case purely on ad hoc grounds of fairness as
the name laterally implies, over time it developed into a well
established and reasonably ascertainable body of principles. It is
similar to the Common Law in the sense that the same rules and
the techniques of precedent apply to both of them and eventually
by virtue of the Judicature Act12, both the Common Law and
Equity came to be administered together in the same courts.
The main purpose for the establishment and development of

equity it must be pointed out was to mitigate the harsh effects of a
strict application of the rather rigid rules of the Common Law
which in some instances led to hardship on some litigants. Thus,
despite their administration in the same courts presently, the two
systems have remained distinct in the sense that while the
Common Law remains the basic law of the land, equity only gets
invoked in deserving situations to mitigate hardship and ensure
fairness and justice. Equity was therefore used in those instances
where a person could not get a remedy in the regular courts
usually because he was poor or his adversary was too powerful.
In some of such instances, the petition to the king would plead
„for the love of God‟.
12
1875.
14
Over time however, as the Chancellor‟s power grew, petitioners

stopped going to the King and went to the Chancellor directly. In
demonstration of his equitable jurisdiction, the Chancellor could
either create a new Writ or provide some other remedy after
hearing the party. At this time, these Chancellors applied rules of
Equity and good conscience originally not bound by precedent. In
their line of duty however, they often used Common Law rules,
consulted judges and lawyers, and eventually started using
maxims of jurisprudence borrowed from both Canon and Civil
law.
English Statutes – Enacted law in England which were in the

form of Acts of Parliament and Delegated legislation also formed
party of the body of Nigerian laws and as such was a major
source of Nigerian law. Of significance in the category of
delegated legislation were Orders under the Foreign Jurisdiction
Acts13 which gave authority to the Crown to enact rules for the
whole of Nigeria except the Colony of Lagos. Acts of Parliament
are the highest form of law in the English system providing more
regulations than the Common Law and Equity put together
especially because they covered several subjects that ordinarily
fall outside the areas traditionally covered by the Common Law
and Equity.14
While it is conceded that the bulk of English Statute law is mostly

of local relevance and so is of little or no relevance outside
England, it must however be noted that some of them are actually
a codification of or do reform Common Law rules. This feature
makes such statutes not only dynamic, but extends their
application beyond England. Apart from these domestic statutes,
Section 45(1) of the Interpretation Act provides that the Common
13
1890-1913
14
Park, A.E.W., Op.cit.
15
Law of England and the doctrines of Equity, and the Statutes of

General Application (SOGA) which were in force in England on
1st January, 1990 are applicable in Nigeria and so were to be in
force in so far as local jurisdiction and circumstances shall permit.
This date, it must be noted only applies to the SOGA. The
implication also is that any statute enacted in England after the
said date were not applicable to Nigeria all through the colonial
days. Besides, they only applied to Nigeria to the extent that local
statutes had not been made by the Nigerian legislature in the areas
concerned.
Customary Law – Customary law refers to those laws, practices,

and customs of indigenous communities which are an intrinsic
and central part of the way of life of such communities.
Customary laws are embedded in the culture and values of a
given society. They govern acceptable standards of behaviour in
such places and as such are enforced by members of the
community. Customary laws can also be defined as traditional
common rules or practices that have become an intrinsic part of
the accepted and expected conduct in a community and is
therefore, treated as a legal requirement. This probably led Elias
to state that customary law is the body of rules which are
recognized as obligatory by the members of a community.15
Its characteristics include: acceptability, flexibility, existence at

the relevant time, un-institutionalized machinery for sanctions, as
well as its vagueness which is largely a product of its unwritten
nature in most instances, subject to recognized exceptions. It must
be noted that customary law by its very nature lacks uniformity
and so there are as many customary laws as there are independent
communities in the country.
15
Elias, T.O., The Nature of African Customary Law, Manchester: Manchester
University Press, 1956.
16
It is pertinent to note that regarding validity, the courts are

directed to observe and enforce the observance of native law and
custom subject to such customs passing three tests, to wit: if the
particular rule of customary law is not repugnant to natural
justice, equity, and good conscience; if the custom is not
incompatible either directly or by implication with any law for the
time being in force; in case of any custom relied upon in any
judicial proceeding, it shall not be enforced as law if it is contrary
to public policy. Equally noteworthy is the fact that it is not every
custom that is regarded by the community as law.
Regarding proof or ascertainment of customary court, all the

applicable rules are statutory. Customary law can be established
by two methods, namely: by proof and by judicial notice. There
are three methods of proving the existence of a customary law in
Non-customary courts. They are by calling of witnesses, the use
of authoritative books of high standing, and by the presence with
the judge of assessors, who are usually experts in the subject
matter of the case under consideration. Whether or not customary
law must be proved before a Customary court however will
depend on the facts of a given situation. If the member or
members of the court are familiar with the customary law sought
to be applied, proof is dispensed with, but if not, it must be
proved to the satisfaction of the court.16
Islamic Law – Islamic law, unlike customary law is largely

written, relatively rigid, and as such uniform. Its original source is
the Holy Quran, and because of its affinity with the Islamic
religion the rules of Muslim law reflect the teachings of Allah.
Islamic law is derived from four major sources: they are:
16
Ababio II v. Nsemfoo (1947) 12 W.A.C.A. 127; Angu v. Attah (1916) P.C.
(1874-1928) 43.
17
The Quran – This is the sacred book of Islam containing Allah‟s

revelation to the Prophet Mohammed, who in turn is regarded as
the last and greatest of his prophets and messengers.
The Sunna – This is the model of behaviour derived from the life
and conduct of the Prophet comprising the collected traditions of
hadith of the acts and statements of Mohammed handed down
over the years through the uninterrupted chain of intermediaries.
The Ijma – This is the unanimous agreement of legal scholars and

it is usually adopted to fill any lacuna in the Quran and Sunna or
to explain any discrepancies in their teachings. This is a source of
great practical significance in the interpretation of Islamic law.
The Qiyas – This is the permissible juristic analogical reasoning

which is employed in situations not adequately covered by the
books of Fikh.
International Law – There has been an unending argument as to

whether international law actually forms part of Nigerian Law
and by extension if laws made outside the shores of the country
can be enforced by our municipal courts. This apparent
uncertainty may not be unconnected with the perceived diversity
of views among lawyers and jurists most of whom have held
tenaciously to their divergent opinions on this issue till date.
The fact however is that International law is in fact a source of

Nigerian law and as such, is enforceable by our courts subject to
the rule regarding domestication of such laws by the National
Assembly. Indeed, it has been argued that where the issue
concerns Customary International law, even the need for
domestication may be dispensed with.17 Beyond these jus cogens
17
Nwosu, U.W. „Legality or Otherwise of Col. Sambo Dasuki‟s Continued
Detention by the DSS‟, IJDR, 8468, October, 2017.
18
principles of Customary International law however, International

law or any International treaty is not binding on any state except
where it has been ratified and domesticated in that country.
In Ogugu v. The State18, the Supreme Court of Nigeria held that by

ratifying the African Charter on Human and Peoples‟ Rights, the
provisions of the Charter are enforceable by the several High
courts depending on the circumstances of each case in accordance
with the rules of practice and procedure of each court concerned.
Similarly, in Abacha v. Gani Fawehnimi19, the main issues for

determination before the Supreme Court were: (1) whether it is
permissible for Nigeria which is a party to, and has ratified and
adopted the African Charter on Human and Peoples‟ Rights to
promulgate municipal legislations that are inconsistent with its
obligations under the Charter while it remains in her statute
books; and (2)whether the African Charter on Human and
Peoples‟ Rights as adopted by Nigeria is inferior or superior to
municipal laws promulgated by the government of Nigeria .
The Supreme Court answered the two questions above by holding

as follows:
(1) That The African Charter on Human and Peoples‟ Rights is a

statute with International flavour, and being so, if there is a conflict
between it and another statute, its provisions will prevail over those
of that other statute for the simple reason that the legislature does
not intend to breach an international obligation.
(2) That where an international treaty entered into by Nigeria is
enacted into law by the National Assembly as is the case with the
African charter, it becomes binding and our courts must give effect
18
(1994) 9 N.W.L.R. (Pt. 366) 1.
19
(2000) 6 N.W.L.R. (Pt. 660) 247. (2001) A.H.R.L.R. 172 (Ng.SC 2000);
(2001) 51 W.R.N., 29.
19
to it like all other laws falling within the judicial powers of the
courts.
(3) That the African Charter is not superior to and does not override
the Constitution of the Federal Republic of Nigeria.
The above decision of the Supreme Court leaves one in no doubt

that International law is a source of Nigerian law.
Hierarchy of Nigerian Courts
Section 6(1) of the Constitution of the Federal Republic of

Nigeria 1999 as amended provides that the Judicial Powers of the
Federation shall be vested in the courts to which the said section
relates, being courts established for the country.
Similarly, Section 6(2) of the same constitution provides that the

judicial powers of a state in Nigeria shall be vested in the courts
to which the said section relates, being courts established, subject
as provided by the constitution for the states. By Section 6(3)
thereof, the courts to which the said section relates, established by
the constitution for the Federation and for the States, specified in
Subsection (5)(a) - (i) of Section 6 shall be the only superior
courts of record in Nigeria, and save as otherwise prescribed by
the National Assembly or by the House of Assembly of a state,
each court shall have all the powers of a superior court of record.
By virtue of Section 6(5) of the Constitution, the following are the

courts provided for in their order of superiority:
The Supreme Court – This is the highest court in Nigeria and its
decisions are binding on all other courts in the country, subject to
the rules guiding the principle of stare decisis. The Supreme
Court may however depart from its own previous decision where
20
such previous decision is later found by it to be manifestly

unreasonable or at variance with the law.
The Supreme Court is thus not bound absolutely by its own

previous decisions. Indeed, where the Supreme Court is faced
with two or more of its previous decisions that are in conflict, it
will follow one of them and overrule the other.20 The apex court
can also overrule its previous decisions if they deal with matters
of grave importance and the court thinks that it is necessary to
reverse them.
The Court of Appeal – This is immediately below the Supreme

Court on the hierarchy of courts in Nigeria and appeals from the
Court of Appeal are only made to the Supreme Court. The Court
of Appeal has Divisions in some states of the Federation covering
a few states each. Being lower in ranking than the Supreme Court,
the Court of Appeal is ordinarily bound by previous decisions of
the Supreme Court where the facts are similar except it can
distinguish the case before it from that decided by the Supreme
Court or put a construction upon it that best serves the needs of
the particular case. Its decisions however bind all other lower
courts.
Despite the existence of Divisions of the Court of Appeal, it must

be noted that in reality, there is only one Court of Appeal for the
whole country which primarily intermediates between the High
Courts and the Supreme Court. The Justices of the Court of
Appeal are recommended by the National Judicial Council, then
nominated by the President of Nigeria and subsequently
confirmed by the Senate.
20
Okonkwo, C.O., Introduction to Nigerian Law, London: Sweet and
Maxwell, 1980.
21
By virtue of Section 241 of the 1999 Constitution of the Federal

Republic of Nigeria as amended, appeals shall lie as of right from
decisions of the Federal High Court or a High Court of a State or
the FCT to the Court of Appeal. The Court of Appeal also hears
appeals from the Sharia Court of Appeal21, the Customary Court
of Appeal22, as well as the Code of Conduct tribunal and other
courts and tribunals established by the National Assembly.23
Note however that the decision of the Court of Appeal in respect
of appeals arising from election petitions shall be final.24
The Federal High Courts, the High Courts of the various

states, and the High Court of the Federal Capital Territory
(FCT) – Although these three courts are all of co-ordinate
jurisdiction with both the Sharia and the Customary Courts of
appeal, the State High Court has the widest jurisdiction among all
the high courts. This is presumably because the Federal High
Court‟s jurisdiction is mostly restricted to matters involving the
Federal government and any of its agencies. The State and FCT
high courts are however not so restricted and thus seem to have a
wider scope of authority to hear and determine most other cases
regarding the rights and obligations of citizen. Appeals from all
the high courts nevertheless lie to the Court of Appeal.
While the Federal High Court is established by Section 249 of the

1999 Constitution, its jurisdiction is detailed by Section 251 of
the same constitution. It is instructive that for the purpose of
exercising any jurisdiction conferred upon it by the said section of
the constitution, or as may be conferred by an Act of the National
Assembly, the Federal High Court shall have all the powers of the
21
Section 244 CFRN, 1999 (as amended).
22
Section 245.
23
Section 246.
24
Section 246(3).
22
High Court of a State25. Similarly, while the High Court of a state

is established by virtue of Section 270 of the 1999 Constitution,
its jurisdiction is provided for by Section 272 thereof.
The Sharia Court of Appeal of the Federal Capital Territory

and the Sharia Court of Appeal of each of the Northern States
– Although these two are of coordinate jurisdiction with the high
courts, their distinguishing feature is that they usually hear
appeals from the area courts. It is important to note that these
Sharia Courts of Appeal are not bound by strict rules of stare
decisis or judicial precedents since they are not of Common Law
origin. They are found in the Northern States where Islamic
practices are prevalent. By virtue of Section 244 of the 1999
Constitution, an appeal shall lie from decisions of a Sharia Court
of Appeal to the Court of Appeal as of right in any civil
proceedings before the Sharia Court of Appeal with respect to any
question of Islamic personal law which the Sharia Court of
Appeal is competent to decide.
The Customary Court of Appeal of the Federal Capital

Territory and the Customary Court Appeal of each of the
Southern States – Just like the Sharia Court of Appeal, the
Customary Court of Appeal of both the southern states and the
FCT hear appeals from the Customary courts of the Southern
States and the FCT. They are also not bound by the rules of stare
decisis or judicial precedents not being of Common Law origin.
Customary courts of Appeal are found in the Southern States and
the FCT.
Regarding appeals from the Customary Court of Appeal of a

State, Section 245 of the 1999 Constitution provides that an
appeal shall lie from decisions of a Customary Court of Appeal to
25
Section 252.
23
the Court of Appeal as of right in any civil proceedings before the

court with respect to any question of customary law and such
other matters as may be prescribed by an Act of the National
Assembly.
By Section 6(5)(j), CFRN 1999 - Such other Courts as may be

authorized by law to exercise jurisdiction on matters with respect
to which the National Assembly may make laws; and,
By Section 6(5)(k), CFRN 1999 - such other courts as may be

authorized by law to exercise jurisdiction at first instance or on
appeal on matters with respect to which a House of Assembly
may make laws – These include inferior courts such as the
Magistrates‟ Courts and District Courts below which are the
Customary and Area Courts. These inferior courts are not courts
of record even though they all form part of the body of regular
courts in Nigeria.
Apart from these regular courts, there are also special courts such
as the Courts-Martial, Tribunals of Inquiry, Rent Tribunals,
Coroners‟ Inquests, Juvenile Courts, etc whose jurisdiction, rules,
and operational modus are specially regulated by the laws
establishing them.
Magistrate or District Courts – It must be noted at the inception that

Magistrate or District courts are not courts of record and so are usually
referred to as courts of inferior jurisdiction. The Magistrate or District
court is just a single court that transforms to a Magistrate Court in
hearing of criminal cases while in the hearing of a civil case it becomes
a District Court. Being inferior courts, this category of courts cannot
punish contempt outside the face of the court otherwise known as
„contempt ex facie curie’. Although the decisions of Magistrate or
District courts do not bind any court, they in turn are bound by the
decisions of higher courts.
24
CHAPTER TWO
THE LAW OF CONTRACT
Introduction.
A contract is an agreement between two or more parties to

perform a service, provide a product, or commit to an act and is
enforceable by the law. It is a promise or set of promises that the
law will enforce or recognize as affecting the legal rights and
duties of the parties.26 According to Nwogugu27, a Contract is an
agreement which is binding on the parties thereto and which may
be enforced by the courts against the defaulting party. The law of
contract therefore is the body of laws that govern such
agreements which suffuse all spheres of human activity
particularly in the areas of sale of goods, agency, hire-purchase,
employment and labour relations, company law, partnership,
banking relations, and the general administration of business
organizations.
It must be noted that for an agreement to amount to a contract, it

need not be in writing. Certain contracts must however be made
in writing for them to be valid. This includes agreements
regarding land and transfer of interest thereof, and transaction
regarding the administration of companies or an authority to
execute a Deed. Thus, it has been posited that trade and
commerce would be chaotic if not impossible if the law permitted
a promisor to break his promise without at least placing him
26
Sagay, I.E., Nigerian law of Contract, Ibadan: Spectrum law Publishing,
1985, 1.
27
Nwogugu, E..I., on „Law of Contract‟ in Okonkwo, C.O., (ed.) Introduction
to Nigerian law, London: Sweet& Maxwell, 1980, 271.
25
under an obligation to pay compensation for the loss occasioned

by his default28. To be entitled to such compensation though, the
contract must entail an agreement with specific terms between
two or more parties in which there is a promise to do something
in return for a valuable benefit called Consideration.
The legal relations created by the law of contract enables a person

to whom money, goods, services, or some other benefit has been
promised to enforce the promise or to obtain a remedy for its
breach. The existence of a contract therefore requires the finding
of certain factual elements. They are: (a) an offer; (b) an
acceptance of that offer which results in a meeting of the minds;
(c) a promise to perform; (d) a valuable consideration which may
be in the form of a promise or some form of payment; (e) a time
or event when performance must be made; (f) terms and
conditions for performance including the fulfilling of promises;
(g) performance.
A contract may be unilateral in which case there is a promise to

pay or give other consideration in return for actual performance.
It may also be bilateral in which case a promise is exchanged for
another promise. Although it is conceded that contracts may be
oral or written, the fact however is that oral contracts are more
difficult to prove, and in some jurisdictions, the time frame within
which a party can sue on the contract is shorter if it is made
orally. A written contract is usually more precise but in some
cases, a contract may consist of several documents, such as a
series of correspondences, orders, offers, and counter-offers.
There are a variety of types of contracts: A contract may be

„conditional‟ in which case it is contingent upon an event
occurring; a contract may also be „joint and several‟, in which
28
Sagay, Op.cit.
26
case several parties make a joint promise to perform, but each is

independently responsible; a contract may equally be „implied‟ in
which case the courts will determine that there is a contract based
on the circumstances. By contrast, a contract may be „express‟ in
which case the terms of the agreement are openly uttered and
avowed at the time of making same, such as to pay an agreed
price for certain goods.
In some cases, parties can contract to supply all of another‟s

requirements, buy all the products made, or enter into an option to
renew a contract. The variations are indeed almost limitless. It
must nevertheless be noted that contracts for illegal purposes are
not enforceable at law.
Sources of Nigerian law of Contract.
Although it may be contended that there are three sources of

Nigerian law of contract, to wit: customary law, statutes, and the
English Common Law, for purposes of this discourse, greater
attention will be focused on Statutes and the English Common
law. This is based on the realization that although customary law
rules recognize certain types of contract such as co-operative
labour contracts, the fact remains that these rules have remained
irrelevant and as such largely unsuitable for modern business
transactions till date. In fact the only one that is of any relevance
is the customary law remedy for breach of an agreement which is
a decree of restitutio in integrum.29
The bulk of the law regulating the making of contracts in Nigeria

are either Statutes or the English Common Law. While most of
29
Elias, T.O., Op. cit.
27
the statutes are made by the Nigerian legislature, some of them

trace their roots to England being English statutes applicable in
Nigeria owing to the reception of same either by the legislature or
by direct application as Statutes of General Application made by
the colonial administration. Some of these are still found in our
corpus juris till date.
Against this background, the Nigerian law of contract is actually a

reproduction of the English law with slight modifications by the
legislature in the course of re-enacting them. The implication also
is that both the principles, rules and indeed case law are dotted
with English flavour and precedents. The foundation of the law of
contract therefore upon which contractual liability was built both
in England and Nigeria was on the principle that the plaintiff had
conferred some benefit on the defendant for which some payment
became due or an obligation to keep a promise. This
correspondence between benefit and duty was described as quid
pro quo.
Types of Contract
Basically there are two types of contracts under the general law.
They are the formal contract, otherwise called the contract under
seal, and the simple contract. For the purposes of clarity and
better understanding, it is pertinent to examine each of the two
more closely.
Contract Under Seal – This refers to a deed or covenant which

are usually signed, sealed, and delivered. Where a contract is of
this nature, it can dispense with the necessity of consideration
since the making of a deed or covenant by default presupposes the
existence of some inherent solemnity by virtue of which the
28
parties thereto are duty bound in law to abide by their promises

without more. It is as such conclusive between the parties. A
contract under seal is the only formal contract because it derives
its validity from the form in which it is expressed and not the fact
of agreement or consideration. Delivery is made either by usually
handing it to the other party or by stating an intention that the
deed be operative even if it is retained in the possession of the
party executing it.
Until modern statutory reforms in contract law, a seal was widely

recognized by courts in Common Law jurisdictions as removing
the need for consideration in a contract. This reflects classical
contract theory, in which consideration was viewed as a formal
aspect of a contract, so that a seal could be considered an
alternative form. A seal was therefore per se not a type of
consideration, but rather raised a presumption of consideration.
English courts have however varied in their opinions of whether
this presumption was rebuttable.30
The rationale for this special treatment of sealed contracts can be

understood in terms of the legal formalities that are associated
with sealing a document with a wax seal: first, the following of
the legal formality of affixing a seal to a document was evidence
of the existence of a contract; second, the need to use a seal which
was widely known to have legal significance served to impress
upon the parties the significance of the agreement being made as
against merely donative promises; third, the following of the legal
formalities through the use of a seal demonstrated beyond doubt
that a legal transaction was intended by the parties.31
30
Marine Contractors Co. Inc. v Hurley (1974) 365 Mass, 280, 285-6.
31
Fuller, L. L., „Consideration and Form‟, Columbia Law Review, Vol. 41,
No.5, 1941.
29
Besides substituting for consideration, other consequences of the

seal it has been held include32; even payment did not discharge a
sealed contract, if the instrument itself was not physically
destroyed; fraud was not permitted as a defence to a sealed
contract; subsequent modifications to a sealed contract were not
binding except where they are made under seal; an undisclosed
principal could not be connected to a sealed contract.
Simple Contracts- Simple contracts is a generic name for all

other forms of contract that are not made under seal. Since simple
contracts are not in the nature of formal contracts, there is an
inherent requirement for consideration. Simple contracts may be
written or oral and in either case, only a party who has furnished
consideration may bring an action to enforce it. Thus, the validity
of a simple contract is predicated on the existence of some form
of consideration flowing from one party to the other.
Although they may be oral or written, there are particular kinds of

simple contracts that must either be in writing or evidenced in
writing before they can be enforced by the courts. This does not
make them contracts under seal since in this case, there need only
be a memorandum in writing to prove the transaction, but the
necessity of a seal which is the distinguishing feature of a contract
under seal is not required.
A simple Contract may be implied from the conduct of the parties

bound by the contract in question.33 As contracts of this nature are
frequently entered into without thought or proper deliberation, the
law requires that there be some good cause, consideration, or
32
Fuller, L.L., & Eisenberg, M.A., Basic Contract Law (Ninth Edition), USA:
West Academic Publishing, 2013.
33
Garner, B.A., Black’s Law Dictionary, (18th edition), USA: West Publishing
Co., 2004.
30
motive, before they can be enforced in the courts. The party

making the promise must have obtained some advantage, or the
party to whom it is made must have sustained some injury or
inconvenience in consequence of such promise. This rule has
been established for the purpose of protecting weak and
thoughtless persons from the consequences of rash, improvident,
and inconsiderate engagements. Note however that this rule does
not apply to promissory notes, bills of exchange, or commercial
papers.
Elements of a Contract
There are primarily four elements of a contract. They are: Offer,

Acceptance, Consideration, and Intention to enter into, or create
legal relations. A careful examination of each of these elements is
necessary for a better understanding of the law of contract. These
elements must be established to demonstrate the formation of a
legally binding contract and so they serve as a checklist for
anyone seeking to enter into a contract. In so doing, both parties
must have the ability, or capacity to understand the terms and
nature of the contract.
Offer.
An offer has been defined as a definite undertaking or promise,

made by one party with the intention that it shall become binding
on the party making it as soon as it is accepted by the party to
whom it is addressed.34 It is a promise by a party indicating his
willingness to enter into an agreement on certain clearly specified
terms.35 Thus, it can be surmised that an offer is an act on the part
34
Sagay, I.E., Op. cit., 6.
35
Nwogugu, E. I., in Okonkwo, C. O. (ed.), Op.cit., 274.
31
of one person whereby he gives to another the legal power of

creating the obligation called a contract. In such a situation, the
promise is an expression of intention that the promisor will
conduct himself in a specified way in the future, with an
invitation to the promisee to rely thereon. In all such instances,
legal relations will not be created unless the act of the parties
comply with the rules relating to mutual assent, consideration,
form, capacity of parties, and legality of object.
An offer may be express or implied from the conduct of an

individual or legal person. It may be addressed to one particular
person, a group of persons, or to the whole world. The existence
of such an offer does not amount to a contract with the world at
large. Such an offer will only ripen into a contract with those
who come forward and either accept the terms of the offer, or
perform the condition.36 It is however necessary to distinguish an
offer from a mere „invitation to treat‟, which is more of an
invitation for offers. In such a case, those being offered
something are at liberty to accept or reject the „offer‟. Although
the decision of the English court in Carlill v. Carbolic Smoke Ball
suggests that an advert could amount to an offer to the whole
world, in reality a lot depends on the exact nature and wordings of
the expression used.
An invitation to treat is in fact the initiation of negotiations

devoid of clear terms upon which a party can unequivocally
indicate his willingness to be bound. Most advertisements of
goods in newspapers or catalogues are therefore not actual offers
but mere invitations to treat. The same is the case regarding price
lists and invitations for auctions. The rationale for this position of
the law appears to be that if every advert were an offer, then the
36
Carlill v. Carbolic Smoke Ball Co. (1893) 1Q.B.256.
32
advertiser would be duty bound to provide everyone who

„accepted‟ the offer with the product, regardless of his stock
situation. Regarding auctions, it had long been ruled that an
auctioneer‟s request for a bid is an invitation to treat while each
bid constitutes an offer.37
Termination of an Offer – Ordinarily, an offer remains open

until it is terminated. An offer may be terminated in any of the
following ways:
(a). By revocation – Revocation simply means that an offer is

withdrawn by the offeror. The general rule is that the revocation
is effective only when it is made known to the offeree. Thus, until
it is communicated to the offeree directly or indirectly, the offeree
has reason to believe that there still is an offer that may be
accepted. In such situations, the offeree may rely on this belief if
the offeror seeks to revoke the offer after the offeree had accepted
it before having notice of the revocation, in which case a valid
contract would have been created.
(b). Lapse of Time – Where an offer states that it will be open

until as particular date, the offer terminates on that date if it has
not yet been accepted before then. This is particularly clear when
the offeror declares that the offer shall be void after the expiration
of a specific time. If the time passes, and the offeree attempts to
accept the offer, this will amount to a counter-offer from the
offeree which the original offeror is at liberty to accept or reject.
If however no time is specified, an offer will nevertheless
terminate after a reasonable time depending on the circumstances
of the case.
37
Payne v. Cave (1789) 3 Term. Rep. 148.
33
©. Death or Disability of the Offeror or Offeree – If either the

offeror or the offeree dies or otherwise becomes mentally
incompetent before the offer is accepted, the offer is
automatically deemed to have been terminated in such a situation.
The reason for this may not be unconnected with the fact that in
either of such circumstances, there will be no opportunity for a
meeting of the minds which is a necessary prerequisite for the
formation of a contract.
(d). Rejection – An offer is terminated when the offeree

communicates his rejection of the offer to the offeror. By
rejecting the offer, the offeree simply informs the offeror that the
particular offer is unacceptable. However, where an offeree
changes his mind after rejecting the offer, he can validly accept it,
but that would only be possible if the acceptance gets to the
offeror before the rejection notice.
(e). Performance of the Contract becomes illegal after the

Offer is made – If the performance of the contract becomes illegal
after the offer was made, the offer is deemed to have been
terminated. This could happen where a law is passed after the
offer was made, but before acceptance is communicated to the
offeror, criminalizing the transaction that forms the subject matter
of the intended contract.
In summary, the rule generally laid down is that the acts of offer
and acceptance must be expressions of assent. This has long been
the theory upon which the contractual obligations have been
enforced. The test question usually put forward is: what was the
intention of the parties? It has been argued however that it must
not be supposed from this that no contractual relations can exist
34
unless both parties foresaw and intended it.38 The implication is

that if two parties have gone through the form of offering and
accepting, the law determines the legal relations that follow.
Although sometimes this comes with shock and surprise to the
parties themselves, the fact remains that legally, parties are bound
by the reasonable meaning of what they said and what they
thought.
Acceptance.
An acceptance is an unconditional assent, communicated to the

offeror by the offeree, to all the terms of the offer, made with the
intention of accepting it. To constitute a valid contract, the
acceptance must be made to the offer in the form in which it is
made. Although it may seem obvious, an acceptance must be
communicated to the offeror. The contract usually becomes
effective as soon the offeror receives the acceptance. In some
situations, the offeror may prescribe the mode of acceptance even
though in certain instances this may be determined by the nature
of the offer or transaction. Either way, whether an acceptance has
in fact occurred is ascertained objectively from the behaviour of
the parties, including any correspondence that has passed between
them.
Since an acceptance is a reaction to an offer, the implication then

is that an offer cannot be accepted validly by someone who was
not aware of the existence of the offer as at the time the purported
acceptance was made. It needs to be clear that a particular
conduct was performed with the absolute intention of accepting
38
Linzer, P., A Contracts Anthology, (4th ed.), USA: Anderson Publishing
Co.,1997, 166.
35
the offer in question. However, it has been decided that the

offeror can waive the need of communication of acceptance and
elect that acceptance takes place by conduct.39 In the absence of
such peculiar circumstances, certain rules apply, for instance
although post is not instant, it had long been settled that where
post is the appropriate and reasonable or accepted means of
communication between the parties, a contract becomes effective
from when the mail is sent.40
However the postal rule does not apply when the letter has not
been posted properly; is not addressed correctly; where terms
exclude post as a method of acceptance; and where it is
unreasonable to use the postal method. Similarly, difficulties arise
when acceptance is communicated via e-mail. Ordinarily, since e-
mails are usually instant, the contract ought to come into being as
soon as the mail is received. But then, the issue is: when is an e-
mail received? Is it when the mail is transmitted to the server? To
the offeror‟s computer? Or when the offeror actually reads it? A
safe position seems to be as soon as the e-mail is received by the
offeror‟s computer.
A purported acceptance may be invalid and as such ineffective in

some situations. Some of such situations are now recognized in
law and so deserve special attention. The following are the most
common:
Counter-Offer – Ordinarily, an acceptance is supposed to

correspond with the exact terms of the original offer. Where
however the purported acceptance introduces fresh terms or
modifications which either qualifies or amends the earlier offer, it
is called a counter-offer. A counter-offer is thus an offer made in
39
Day Morris Associates v. Voyce (2003) EWCA Civ. 189; All ER (D) 368.
40
Adams v. Lindsell (1818) 1 B&A. 681.
36
response to an offer which by law implies a rejection of the

original offer, and which puts the ball back in the court of the
original offeror. When a counter-offer is made, it leaves the initial
offeror with three options, to wit: to accept the counter-offer
either expressly or by implication; to issue another counter-
counter-offer in response to it; or, to reject it expressly, or by
implication. In essence, no binding contract can be created until
one party unequivocally accepts the other‟s offer. Thus, where a
counter-offer is accepted, it creates binding legal obligations just
like an acceptance of the original offer would.
A counter-offer may include explanations of the terms of the offer

or requests for supplementary information. There is no limit to
the number of times and offeree and offeror can counter each
other during negotiations. In so doing, it must be taken into
consideration that there are several other factors besides price that
could be undesirable or unacceptable to a party. In effect, a
counter-offer is used to „accept‟ some or most of the terms of the
other party‟s latest offer, while modifying the terms to suit you.
This is so because, more often than not, coming back with a
different price, a shorter timeframe until the closing, different
dates, terms, contingency modifications, etc. is usually expected
and in recent times has become almost a tradition in most
contracts.
Conditional Acceptance – A conditional acceptance is one that

is made subject to a condition. It is thus, not a valid or binding
acceptance and cannot create a valid contract that binds the
parties until that condition is met or fulfilled unless the
conditional language is independent of the actual acceptance.
Sometimes referred to as a qualified acceptance, a conditional
acceptance occurs when a person to whom an offer has been
made tells the offeror that he or she is willing to agree or accept
37
the offer, provided some changes are made to its terms, or that
some condition or event occurs. An instance will be where a
drawee promises to pay a draft upon the fulfilment of a condition,
such as a shipment of goods reaching its destination on the date or
within the timeframe specified in the contract.41 This type of
acceptance sometimes operates as a counter-offer.
A conditional acceptance also refers to a provisional acceptance

of goods or services that do not conform to the purchase order or
specifications, under the condition or understanding that the
vendor will rectify the situation within an agreed or reasonable
timeframe. Within academic circles, a department or institution
can recommend the conditional acceptance of a student who does
not meet the minimum requirements for admission into a
programme. In so doing, the institution then stipulates the
conditions including the timeframe within which the candidate
must remedy any identified deficiency in order to be fully
accepted.
It must be noted that the position of the law is now clear that
where an agreement is made „subject to contract‟, such an
understanding is not binding and will not be enforced by the
courts. The trend of the cases suggest that payment of the
purchase price or part thereof will negative this view.42 The use of
the phrase by the parties thus signifies their intention not to be
bound until the execution of a formal contract. Indeed, according
to Sagay43, lawyers for over one hundred years have introduced
the term „subject to contract‟ for the protection of their clients,
particularly the buyer, for it provides time for investigation of
41
Chirelstein, M. A., Concepts and Case Analysis in the Law of Contracts, (5th
ed.) New York: Foundation, 2006.
42
Law v. Jones (1974) Ch. 112; Cohen v. Nessdale (1981) 33 All E. R. 118.
43
Op. cit. 18.
38
title, survey of the premises, the study of the market situation, and
any other unforeseen factors. In any situation, even if the exact
words „subject to contract‟ are not used, the attitude and the
disposition of the court will depend on whether or not the parties
contemplate further negotiations, agreement, or documentation
before they are willing to bind themselves.
Acceptance in Ignorance of Offer - Knowledge of the existence

of an offer prior to a purported acceptance is crucial to the
existence of a contract. The reason is because, holding otherwise
would seem to suggest that a man can accept an offer before
knowing that there is in fact such an offer in existence. This
would naturally be absurd, and so leads to a situation in which a
reward for instance could be claimed by one who did not know
that it had been offered. Where however the party was aware of
the offer and indeed accepted same, the motive for doing so will
be irrelevant to the court in determining the validity of the
contract.44
The position of the law may then be summarized to be that an

offer cannot be accepted by one who is ignorant of such an offer.
Consequently, an act which merely coincides with the
requirements contained in an offer does not amount to a valid
acceptance if the person doing the act was not aware of the
existence of the offer at the time the act in question was
performed. In cases such as this, acceptance is only effective
when the prescribed action has been completed. That will be
when the information reaches the offeror.45
44
Williams v. Carwardine (1833) 5C&P. 566; (1833) 4B&Ad. 621.
45
Burrows A., A Casebook on Contract (4th edn.) London: Hart Publishing,
2013, 46.
39
Communication of Acceptance – As earlier stated, a valid

contract arises only if the acceptance is communicated to the
offeror or his authorized agent. If the acceptance is communicated
to any other person, it will not create any legal relationship.
However, if the offer is made by an agent on behalf of his
principal, then the acceptance can be communicated either to the
principal or to his agent. It is important to note that the acceptance
must be made in the mode prescribed. If the offer is not accepted
in the prescribed mode, the offeror may reject the acceptance
within a reasonable time. However, if the offeror does not reject
the acceptance within a reasonable time, then he becomes bound
by it and a contract is created.
Where the offeror does not prescribe a preferred mode of

acceptance, the offeree may adopt any usual and reasonable
mode. Usually, the mail mode is understood as the most
reasonable mode of communication. Either way, the acceptance
must be given within the time prescribed or within a reasonable
time. Sometimes, the time limit is fixed within which the
acceptance is to be made. In such situations, the acceptance must
be made within the fixed time limit. Where no time limit is
prescribed however, then the acceptance should be given within a
reasonable time. The term „reasonable time‟ depends on the facts
and circumstances of each case.
A valid acceptance may be express or implied. An acceptance is

express where it is expressed by words, written or spoken. Where
it is made by conduct, it is called an implied acceptance. In all
instances, silence cannot amount to an acceptance of an offer. A
valid contract can arise only when the acceptance is made before
the offer lapses or gets withdrawn. Consequently, an acceptance
which is made after the withdrawal of the offer is invalid and so
does not create any legal relationship.
40
A communication of acceptance is complete at different times for

the offeror and the offeree. For the offeror, the communication of
acceptance is complete when it is put in the course of
transmission to him. Thus, the offeror becomes bound by the
acceptance as soon as the letter of acceptance is posted by the
offeree. Conversely however, for the offeree, the communication
of acceptance is complete when it comes to the knowledge of the
offeror.
Revocation of the Acceptance – An acceptance may be revoked

at any time before the communication is completed as against the
offeree, but not later. This is anytime before the acceptance
comes to the knowledge of the offeror. Just like acceptance itself,
a revocation of acceptance may be oral or written. Difficulties
may however arise in the face of modern technology and the use
of mostly electronic devices for correspondence such as fax and
e-mails some of which deliver messages within a split second.
Nevertheless, the situation appears to be that in such cases, a
revocation of acceptance must occur within a reasonable time
after the buyer discovers or should have discovered the grounds
for doing so, and before any substantial change in condition of the
goods which is not caused by their own default.
If the purported revocation is on grounds of non-conformity, the

buyer must notify the seller within a reasonable time after he or
she discovers or should have discovered the non-conformity.46
However, a buyer cannot revoke acceptance if he or she knew or
should have known of the non-conformity at the time of
acceptance.
46
Section 2-608 Uniform Commercial Code.
41
Consideration.
Consideration is the benefit that each party gets or expects from

the contract entered into by them. In order for consideration to
provide a valid basis for a contract, each party must make a
change in their position. Consideration is usually either the result
of a promise to do something one is ordinarily not legally
obligated to do, or a promise not to do something a party has the
right to do. Sometimes, this change in position is called a
„bargained-for‟ detriment.
This doctrine now forms one of the cornerstones of the law of

contract. Indeed, as far back as seventy years ago, Lord Denning
of the English House of Lords had held in the case of Central
47
London Property Trust Limited v. High Trees House Limited that, „the
doctrine of consideration is too firmly fixed to be overthrown by a side-
wind… it still remains a cardinal necessity of the formation of a contract,
though not of its modification or discharge.‟
Consideration is thus concerned with the bargain of the contract

since a contract is usually based on an exchange of promises. This
creates a peculiar situation in the law of contract whereby each
party appears to be both a promisor and a promisee. The reason is
because each must both receive a benefit and suffer a detriment or
fulfil an obligation. It is this benefit or detriment that is referred to
as consideration. Note however, that although the common law
strictly adheres to the requirement of consideration, equity will in
some instances uphold promises which are not supported by
consideration through the doctrine of promissory estoppel which
states that when one party to a contract in the absence of fresh
consideration agrees not to enforce his rights, an equity will be
raised in favour of the other party.
47
(1947) K. B. 130.
42
There are various rules guiding the law of consideration. The

following are the most common:
(a) Consideration must not be past - Past consideration refers

to a situation in which the contract is made in circumstances
where a party seeks to rely on a promise with respect to a
preceding and independent transaction that has no direct bearing
or influence on the particular contract. The general rule is that
past consideration is no consideration and therefore cannot
support a contract. Exceptionally however, past consideration
may become valid where it was preceded by a request.
(b) Consideration must be sufficient, but need not be adequate

- The law here is that provided each party provides something of
value whether in the nature of an act or a promise, it is not the
duty of the court to ensure that each party to the contract gets a
fair deal in the end. Consequently, the courts will enforce the
contract once the thing promised or performed is precisely that
which the promisor and the promisee agreed upon. There is no
requirement that the consideration must equate the market value
of the items or promise.
© Consideration must move from the promisee – It is

normally the duty of the promisee to provide or furnish the
consideration to the promisor. If a person other than the promisee
is to provide the consideration, a promisee cannot enforce the
agreement. Except of course it is agreed by the parties that the
said third party will provide the agreed consideration on behalf of
the promisee. In the absence of consideration, the promisor can
withdraw the promise at any time.
(d) An existing public duty will not amount to a valid

consideration – Where the thing promised or performed is one
which the promisee is already bound by law to do, his promise or
43
action is not considered as sufficient consideration. A party who

has a public duty to act cannot therefore use such action as
consideration for a new promise. However, if the person so
obligated under the law does or promises to do more than the law
requires of him, the excess will constitute sufficient
consideration.
(e) An existing contractual duty will not amount to a valid

consideration- If a party has an existing contractual duty to do an
act, this act cannot be used as consideration for a new promise.
Except the party goes beyond their existing duty, or if he or she
confers a greater practical advantage. Where however the existing
contractual duty is owed to a third party, this may be used as a
valid consideration for a new promise on the basis of which a
fresh contract may be made.
(f) Part payment of a debt is not a valid consideration for a

promise to forego the balance - The law is that part payment of a
debt is not a valid consideration for a promise to release the debt
in full, or forebear the balance unless at the promisor‟s request the
part payment is made: before the due date; with a chattel; or to a
different destination. This rule, which came to be known as the
rule in Pinnel‟s Case48 has another exception which is, where the
part payment is made by a third party.
In sum, consideration may then be seen as a price of the promise.

A moral obligation does not however constitute consideration.
There is a significant relationship between consideration and form
to the extent that some scholars have concluded that consideration
can in the end be reduced entirely to terms of form.49 That
consideration may have both a formal and a substantive aspect is
48
(1602) 5 Co. Rep.117a.
49
Linzer, P., Op. cit.,167.
44
apparent when we reflect on the reasons which have been

advanced why promises without consideration are not enforced.
It has been said that consideration is for the sake of evidence and
is intended to remove the hazards of mistaken or perjured
testimony which would attend the enforcement of promises for
which nothing is given in exchange. Again, it is said that
enforcement is denied gratuitous promises because such promises
are often made impulsively and without proper deliberation. In
both of these situations, the objection relates, not to the content
and effect of the promise, but to the manner in which it is made.
Objections of this sort, which touch the form rather than the
content of the agreement, will be removed if the making of the
promise is attended by some formality or ceremony, as by being
under seal.
Executory and Executed Consideration -A contract may be

executed or executory depending on the terms and circumstances
of the particular transaction. An executory contract is one in
which some future act is to be done by either or both parties.
Instances will include an agreement to build a house by a party
for another, or a promise to do some other act or thing on or
before some future day, or to lend money at an agreed interest
rate payable at a future date. The basic feature therefore is that the
terms are set to be fulfilled at a later date. The leasing of a house
or car falls squarely into this category of contract. Given its
nature therefore, either party to an executory contract can breach
it by failure to fulfil their obligations as outlined in the agreement.
It does not matter if the task in question has been partially

completed. Both parties become bound in the contract prior to
actual performance thereof and it is the exchange of promises that
constitutes the contract. Except in very strong and exceptional
45
cases, an executory contract can be prevented from coming into

existence where it is expressed to be „subject to contract‟ because
those words are taken to mean that until a further contract has
been executed, neither party is to owe the other any contractual
obligations.50
Conversely, a contract is termed executed where nothing remains

to be done by either party such as where the transaction is
completed at the moment the arrangement is made. A typical
instance will be where an item or article is sold and delivered
with payment made on the spot. As such, it may be argued that an
executed contract is no contract in the real sense of it since the
parties are no longer bound by a contractual tie. In the absence of
any pending obligations, it is at best a conclusive transaction. In
law however, an executed contract is described as one that is fully
legal immediately after the parties involved have signed, and the
terms must be fulfilled immediately. By doing so, the parties are
said to have discharged of the contract.
A contract may also become executed at some future date when

the terms of the contract are carried out. In such instances, it is at
the point when all the obligations have been completely
performed that the contract is to be deemed executed. At that
point, nothing remains to be done by either party.
Intention to Enter into, or Create Legal Relations.
This is perhaps the most important requirement of a valid contract

and presupposes an intention to enter into a legally binding
agreement or contract. It is thus a basic element in the formation
50
Rugby Group Ltd. v. Proforce Recruit Ltd. (2005) EWHC 70 (QB).
46
of a contract. While some scholars have questioned the status of

this element contending that once there is an offer, acceptance,
and consideration, a contract will come into existence, the reality
seems to suggest otherwise. This is presumably due to the attitude
of the courts in practical terms which shows that in every
situation, the cardinal question to determine is as to whether there
was an intention to enter into legal relations in the particular case
under review.
The requirement of distilling an intention to create legal relations

in the law of contract is aimed at sifting out cases which are not
really appropriate for legal redress or court action. This is based
on the fact that it is not every agreement that leads to a binding
contract which the legal system can be invoked to bring to bear.
Certain agreements are only binding on honour based purely on
moral considerations devoid of legal duties. The justification for
this position is predicated on the fact that generally, the parties to
such agreements do not intend to be legally bound in making such
promises and the law principally tries to give effect to their
desires.
Consequently, with a view to determining which agreements are

legally binding and clothed with an intention to create legal
relations, the law draws a clear distinction between social and
domestic commitments on one hand, and agreements made in a
commercial context on the other. Regarding the former, the courts
have consistently held the view that purely social or domestic
arrangements are not intended to create any legal obligations
because the strictly contractual intention is usually absent as a
result of which the parties to such do not intend nor envisage
47
legal consequences.51 Several of such instances arise in

agreements between friends and spouses. The reason seems to be
predicated on the fact that social and domestic arrangements are
based on good faith and not on law.52
It must be noted however that this rule that social and domestic
agreements are not legally binding is not absolute. This in view of
the fact that the said rule is in reality based on a rebuttable
presumption of amity and friendliness leading to exceptional
situations in which the said presumption may be rebutted. Thus, it
has been held that the rule will not apply where spouses are no
longer living in amity, particularly where their relationship has
degenerated to a level of mutual hostility and distrust, or where
the spouses are separated or about to separate.53 In all such
instances, an agreement between them would be interpreted by
the court as binding. The presumption of the absence of a
contractual intention can thus be rebutted by the existence of
hostile relations between the parties.
Similarly, where the performance of a domestic or social

engagement involves great sacrifice on the part of one or both
parties, the presumption against the presence of contractual
intention may be rebutted, particularly where the plaintiff has
performed his own part of the agreement. Thus, where the
defendant asks the plaintiff to resign from his previous
employment and join him in his office and the plaintiff complied
with the directive, the arrangement will be held to be such that the
51
Balfour v. Balfour (1919) 2 K.B.,571; Spellman v. Spellman (1961) 1
WLR., 921.
52
Jones v. Padavatton (1969) 2 All E.R.616.
53
McGregor v. McGregor (1888) 21 Q.B.D., 424; Merritt v. Merritt (1970) 1
W.L.R., 1211.
48
court can enforce or read an intention to create legal relations

into.
The rationale for upholding such an arrangement may be based on

the extremely onerous nature of the step the party has taken such
as the drastic and irrevocable act of disposing of a man‟s house to
move in with another in pursuance of an agreement to do so.54 In
social agreements however, the courts usually decide the cases on
their merits using the objective test and not on presumptions as it
does in family or matrimonial cases.
Regarding commercial agreements, where parties enter into an

agreement to engage in commercial transactions, the law raises a
presumption that they intend to create legal relations by the
agreement.55 These agreements where the parties deal as though
they were strangers are presumed to be binding. In all such cases,
one must be careful not to draft a clause so as to attempt to
exclude the court‟s jurisdiction as such a clause will be void.56
However, „honour clauses‟ in a “gentleman‟s” agreement will be

recognized as negating an intention to create legal relations.
Where however an agreement has both an honour clause and a
clause to exclude a court‟s jurisdiction, the court will strike out
the offending part. While it is understandable that the parties may
wish to cloak their negotiations with immunity so that a contract
will not come into existence by inadvertence, to deprive a
finalized arrangement of legal effect requires the clearest
intention.
Exceptionally however, the courts may accept a plea of the

absence of an intention to create legal relations in two recognized
54
Parker v. Clark (1960) W.L.R 286; (1960) 1 All E. R.93.
55
Esso Petroleum v. Customs and Excise (1976) 1 W.L.R. 1.
56
Baker v. Jones (1954) 1 W.L.R. 1005.
49
situations, to wit: where the defendant pleads that his promise or

representation was a mere puff; and, where the agreement itself
contains a clause which expressly excludes the intention to enter
into legal relations.
Puffs usually refer to adverts which make claims that are so wild
and incredible that no reasonable person could take them
seriously. In all such instances, it is the test of the reasonable man
that is applied in determining whether the defendant‟s promise
was a mere puff or such that is sufficiently credible as to bring it
within the realm of possibilities. The second situation is easier to
appreciate and so more straightforward. The courts have long
accepted that the law does not impute an intention to enter into
legal relationship where the circumstance and the conduct of the
parties negative any intention of the kind.57
With particular reference to collective agreements, the law

perceives them as a special type of commercial agreement and so
the rules are peculiar. This is the case regarding agreements such
as one negotiated through collective bargaining between
management and trade unions. At Common Law, the courts held
that such agreements were not binding. The position has however
been altered in line with the exigencies of time. The present
position of the law therefore is that any collective agreement shall
be conclusively presumed not to have been intended by the
parties to be a legally enforceable contract, unless the agreement:
(a) is in writing; and (b) contains a provision which states that the
parties intend that the agreement shall be a legally enforceable
contract.
57
Buko v. Nigerian Pools Company (1968) N.M.L.R.196.
50
Enforceable and Unenforceable Contracts.
Contracts are further classified into enforceable and

unenforceable. An enforceable contract is one for which a legal
remedy is offered in the event that the contract is not performed.
It is a legally binding agreement where both parties are expected
to fulfil the terms of the contract failing which the law will come
to the aid of the one who is not in default and who has kept his
side of the bargain. While it is conceded that certain contracts
may be verbal and some written, it is pertinent to note that verbal
contracts are more difficult to enforce. A contract is prima facie
enforceable where it has all the elements of a valid contract to
wit: offer, acceptance, consideration, capacity, and intention to
enter into legal relations.
While the position of the law is that an enforceable contract must

always be valid, the reverse is not necessarily so. Thus, a valid
contract may in some instances be unenforceable. Pursuant to
this, another element appears to have been introduced to
determine the existence and enforceability of a contract. The
purport of this element is that the object and purpose of a contract
must be legal and not against public policy, or in violation of a
law in existence. However, there are contracts that do not contain
all the elements stated, and for such contracts, the law or courts
make the determination as to whether the contract can be
enforced. Thus, it has been stated earlier herein that where an
agreement is made under seal, it dispenses with the necessity of
consideration and remains valid and enforceable.
A contract may be unenforceable when certain statutory

requirements have not been met. An oral contract to buy land for
instance will not be enforceable because the Statute of Frauds58
58
29 Car 2 c 3, 1677.
51
requires that all contracts for the sale, transfer, or any other
disposition of land being a disposition required by law to be made
by Deed or an Instrument evidenced in writing or to be proved in
writing must be complied with. Similarly, statutes of limitation
which limit the length of time available for legal action may apply
to contracts of certain types and render them unenforceable after a
certain period of time.
Other factors that may lead to a contract becoming unenforceable

include: duress, impossibility of performance, lack of capacity of
either or both parties, mistake, misrepresentation, non-disclosure,
public policy, unconscionability, etc. To guard against all these
situations, it is always in the best interest of the parties to consult
legal representatives while entering into contracts.
An unenforceable contract may actually be valid on the face of it

in some instances even though the court will not enforce it. Thus,
the fact of being unenforceable is not synonymous with the
contract being void ab initio. Thus, if the parties actually perform
their obligations in the contract, it may indeed be valid, even
though in case of default, the court cannot be invited to compel
the defaulter. An example is a contract for prostitution. So long as
the contract is fully performed and as such „executed‟, it remains
valid. However, if either party refuses to complete the bargain
where the contract is „executory‟ either by the prostitute after
being paid, or the customer refusing to pay after receiving the
services, the court will not aid the disappointed party.
52
Contractual Capacity.
By contractual capacity is meant the legal capability to form a

binding contract. The law generally recognizes the need for a
minimum mental ability to understand the legal implications and
ramifications of a contract for such an agreement to be legal and
binding. A number of classes of people lack contractual capacity,
and these include infants, lunatics, and drunk or intoxicated
people, and in some jurisdictions, incarcerated convicts. Also
deserving of special mention are corporations, and married
women. These two groups have peculiarities regarding their
contractual capacities. A critical examination of these different
categories is necessary for a clearer understanding of the subject:
1. Infants and Young Persons – This refers to any individual

below the age of 18 years. The general rule is that an infant or
young person is not capable of entering into a contract except for
necessaries. The term „necessaries‟ refers to goods and articles
necessary to support life as well as services befitting the infant‟s
position in life. This includes food, clothing, transport, legal
representation and medicare. This Common Law position is also
applicable in Nigeria.
2. Mentally Challenged Persons or Lunatics – Any person

who is mentally impaired, insane or of an unsound mind is under
the law incapable of entering into a contract. Such people lack
contractual capacity and this category includes any individual in a
state of arrested or incomplete mental development, which may
include impairment of intelligence and social functioning.
However, for this to happen, it must be shown that at the time of
making the contract, he was incapable of understanding what he
was doing and that his mental disability was known, or ought to
have been known to the other party to the contract. This rule
53
applies to one who is drunk also. A lunatic or insane person may

nevertheless validly enter into a contract during his lucid period.
Furthermore, an insane person is duty bound to pay a reasonable
price for necessaries supplied to him or his wife.59 An individual
who is voluntarily intoxicated also cannot avoid his contractual
obligations to other parties.
3. Corporations – The contractual capacity of a registered

company is usually determined by reference to the Memorandum
and Articles of Association of such a company. It should be noted
that upon incorporation a company assumes a separate legal
personality distinct from its owners and as such, it can validly
enter into contracts provided it acts within the limits of its powers
and Objects clause as shown in the Memorandum of Association.
Where a business is not incorporated as a legal entity however,
the owners or trustees can then contract in their personal
capacities on behalf of the business or association.
4. Married Women – Under the English Common Law

married women were originally not capable of entering into
contracts. This was based on the doctrine of fusion of
personalities as a result of which a married woman was perceived
as the same person with her husband and so incapable of owning
separate property. This Common Law position is no longer in
force as the legislature has reversed this situation by legislative
action. Most countries including Nigeria and the United Kingdom
now have provisions in their constitutions guaranteeing freedom
from discrimination on the strength of which married women
59
Section 2 of the Sale of Goods Act, 1893.
54
cannot be discriminated against nor subjected to any form of

disability on the basis of their sex or gender.60
5. Persons Disqualified by Law – Certain categories of

persons are disqualified by law from entering into valid and
enforceable contracts. This is so, not because of their age or
unsoundness of mind, but owing to their special status or their
duties and responsibilities towards the state or nation. The
following are some of the persons legally disqualified from
making contracts: foreign sovereigns, diplomats, insolvents,
convicted felons, alien enemies, etc.61
6. Illiterates – Ordinarily, illiterate persons have the same

capacity as all other adults to enter into contracts. This is because
illiteracy per se is not a basis to disqualify an individual from
entering into contractual relations. However, with a view to
protecting illiterates, presumably due to the predominance of
illiterates in Nigeria, the Illiterates Protection Act62 seeks to
protect them from fraud since by default they cannot read, write,
or understand documents relating to contracts which they seek to
enter into.
It is therefore disheartening that there is till date no current

Illiterates Protection Act enacted by National Assembly for the
entire nation. Indeed, the last Illiterates‟ Protection Act for the
whole nation was seen in the 1975 Laws of the Federation of
Nigeria. Curiously however, this was omitted in the 1999, 2004,
and 2007 laws of the Federation of Nigeria.
60
Section 42 of the 1999 Constitution of the Federal Republic of Nigeria (as
amended).
61
Institute of Chartered Accountants of Indian (ICAI), Mercantile Law, 2013.
62
Presently, there are various but similar Illiterate Protection Laws of the
various states.
55
Beyond the Illiterate Protection Laws of the various states

however, some other legislations in Nigeria have provided
protection for the rights and interest of illiterate person in Nigeria.
They include: the Legal Practitioners‟ Act; the Statute of Frauds
Act, 1677 (a Statute of General Application); and the Land
Instruments Preparation Laws among others. By the combined
effect of all these legislations, certain transaction must not only be
reduced into writing or evidenced in writing, but the authors of
such documents are duty bound to indicate their identity in
addition to being under an obligation to comply with the
requirement of explaining the contents of the documents to the
illiterate before the latter can sign it.
Terms of a Contract.
Ordinary, it is the duty of parties to a contract to determine the

exact extent of their responsibilities to each other. The details of
these obligations constituting the sum of the responsibilities of
the parties is referred to as the „terms‟ of the contract. Depending
on the nature of the transaction, the terms of a contract may be
oral or written down by the parties. An evaluation of these terms
will then guide the court as to the full extent of the obligations of
the parties in each situation.
Where the terms are written, the duty of the court in establishing
the obligations of each party and the consequences of a breach of
such obligations is simpler as the court will then rely on the
ordinary rules of interpretation to distil the issues and resolve
same. Difficulties may however arise where the said terms are
made orally. In such situations, the courts will necessary rely on
the oral testimony of the parties and perhaps any witnesses they
may have to decide the matter.
56
Where the parties agree on certain terms as described herein, they

are referred to as express terms. This is so irrespective of the
character of these clearly agreed upon terms as being oral or
written. The general rule however is that oral evidence will not be
called to contradict the written terms of a contract except where
there is fraud or illegality by a party, or where such oral evidence
is designed to establish the existence of a separate oral contract
constituting a condition precedent to the written contract. These
terms may range from fundamental conditions, to warranties.
While the fundamental terms or conditions are the most
important, warranties are the least significant and so the extent of
the obligations of each party and the consequences of a breach of
the contract is a function of the nature and character of the
particular term breached.
Apart from these express terms, the responsibilities of the parties

to a contract are in most instances further amplified by other
terms known as implied terms. These are terms which occur in a
number of instances such as where such terms are presumed: by
trade, custom or usage to the extent that they are not repugnant to,
or inconsistent with the express terms of the contract; by statute
such as in contracts for sale of goods; and by the courts if it is
necessary in the business sense to give efficacy to the contract.
Where terms are implied by the usage or custom of a particular
trade or by the courts, the parties may however exclude them
either expressly or by implication.
Implied terms are not expressly or explicitly stated because, they

are fairly obvious to both parties to the contract. Thus, in
deserving circumstances, the courts will imply a term into a
contract where the parties have clearly left out an important term.
Implied terms therefore refers to the practice of setting down
default rules of contract when the terms that contracting parties
57
expressly choose run out, or the setting down of mandatory rules

which operate to override terms that the parties may have chosen
themselves.
The purpose of implied terms is often to supplement a contractual

agreement in the interest of making the transaction more effective
for the purpose of business, to achieve fairness between the
parties, or to relieve hardship.
It is instructive to note that the courts have developed an apparent

distinction between terms implied “in fact” and those implied “in
law”. Terms implied in fact are said to arise when they are strictly
necessary to give effect to the reasonable expectations of the
parties. Terms implied in law are confined to particular categories
of contract, particularly employment contracts or contracts
between landlords and tenants, as necessary incidents of the
relationship. An example is the implied term of mutual trust and
confidence supporting the notion that workplace relations depend
on partnership which forms a part of every employment
contract.63
In sum, implied terms are meant to protect parties from fraud by

omission and misrepresentation. Presumably in line with this
expectation, sales contracts include an implied warranty of
merchantability. This means that a court will imply usability. In
other words, there is an implied guarantee that the goods or
services will serve the reasonable and expected purpose. Such
implied warranty of merchantability is invoked even when the
sales contract is neither written nor oral, but made by conduct.
63
MacNeil, I., „Contract, Discretion, and the With-Profits Mechanism (The
Appellate decision in Equitable Life v Hyman)‟ 3 Company Financial and
Insolvency Law Review, 2000, 354.
58
In reality, it is necessary to draw a distinction between a term of

contract and a mere representation as the remedy available to the
aggrieved party in most cases in determined by this singular fact.
Thus, where the breach is of an actual term of the contract, the
aggrieved party can sue for damages or repudiation, or both.
Where however the breach is of a mere representation, the
remedy available may be less significant or in some cases there
may not be any remedy at all. In such instances, a lot will depend
on the circumstances of the particular case. In determining the
status however, the court looks at the position of the maker of the
statement.
Where the maker is an expert, has superior knowledge or skill

regarding the subject matter, or was in such a position that the
representee relied on his statement to enter into the contract, such
statement will be regarded as a term of contract. Where however
the person making the statement expressly asks the representee to
verify the truth of the statement, then it will not be a term but a
mere representation.
Discharge of Contracts.
Discharge of a contract relates to the circumstances in which the

contract is brought to an end. Where a contract is discharged,
each party is free from their obligations under the contract. A
contract may be discharged through performance, lapse of time,
operation of law, death of a party, impossibility of performance,
breach, agreement, frustration etc. Where any of these happens,
the contract ceases to operate whereupon all the rights and
obligations created by it come to an end. This is because when the
parties originally entered into the contract, the rights and duties in
terms of contractual obligations were set up.
59
Performance - This happens where both parties have carried out

their obligations under the contract. It must be noted however that
it is no longer the law that performance in this case must be exact
and complete according to the terms. Exceptions now exist such
as: substantial performance, acceptance of partial performance,
divisible contracts, obstructed contracts, and time for
performance. In all these instances, the contract may be part
performed and validly so.
Breach - This occurs where one of the parties to a contract fails to

perform his own contractual obligations, or the performance is
defective. Where this occurs, the aggrieved party will have the
right to choose either to terminate the contract or to insist on
performance by approaching the court for an order of specific
performance. Breach may be anticipatory, which happens without
justification before the date fixed for the performance. It may also
be actual which refers to the failure to perform the contractual
obligations when performance is due, or where performance turns
out to be unsatisfactory in terms of quality.
Agreement - A contract may be discharged by agreement where

both parties by mutual understanding agree to abandon or alter
the terms of the contract. This may take several forms including,
but not limited to the following: novation, rescission, alteration,
waiver, etc. Novation involves the substitution of a new party
while discharging one of the original parties to a contract by
agreement of all the three parties. In such a situation, a new
contract is created on the same terms as the original one, but the
parties are different.64
64
Hare, J.I.C., The Law of Contracts, Clark, N.J.: Lawbook Exchange, 2003.
60
Frustration- This happens where performance of a contract

becomes impossible due to no fault of either of the parties.65 For
frustration to be established, the following must be the case: the
frustrating event must not be caused by either party to the
contract; the frustrating event must not be one where it was
reasonably foreseeable or contemplated by either party; the
occurrence of the frustrating event was not caused by the party
who is seeking to rely on the frustration.
Lapse of Time- A contract may be discharged by lapse time if it is

not enforced within a specific period called the period of
limitation. Some statutes prescribe the period of limitation for
different types of contracts. Where such statutes of limitation are
in force, contractual rights become time barred after expiry of the
limitation period.
Operation of Law- A contract may be discharged by operation of

law in any of the following circumstances: where there is an
unauthorised and material alteration of a written document or
term of the contract by one of the parties unilaterally; where a
statute of limitation bars a party from pursuing or enforcing his
rights under the contract; where a party is declared or certified
bankrupt by a competent court; or where an inferior right
accruing to a party in a contractual relationship subsequently
amalgamates into a superior right ensuing to the same party.
Death or Insolvency of a party to the Contract- The death of

either or both parties to a contract may automatically lead to a
discharge of the other party from all duties and obligations in the
contract or simply bring the contract to an end. In some instances,
this is perceived as a form of discharge by operation of law.
65
AH v. Alesintoye (2000) 6 N.W.L.R. (Pt.660) 177 S.C.; Iloabachie v. Philips
(2000) 14 N.W.L.R. (Pt.686) 43 C.A.
61
Similarly, when one of the parties to the contract becomes

insolvent, he automatically foregoes the capacity to contract and
those contracts which were made by such a person will stand
discharged.
Impossibility of Performance – There are instances in which the

performance of a contract becomes impossible as a result of
which the parties will be discharged from their obligations under
the contract consequent thereof. The element of impossibility thus
terminates the contractual relations. Impossibility in this sense is
usually of two types, namely: pre-contractual and post-contractual
impossibility. While pre-contractual impossibility refers to one
which occurs or comes into force before the contract itself, post-
contractual impossibility conversely comes into force after the
contract. Here, the contractual relations will only exist up to the
time of occurrence of the said impossibility.
Remedies for Breach of Contract.

There are several remedies for breach of contract. The most
common are the award of damages, specific performance, and
injunction. A detailed examination of each of those will be
pertinent at this point. While damages for loss are available as of
right, specific performance and injunction are equitable remedies.
Damages- there are basically two categories of damages that may
be awarded if a breach of contract claim is established. They are
compensatory and punitive damages. While compensatory
damages relate to actual loss incurred by a non-defaulting party,
punitive damages are like the name suggests purely exemplary.
There are also two kinds of compensatory damages that the non-
breaching party may be entitled to. The first is general damages
62
which covers the loss directly and necessarily incurred by the

breach of contact. General damages are the most common type of
damages awarded for a breach of contract. The second is Special
damages also called Consequential damages. This covers any loss
incurred by the breach of contract because of special
circumstances or conditions that are not ordinarily predictable.
These are nevertheless actual losses caused by the breach, though
not in a direct and immediate way. To obtain damages for special
or consequential situations, the non-breaching party must prove
that the party in breach knew or ought to have known of the
special circumstances or requirements at the time the contract was
made.
Punitive damages, otherwise called exemplary damages are not

based on actual loss by a party, but are awarded to punish or
make an example of the party in breach who has acted wilfully,
maliciously, fraudulently, or recklessly. Unlike the compensatory
damages that are intended to cover actual losses by a party,
punitive damages are intended to deter others from acting in a
similar manner. Punitive damages are thus awarded in addition to
compensatory damages.
It must be noted that an important limitation on the award of

damages is the duty to mitigate. The non-breaching party is
obligated to mitigate, or minimize his losses to the extent
reasonable. Consequently, damages cannot be recovered for
losses that could have been reasonably avoided or substantially
ameliorated after the breach occurred. Thus, the non-breaching
party‟s failure to use reasonable diligence in mitigating the
damages means that any award of damages will be reduced by the
amount that could have been reasonable avoided.
63
Generally, an innocent party may claim damages from the party

in breach in respect of all breaches of contract. The damages may
be nominal or substantial. While nominal damages are awarded
where the innocent party has suffered no actual loss as a result of
the other‟s breach, substantial damages are awarded as monetary
compensation for loss suffered as a result of the other party‟s
breach. It is instructive that for an innocent party to obtain
substantial damages, he must show that he has suffered loss as a
result of the breach in addition to establishing the quantum of
such loss. It is up to the party in breach to argue that the innocent
party has failed to mitigate his loss.
Damages may also be liquidated. This presupposes a situation is

which the parties expressly state in the contract that is the event
of a breach, a specified sum will be payable or that the goods will
be forfeited. Such pre-determined exposure are known as
liquidated or „agreed damages‟ clauses. The purpose is to make
the recovery of losses faster or easier, avoiding the problems of
proving actual loss and incidental arguments as to the remoteness
of certain types of consequential or indirect losses in addition to
assuring the other party of one‟s intention to be bound by the
contract.
Specific Performance- This is an equitable remedy granted at the

court‟s discretion. Specific performance is a decree or order of
court made to compel a party to perform his own side of
contractual obligations. It is usually invoked where the court is of
the considered view that damages alone are not an adequate
remedy, such as where the subject matter of a contract is of a
unique nature and as such difficult to replace. Where however
there is a ready alternative or even where replacement is possible
although after a delay, the court may not grant a decree of specific
performance.
64
As a general rule, specific performance will not therefore be

ordered if the contract requires performance or constant
supervision by the court to avoid default by a party over a long
period of time, or where the obligations under the contract are not
clearly defined. Exceptions may however be made depending on
the circumstances of a given case. Thus, in Rainbow Estates Limited
66
v. Tokenhold Limited and Anor , specific performance was ordered
regarding a tenant‟s repair covenants presumably because the
landlord has no right of entry to repair in default of the tenant.
However, specific performance is often ordered in relation to

building contracts because such contracts deal with result rather
than the carrying on of an activity over a long period of time and
it usually defines the work to be completed with certainty.67
Nonetheless, specific performance is not available for contracts
requiring personal services such as employment contracts because
such an order would restrict an individual‟s freedom. Even so, the
courts have broad discretion to award specific performance and in
exercising this discretion it takes into account factors such as:
 Promptness as against delay in asking for the order.

 Whether the innocent party/Applicant is prepared to
perform his side of the contract.
 Whether the person against whom the order is sought will
suffer undue hardship in performing the obligation.
 The difference between the benefit the order will give to
one party and the cost of performance to the other.
 The likelihood of the order affecting third party rights
adversely.
66
(1998) New Property Cases, 33.
67
Jeune v. Queens Cross Properties Ltd (1973)3 ALL E.R., 97.
65
 Whether the contract lacks sufficient consideration in line

with the rule that equity will not assist a volunteer,
especially where the contract is for a nominal
consideration, even if it is made under seal.
Injunction -An injunction is another equitable remedy and so is

only granted at the discretion of the court. It is awarded in
circumstances where the award of damages alone will not be an
adequate remedy to compensate the innocent party. The aim is to
restrain the defendant from starting or continuing a breach of a
negative contractual undertaking using a prohibitive injunction or
to compel the performance of a positive contractual obligation
using a mandatory injunction.
In exercising its discretion, the court will usually consider the

same factors as it would in a case of specific performance and
will normally use the balance of convenience test by weighing the
benefit to the injured party and the detriment to the other party.
An injunction will however not be granted if its effect would be
to compel a party to do something which he could not have been
ordered to do by a decree of specific performance.68
An injunction may be issued at the conclusion of a lawsuit such

as in an action for breach of contract. This is referred to as a
permanent or perpetual injunction. In some instances, an
injunction may also be granted while an action is still ongoing
before a court, pending the final determination of the case. This is
referred to as an interlocutory injunction. Where there is extreme
urgency however, the court may grant an injunction on the basis
of an ex-parte application in which case it is called an interim
injunction. Interim injunctions are usually for a short period of
68
Thompson Reuters, Practical Law, uk.practicallaw.com, 2017.
66
time either pending the determination of a Motion on Notice for

an interlocutory injunction, or for a definite timeframe.
Thus an injunction is an efficient way to remedy a breach without

requiring the parties to pay damages. In some instances, the
innocent party is required to choose between a monetary award of
damages and an equitable relief such as an injunction. However,
the breaching party may sometimes be entitled to raise a defense
if the plaintiff is seeking an injunction against them. Since an
injunction is an equitable remedy, equitable defences such as
unclean hands of the plaintiff, laches or delay in asking for the
remedy, or hardship to be caused to the defendant are often
invoked.
67
CHAPTER THREE
AGENCY
Introduction
According to the Business Dictionary69, agency presupposes a

fiduciary relationship between two parties in which one, „the
agent‟ is under the control of, and as such obligated to the other
party, „the principal‟. By virtue of this agency relationship, the
agent is authorized by the principal to perform certain acts, for
and on behalf of the principal. Where this happens, the principal
is bound by the acts of the agent, performed in the course of
carrying out the entrusted duties provided he acts within the scope
of the authority or mandate given to him.
Under the law of agency, this relationship which may be

contractual, quasi-contractual, or non-contractual involves the
agent acting on behalf of the principal to create legal relations
with third parties. In all such instances, the actions or words of
the agent exchanged with a third party bind the principal. The
fiduciary relationship requires the agent to exercise a duty of
loyalty to the principal and to use reasonable care to serve and
protect the interest of the principal70.
An agent who acts in his or her own interest violates this

fiduciary duty and will be financially liable to the principal for
any losses the principal incurs because of that breach. An agency
relationship may be created by express agreement, whether oral
69
www.businessdictionary.com
70
Williams, G.A., The Law of Agency and Partnership (3rd edn.), St. Paul,
Minnesota: West Group, 2001.
68
or written; by implication based on the custom or practice of a

trade; or by conduct of the parties, particularly the principal. In
the case of agency by conduct, the legal doctrine of estoppel
prohibits the principal from denying the existence of an obviously
properly constituted agency.
An agency relationship is usually created by the consent of both

the agent and the principal. The implication is that no one can
unwittingly become and agent for another. The agent‟s authority
may be actual or apparent. Actual authority is created where the
principal intentionally confers express or implied powers to the
agent to act for him. In such a situation, it is as if the principal is
the one acting and as such, the principal is bound by the agent‟s
acts as well as liable for them.
Contrariwise, an apparent authority may arise where the principal

either knowingly or inadvertently permits the agent or third
parties to assume that the agent possesses authority to carry out
certain actions when such authority does not in fact exist. In such
a scenario, where other persons believe in good faith that such
authority exists, the principal remains liable for the actions of the
agent and cannot contend that no such authority was actually
granted.
In both instances, the scope of the agent‟s authority, whether

apparent or actual is considered in determining an agent‟s liability
for his or her actions. Where there is fraud, the agent may
nevertheless be sued in his personal capacity by the third party.71
If the agent is acting on behalf of the principal without express or
implied authority to do so, the law will protect the consumer or
71
Hynes, J. D., Agency, Partnership, and the LLC in a Nutshell, (2nd edn.) St.
Paul, Minnesota: West Group, 2001.
69
client by conferring authority upon the actor even without the

principal‟s permission.
Agency may also be created by circumstances outside the initial

contemplation of the parties. This is known as agency of
necessity. An agent of necessity is one that arises by necessity or
in an emergency. It means that a person may become the agent of
another without being appointed as such formally. This type of
agency is nevertheless recognized in the courts and typically
applies when one party, in this case the principal is unable to
make essential decisions. An instance would be where an accident
victim who is unconscious is taken to the hospital and a stranger,
friend, spouse, or family member makes a decision to allow
medical personnel to operate on the victim by signing a consent
form for the surgery.
The doctrine of agency of necessity is however confined to fairly

narrow limits. In general, four conditions must be satisfied for it
to be invoked:
1. Principal‟s property or other interest must be at stake or

perhaps entrusted to the agent.
2. There must be an emergency, making it necessary for the
agent to act.
3. The agent must have acted in the interest of the principal
and not for his own convenience.
4. It must have been impossible to communicate with the
principal or get instructions from him in the
circumstances.
From the foregoing, it is obvious that although most agencies are

created by contract, agency relationships can also be created
without contract, by agreement. Thus, three contract principles
are especially important:
70
The first is the requirement of consideration - Agencies created

by consent or agreement are not necessarily contractual. Such
arrangements otherwise known as gratuitous agency gives rise to
no different results than the more common contractual agency;
The second is the requirement of writing - Most oral agency

contracts are legally binding. The law does not require that they
be reduced into writing even though in practice many agency
contracts are written to avoid problems of proof. The law
however is that agency contracts that will last for more than one
year, or such that are made to pay a commission to a real estate
broker, give authority to an agent to sell real estate, or contracts
between companies and sales representatives must be in writing;
and
The third is the requirement of contractual capacity. Agency

relationships are in reality contracts by default and so the general
rule that regulates contractual capacity guides them. An agency
contract is therefore either void or voidable when one of the
parties lacks capacity to make it.
Types of Agency.
An agent may be a universal agent, a general agent or a special

agent. This distinction depends on the extent of the principal‟s
right of control and the nature of the acts to be performed by the
agent.72 Thus, the principal may authorize the agent to perform a
variety of tasks usually of a continuing nature, in the ordinary
course of his business, trade or profession on behalf of his
principal, or in fact to act for his principal in all matters, or in all
72
Nnadi, I., Commercial Law in Nigeria (2nd edn.) Owerri: Peace Publishers
Ltd, 2009, 51.
71
matters of a particular trade or business, or of a particular nature.

This scenario creates a general agency relationship of a more
limited authority over a continuous period of time.
The principal may also restrict the agent to specific functions in

which case the authority is limited to doing only a limited or
particular act, business, or transaction. Regardless of the nature,
amount, or scope of authority given to the agent, the important
fact is that such an agent represents the principal and is subject to
the principal‟s control. Consequently, and more importantly, the
principal is liable for the consequences of acts that the agent has
been authorized to perform.
Special agents are authorized to conduct either a single

transaction, or a specified series of transactions over a limited
period of time.
A universal agent however has the widest latitude of discretion

and can do most things for the principal in the course of the
agency relationship. The universal agent may be appointed by a
Power of Attorney. A Power of Attorney is a deed signed by the
principal and witnessed by him appointing the agent. The donor
of the Power gives the agent, otherwise called the Attorney the
authority to act on his behalf in line with the terms of the deed.
Universal agents thus hold broad authority to act and the Power
of Attorney is the foundation of their mandate. This is usually the
case regarding professional relationships such as that between a
client and his lawyer.
Generally, commercial agency regulations require agents to act

dutifully and in good faith in performing their activities. Co-
extensively, principals are required to act dutifully and in good
faith also in their relations with their commercial agents. This
requires principals and agents to act with honesty, openness, and
72
regard for the interest of the other party to the transaction. Two
normative precepts assist in concretizing this standard of conduct:
first, they must mutually cooperate in the performance of their
agreement by proactively taking action to assist each other in the
realization of their bargain; and second, they must avoid engaging
in any conduct that can frustrate the legitimate expectations of
each other.73
Brokers - A broker is a mercantile agent who in the ordinary

course of business is engaged to negotiate contracts on behalf of
another person. A broker may act for the seller, the buyer, or
both. In each situation, the transaction may relate to property,
stocks, shares, insurance policies, or other goods. In all such
instances, the broker owes a fiduciary duty to his principal to
make full disclosure of material information about the transaction
that affects his interest.
Where the broker represents the seller, he is known as the seller‟s

representative or listing agent and works exclusively on behalf of
the seller. The relationship in this case is formed by an express
contract which provides that the named broker is the only person
authorized to deal with the property or interest in question. In
furtherance of this arrangement, the broker will normally receive
a percentage or commission from the price once a sale is made. In
most jurisdictions, the law provides that if the broker knows of, or
comes across any information about the property that would sway
a potential buyer, he must in line with the fiduciary relationship
disclose this information to the principal.
73
Andrea, T., „Commercial Agency and the Duty to Act in Good Faith‟, Oxford
Journal of Legal Studies, Vol. 36, No.3, 661-695, 2016.
73
Analogously, a buyer‟s broker is equally in an agency

relationship similar to that of the seller‟s broker, except that he is
in this case working directly with the buyers or prospective
buyers otherwise called the client. His own fiduciary duty
includes an obligation to disclose defects, liens, judgments on the
property or goods, and even the likelihood of the seller changing
his mind about continuing with the transaction. In most cases, the
buyer‟s broker is granted authority to negotiate on behalf of the
buyer. The broker however has no mandate to sell goods or
property in his own name. His mandate is actually limited to
representing the principal.
A dual agency refers to a situation in which a broker represents

both the seller and the buyer at the same time in a transaction.
This is common in real estate and stock transactions. Despite the
perceived likelihood of a conflict of interest, this situation is
perfectly legitimate as long as both parties are aware and consent
to the arrangement. The dual agent is in such circumstances
required to keep information about price, motivation, or terms
confidential unless expressly authorized to inform the other party
about such information.74 The implication is that the agent in this
situation carries fiduciary responsibilities to both principals. The
mistake of a dual agent in such circumstances constitutes a
mutual mistake of fact by both principals and so none of them can
hold the other liable for such a mistake.
Factors - A factor is a type of agent who sells goods owned by

another, called the principal. The factor engages more frequently
in the sale of merchandise than the purchase of goods. A factor is
distinguished from a mere agent in that a factor must have actual
74
RealityTimes.com, Agency Relationships, 2007.
74
possession of the principal‟s property, while an agent need not.

The factor-principal relationship is created by a contract and both
parties are expected to comply with the terms of the agreement.
Like most other contracts, the agreement is terminable by the
factor, the principal, or by operation of law.
The merchandise entrusted to the factor is called a consignment,

and as such a factor is often synonymously called a consignee.
The factor is however sometimes referred to as a commission
merchant when his or her compensation is based on a percentage
of the price from sales. Usually, the compensation paid to factors
is called „factorage‟. A factor is referred to as either a home factor
or a foreign factor depending on whether he resides in the same
state or country with the principal or in a different state or country
from him.
A factor can bind the principal only in the ordinary course of

business except there is a special authority to bind him otherwise.
He cannot however delegate his duty to another individual
without the knowledge and consent of the principal, unless
custom and usage allow otherwise. He has the implied authority
to do everything reasonably necessary to sell the goods entrusted
to him, and may even make the sale in his own name without
disclosing the name of the principal. But like all other agents, a
factor owes a fiduciary duty to the principal and so must act in
good faith and loyalty for the protection and advancement of the
interests of the principal and may not make a secret profit for
himself.
A factor is liable to the principal when he deals with the goods in

a manner that is inconsistent with the right of the Principal. In
line with this, there is a duty to keep regular and accurate
accounts of all transactions, and the principal has a right to
75
inspect the accounts. A factor has no authority to settle a claim

against the principal, to submit a claim to Arbitration, or to re-
ship goods to another market in order to sell them. He may
however give a warranty with respect to the quality of the goods.
Where a factor advances funds in connection with the goods in

his care and is not reimbursed by the principal, the factor has a
right to sell the goods in order to satisfy the expenditures. He has
a general lien therefore for all commissions due him and for all
expenditures, advances, and liabilities incurred by him for the
principal. But a factor is not entitled to such a lien unless he has
fulfilled all contractual and statutory requirements. It is also
noteworthy that acts of fraud, misconduct, gross negligence, and
breach of contract would cause the factor to forfeit the right to
compensation.
Auctioneers - An auctioneer is a special mercantile agent who

sells the goods of his principal by auction. He gets the possession
of the goods and gives prior publicity to the time and place of the
auction through daily newspapers, pamphlets, or other media of
communication. The goods to be sold by auction are displayed at
the place of auction for the benefit of the intending buyers. The
seller usually quotes the minimum price from where the
auctioneer starts his sale. The lowest price is known as the „upset
price‟. At auctions, a bid is an offer by the bidder - a prospective
purchaser, to pay a designated amount for the property on sale
which the auctioneer may accept.
An auction sale may be „with reserve‟ or „without reserve‟. In

case of auction „with reserve‟, no sale can take place below the
minimum price fixed by the seller which is known as „Reserve
Price‟. In case of an auction „without reserve‟ however, the
76
auctioneer is bound to sell the goods to the highest bidder. The

price for which the bid is accepted is called the „knocked down
price‟. This is obviously because the acceptance of a bid by the
auctioneer is indicated by striking a hammer on the desk by the
latter or in any other customary manner.
After the highest bid is accepted, the auctioneer becomes the

agent for both the seller and the buyer. For his services, the
auctioneer is entitled to a commission, which is a certain
percentage of the proceeds of the sale, usually agreed upon
between him and the seller whom he represents, prior to the
auction.
In both types of auctions, the bidder can withdraw a bid prior to

the auctioneer‟s announcement that the sale has been completed.
A license is often required to act as an auctioneer, but in the
absence of statutes, any person can act as an auctioneer. Because
of the trust and confidence the seller reposes in an auctioneer, the
later cannot delegate the power to sell without special authority
from the seller. The seller can also revoke the authority of the
auctioneer at any time prior to the sale. Any act of a party that
reduces competition in the bidding is contrary to public policy.75
Del Credere Agent - A del credere agent is a mercantile agent

who guarantees his principal for the payment for all the goods he
sells irrespective of the payment received by him or not and who
for the additional risk which he bears is entitled to an additional
commission over and above his normal commission. The extra
commission paid for such a guarantee is called a „del credere
75
Hultmark, C., Internet Marketplace: The law of Auctions and Exchanges
online, New York: Oxford University Press, 2003.
77
commission‟. Thus, the principal of a del credere agent is

guaranteed the payment of the sale proceeds of the goods in full.
In other words, a del credere agent is a surety of the third party
buyer and his liability will only arise when the third party fails,
refuses, and / or neglects to pay for the goods delivered to him.
The special feature of a del credere agency therefore is the fact

that the agent undertakes primarily to sell only to persons who are
solvent. He is however not liable to the principal if the third party
refuses to carry out the contract, such as where the buyer refuses
to take delivery. In insuring the solvency of the buyer, and the
punctual discharge of the debt, the del credere agent is liable in
the first instance without any demand from the actual debtor.
Clearing and Forwarding Agents- A clearing agent is a person

or company that is used for getting goods officially from one
country to another. A clearing agent essentially takes care of the
customs clearance aspect of trans-border businesses. The duties of
a clearing agent include but are not limited to the following:
 To arrange the passing of relevant shipping and import

documents to customs.
 Arrange for customs inspections as may be required.
 Check and process the payment of duty and Vat as
applicable.
 To apply for refunds etc where applicable.
A customs clearing agent is therefore a party authorized by

international customs authorities to certify and manage
consignments of goods between countries. In some jurisdictions,
they are called customs brokers. He handles all import
documentation such as Purchase Order by the buyer, Sales
78
Invoice of the supplier, Bill of Entry, Bill of Lading or Air

Waybill, Certificate of Origin, and any other specific documents
required by the buyer, the financial institution, or the importing
country‟s customs regulations. It is a person or company that is
paid to make sure that all necessary taxes are paid and rules are
followed to ensure that goods are legitimately imported into a
country.
Some clearing agents specialize in particular goods such as

textiles, cars, perishables, or industrial equipment. They are
usually located at inland ports, international airports and harbours
with international traffic. The laws regulating the grant of licenses
to individuals or companies differ from one country to the other.
A freight forwarder basically secures the business of various

exporters and importers and has the following duties:
 To store cargo belonging to the clients at their warehouse.

 To arrange the distribution or „forwarding‟ of the cargo as
per the instructions of the client.
 To negotiate freight rates with the shipping line to cover
the interest of the clients.
 To book the cargo with the shipping line in accordance
with the client‟s instruction.
 Prepare bills of lading and associated shipping
documentation.
Although clearing and forwarding agents are not government

employees and so should not be confused with customs officers,
however they need to be familiar with the tariff schedule, duty
rates for various categories of imported items, the statutory laws
governing importations and other trade related matters. Armed
with such knowledge, the clearing and forwarding agents can then
effectively advice an importer or exporter on the prevailing
79
regulations of a given country as well as complete paperwork for

shipments seamlessly while avoiding costly delays, merchandise
seizures, fines, and penalties that may be levied against their
clients.
Liability of Principal and Agent
Where a principal directs the agent to commit a tort, or knew that

the consequences of the agent‟s carrying out of his instructions
would bring about harm to someone, the principal is directly
liable. This is an application of the general Common Law
principle that one cannot escape liability by delegating an
unlawful act to another.
Similarly, a principal who is negligent in the use of agents will be

held liable for their negligence. This is especially so when he fails
to supervise such agents adequately, gives faulty directions, or
hires incompetent or unsuitable people for a particular
assignment. In all such instances where the principal‟s own
conduct is the underlying fault, imposing liability is justifiable
and so he is directly liable.
Where however the principal had no knowledge of the acts

leading to the alleged fault, the law creates a window for the
principal to be held vicariously liable provided the acts leading to
the injury were committed by the agent within the scope of his
employment. This is the case notwithstanding the fact that the
principal may in such situations actually have had no intention to
commit the said acts, nor had any involvement in them or may
even have expressly prohibited the agent from engaging in them.
This is the principle of respondeat superior which means „let the
master answer‟ which creates vicarious liability in law.
80
Despite the existence of this principle of vicarious or in some

cases direct liability, the agent may however in some instances
incur personal liability. This could happen in any of the following
instances irrespective of the fact that generally an agent is not
personally responsible for the contracts made by him on behalf of
his principal. They include:
Foreign Principal – When a contract is made by an agent for the

sale or purchase of goods for a merchant resident abroad, the
agent incurs personal liability in case of a breach of the contract.
However, an agent can avoid this personal liability by expressly
providing in the contract his desire not to be personally bound or
to incur personal liability.
Undisclosed Principal – Where an agent fails or refuses to

disclose the identity or name of his principal, the third party can
sue the agent personally and he may be found liable if such third
party had relied on his presumed authority. But where the agent
discloses that he is only an agent or the third party knows that he
is acting as an agent of another, then the agent will not be
personally liable.
Principal who cannot be sued – Where the agent represents a

principal who cannot be sued, such as a foreign sovereign or
diplomatic authority, a minor, or a person of unsound mind, etc.,
or where the principal is otherwise disqualified by operation of
law from contracting, though otherwise competent to do so, the
third party can hold the agent personally liable especially if he did
not communicate this inability of the principal to the innocent
third party.
Personal Liability by Agreement – Where the agent expressly by

agreement, or impliedly by conduct undertakes personal liability
under the contract, the third party can validly sue him on the
81
strength of that undertaking provided such agreement was made

at the time of entering into the contract.
Agent‟s liability for breach of warranty – Where the agent acts

without authority or beyond the authority granted him, he can be
held personally liable if he commits a breach of warranty in the
process.
Agent signing contract in his own name – An agent will be held

personally responsible where he signed a negotiable instrument
such as a Bill of Exchange or a Promissory Note in his own name
and without making it clear that he is signing as an agent.
Agency coupled with interest – Where the contract of agency

relates to a subject matter in which the agent has a special
interest, the agent shall be personally liable to the extent of his
interest since he shall be a principal with particular reference to
that interest. In such a situation, the agent can also enforce the
contract to the extent of his own interest.
Non-existent principal – If an agent acts for a non-existent

principal, he shall be held personally liable as if he had contracted
on his own account. This is usually the case regarding the
promoters of a company that is yet to be incorporated.
Where an agent receives or pays money by mistake or fraud – If

an agent receives cash from a third party by mistake or fraud, he
will be personally liable to such third party for the refund of such
money. Likewise, if he pays money to a third party by mistake or
fraud, he can recover it back from the person to whom it has been
paid.
Where the trade, usage, or custom of the trade makes him

personally liable – An agent may incur personal liability where
82
the trade, usage, or custom of a particular trade provide that he

shall be personally liable for the contract or liability arising
therefrom.
Duties of an Agent.
An agent owes the principal a number of duties, the following are

the most significant:
Duty to act in the best interest of the Principal - An agent has a

primary duty to undertake the task or tasks specified by the terms
of the agency in the principal‟s best interest. This requires the
agent to act in the best interest of the principal at every stage of
the transaction.
Duty to act on behalf of and be subject to the control of the

principal - Agents are under a duty to obey the lawful and
reasonable instructions of the principal. Where the principal‟s
instructions are clear, the agent does not normally have any
discretion and must follow those instructions, unless an agent is a
professional and the principal relies on the agent to exercise his
skills.
Duty to discharge his duties with care and due diligence -

Generally speaking, an agent in a certain profession, trade, or
calling who performs his duty with the degree of care and skill
expected of a reasonable, average member of the relevant
profession, trade or calling meets the requisite standard herein.
Duty to avoid conflict of interest – An agent must not accept any

new obligations that are inconsistent with the duties owed to the
principal. Where an agent has to represent the interest of more
than one principal, he may only do so after full disclosure to
83
avoid conflicting or potentially conflicting interests coming to the

knowledge of the principal as a surprise. Furthermore, the
existence of a fiduciary relationship requires that an agent must
not usurp an opportunity from the principal by taking it for
himself or passing it on to a third party.
Duty not to make secret profits – An agent should not make secret
profit or acquire any benefit in the course of his agency. An agent
who has made a secret profit is liable to account to the principal
for such profit in addition to any other remedies available to the
principal for the agent‟s breach of duty. This extends to the use of
property entrusted to the agent by the principal, the use of his
position as agent to obtain any benefit, and the use of information
or knowledge acquired in the course of his duty as agent for his
personal gain.
Duty to keep and render accounts – An agent has a duty to keep

accurate financial records, take receipts, and otherwise act in
conformity with standard business practices.
Duty of confidentiality - An agent has a duty not to disclose any

information concerning his principal or any other confidential
information entrusted to him by the principal or any third party
without the principal‟s consent. Such confidential information
includes any information which is not readily available to the
public. This duty is in force even if the agent has ceased to act for
the principal, unless the principal consents to the disclosure or
unless the information has ceased to be confidential. However, an
agent has implied authority to disclose information concerning
the principal if to do so is necessary for the agent to carry out the
duties entrusted to him by the principal.
84
Duties of the Principal.
A principal owes certain contractual duties to his agent correlative

to the duties of an agent to serve the principal loyally and
obediently. Primarily the principal‟s duties include:
To remunerate or otherwise compensate the agent as agreed -

This is arguably the most important duty of the principal as the
agent essentially goes into the contact in anticipation of the
expected or anticipated remuneration.
Duty to reimburse or indemnify the agent against claims – The

principal also has a duty to reimburse or indemnify the agent
against all claims, liabilities, and expenses incurred in the course
of discharging the duties assigned by the principal to the agent.
This is the position of the law provided the agent acts within the
scope of the actual authority given to him irrespective of whether
the particular expenditure was expressly authorized or merely
incidental to promoting the principal‟s business.
Duty of good faith and fair dealing - Because of the fiduciary

relationship, a principal owes his agent a duty of good faith and
fair dealing in their transactions. Thus, a principal has a duty to
act in accordance with the express and implied terms of any
contract between him and the agent. However, this duty is mutual
and so a principal can be relieved of contractual obligations by an
agent‟s prior breach of contract.
Duty of non-interference – A principal has a duty to refrain from

unreasonably interfering with the agent‟s work. The principal is
allowed however to compete with the agent unless the agreement
between the parties specifically prohibits it.
85
Duty of notification of risk – The principal has a duty to inform

his agent of risks of physical harm or pecuniary loss that inhere in
the agent‟s performance of the assigned tasks. This is especially
so where such risk is unknown to the agent but known to the
principal. Failure to do so would subject the principal to a suit for
damages if the agent is injured in the course of performing his
task due to his lack of knowledge of the inherent risk that the
principal knows about.
Duty to render account – A principal is obliged to render accounts

of monies due to his agent. This is especially so where failure to
do so will lead to the agent being short-changed at the point of
remuneration. A principal‟s obligation to do so depends on a
variety of factors, including the degree of independence of the
agent, the method of compensation or remuneration agreed upon,
and the customs of the particular business.
Termination of an Agency Relationship.
An agency relationship may be terminated either by an act of the

parties or by agreement:
1. By act of the Parties.
An agency relationship may come to an end through a variety of

ways consequent upon acts of the parties. They include: (a)
Discharge; (b) Withdrawal of services by the agent; (c) By the
agent renouncing the agency business. (d) Revocation by the
principal.
Where the agent has been able to conclusively perform all his
obligations in line with the contract, the agency relationship
would have been discharged via performance. Withdrawal of
86
services occurs where the agent for some reason decides not to
continue representing the particular principal again in the
transaction. Renunciation however envisages a situation in which
the agent totally withdraws from the agency business entirely.
Finally, the authority of an agent may be revoked at any time by

the principal. However, unilateral revocation otherwise than in
accordance with the provisions of the agency agreement may
render the principal liable for breach of the agreement. The
principal also cannot revoke the agent‟s authority after it has been
exercised so as to bind the said principal. He cannot terminate the
agency before the time agreed upon in case of an agency for a
fixed period. If he does, he is liable to compensate the agent for
any loss caused by such action. The law requires a party who
wishes to terminate an agency relationship to give reasonable
notice to the other in the absence of which such a party will have
to pay for any loss or damage resulting from such want of Notice.
It should be noted however that want of skill, continuous

disobedience of lawful orders, and rude or insulting behaviour are
sufficient cause for the lawful dismissal of an agent. Either way,
the revocation or renunciation of an agency may be made either
expressly or by conduct, except where the agent was
commissioned by deed, in which case termination of his authority
must be made in writing. Nevertheless, the termination does not
take effect as regards the agent until it becomes known to him,
and as regards third parties, until the termination is known to
them.
In all such instances, the agency relationship would have been

terminated. The agent who unilaterally decides to withdraw from
an agency contract will however be liable to compensate the
principal for any loss caused by such action.
87
2. By agreement.
Since an agency agreement is usually created by an agreement by

the principal and the agent, the parties can also by mutual
agreement either in writing or orally terminate the contract.
Termination by agreement may also occur if the agency
relationship is terminated pursuant to the provisions of the agency
agreement itself. This may occur either by the agreement
providing for the appointment of the agent for a specified period
of time in which case the agency will come to an end
automatically when that period of time expires, or by the
agreement providing for the agency to terminate upon the
occurrence of a specified event.
88
CHAPTER FOUR
SALE OF GOODS
Introduction.
A contract of sale of goods is a legal contract and obviously an

ancient practice of exchange. In many Common Law
jurisdictions, it is now governed by statutory law. Contracts for
sale of goods are governed by the Uniform Commercial Code
(UCC) in most of the United States and Canada. In Nigeria, the
law governing the sale of goods is the Sale of Goods Act, (SGA)
1893, an English Statute of General Application that is still used
in Nigeria till date apparently due to the inefficiency of the
Nigerian National Assembly; the rules of English Common Law
that are not inconsistent with the express provisions of the Sale of
Goods Act, 1893; and other Nigerian statutes particularly the Sale
of Goods Laws of some states. Equally applicable are other
international instruments that are not inconsistent with these
statutes such as the United Nations Convention on Contracts for
the International Sale of Goods (CISG).
A contract of sale of goods is defined as provided in Section 1(1)

of the Sale of Goods Act (SGA), 1893 as „a contract whereby the
seller transfers or agrees to transfer the property in goods to the buyer for a
76
money consideration called the price‟. The purport of this definition
as stated above is that goods and monetary consideration are
necessary pre-requisites for a valid contract of sale. A contract of
sale of goods may be absolute or conditional. If, under a contract
of sale of goods, transfer of the property in the goods is to take
76
See also the case of Punch (Nig) Ltd v. Jumsum (Nig) Ltd (2011) ALL
FWLR (Pt. 567) pg. 1806 – 1810.
89
place at a future time or subject to some condition to be fulfilled

in future, the contract is called “an agreement to sell”. An
agreement to sell becomes a sale when the time elapses or the
conditions are fulfilled subject to which the property in the goods
is to be transferred. However, a contract of sale of goods which
transfers the property in the goods from the seller to the buyer at
the time the contract is made is called “a sale”.
Essential Elements of a Contract of Sale
The following are the essential elements of a contract of sale:
1. Parties
2. Goods
3. Price (Consideration)
4. Offer and Acceptance
5. Intention of the parties to create a legal contract
The Nigerian Supreme Court in the case of Mini Lodge Limited v.

77
Ngei held that a contract of sale exists where there is a final and
complete agreement of the parties on the essential terms of the
contract, namely, the parties to the contract, the property to be
sold, the consideration for the sale, and the nature of the interest
to be granted. Once there is a concrete agreement on these
essential terms, a contract of sale of goods is made and
concluded.
Parties - There must be at least two parties, i.e. one buyer and the
other, the seller. Thus, a person cannot buy his own goods. For
77
(2011) All FWLR (Pt.505) Pg. 1806 – 1810.
90
instance, Vera pretends to be the owner of the goods and sells

them to Flora. If the goods already belong to Flora, she cannot
buy her own goods, hence there is no sale and the contract is not
valid. Unlike in ordinary contracts, what governs parties and their
privies when they go into a commercial contract of sale of goods
is their express desire or willingness to engage in such a contract.
Section 2 of the Sale of Goods Act, 1893 provides that the

capacity to buy and sell is regulated by the general law
concerning capacity to contract, and to transfer and acquire
property. Provided that where necessaries are sold and delivered
to a minor, or to a person who by reason of mental incapacity or
drunkenness is incompetent to Contract, he must pay a reasonable
price therefor.
It must be noted however that with particular reference to the

seller, the law is that no one can give a better title than he himself
possesses. Thus, one who has no title to the goods that form the
subject matter of the transaction ordinarily has no authority to sell
and cannot offer a valid title. This is captured by the maxim
“nemo dat quod non habet” which literally means that you cannot
give what you do not have. This basic principle is now further
secured by statute. In this regard, Section 21(1) of the SGA
provides that:
“Subject to the provisions of this Act, where goods are sold by a

person who is not the owner thereof, and who does not sell them
under the authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had, unless the
owner of the goods is by his conduct precluded from denying the
seller‟s authority”.
Despite this general rule, there are however some exceptions to

this position of the law and indeed, some of the exceptions
equally have statutory flavour. They include the following:
91
1. Sale under a Court Order – Section 21(2)(b) SGA –

Sometimes the court may appoint a Receiver, Liquidator,
or Auctioneer to take possession of goods and sell them,
though they are not the owners of the goods. If any person
buys these goods from such an appointee of the court, the
buyer acquires good title even though the seller in the
circumstance is not the real owner of the goods. This is
common regarding properties sold or acquired under a
writ of fieri facias otherwise called fifa.
2. Sale under Common Law or Statutory Powers – In some
limited exceptions, the Common Law may permit a
person who is not the owner of goods to validly sell them
and in so doing confer good title to the buyer. Instances
include sales by a pledgee, an innkeeper, a mortgagee, or
an agent of necessity. A sale by any of them who do not
have express authority to sell will be treated as an
exception to the rule of nemo dat quod non habet.
3. Sale in a Market Overt – Section 22(1) SGA – There is a
belief that where goods are sold in an open, public, and
established market, the title to such goods would be
validly transferred to the buyer provided the transaction
occurred during daylight hours. Although there have been
criticisms against this position, the rule seems to have
remained in force till date.
4. Sale under a Voidable Title – Section 23 SGA – Where
the seller of goods has a voidable title but his title has not
been rendered void at the time of the sale, the buyer
acquires a good title, provided he buys them in good faith
and without notice of the seller‟s defect in title. In such
situations, the court must be able to discern that it was the
intention of the original owner to rescind the contract and
that this intention was formed before the sale took place.
92
Thus, a buyer may not acquire good title where the owner
has clearly commenced proceedings to void the seller‟s
title.
5. Sale by a Seller in Possession – Section 25 SGA – Where
a seller who remains in possession of goods after the sale
with the consent of the buyer goes ahead to make a further
and unauthorized sale of the goods, the later buyer will
acquire a good title provided he had no knowledge of the
original sale. In such a situation, the most recent sale takes
precedence over the earlier transaction. The situation is
the same if what the seller retained was the title
documents.
6. Sale by a Buyer in Possession – Section 25(1) SGA –
Where a buyer who contracts to buy goods takes
possession of the goods and perhaps presents a cheque in
assurance of the promise to pay, he can still resell and
transfer good title to the goods to a third party even if his
cheque fails. The fact that he issued a dud cheque does not
invalidate the subsequent sale provided the later buyer is
not aware that he had not in fact paid for the goods in the
practical sense and transacts with him in good faith.
7. Sale by a Mercantile Agent – A mercantile agent is one
who in the customary course of business, has authority to
sell or to consign goods for sale, or to buy goods, raise
money on the security of goods.78 He must be someone
who has a business, and who in the course of that business
buys or sells goods for other people and in other respects
in the ordinary way in which a mercantile agent would act
so that there is nothing to give the buyer reason to believe
that anything wrong is being done, or to give him notice
that the disposition is one which the mercantile agent had
78
Section 1(1) Factors Act, 1889.
93
no authority to make. A mercantile agent must conduct the

business of dealing in goods. Where such a person sells
goods belonging to another in the course of his routine,
the buyer acquires good title.
8. Estoppel – Estoppel essentially refers to a situation where
someone is prevented by law from enforcing a particular
right. In this context, estoppel works to prevent an original
owner from claiming ownership over items that have been
wrongly sold by a third party. This could be through either
of two ways: the first is estoppel by representation in
which case if the true owner has represented to the buyer
that the seller has authority to sell and the buyer goes
ahead to transact with the seller, the owner cannot later
say that the earlier representation is not true; the second is
estoppel by negligence which says that the buyer will get
good title where the owner has not taken sufficient care to
ensure that his goods are not sold by a third party who has
no authority to do so.
9. Sale under Agency – Section 21(1) SGA – An agency
relationship exists if a person has the consent of the owner
to possess his goods as a “mercantile agent”. This includes
business arrangements where commercial agents are
entrusted to make certain decisions concerning property
on behalf of a principal. Thus, if a person is in possession
of goods with the consent of the owner as a mercantile
agent, any sale by that person is valid even if the owner
does not provide express authorization for the sale. This
means that an innocent purchaser can acquire good title to
the goods if wrongly sold by the agent. Note that this
exemption continues to apply where the agent‟s authority
has ended provided the buyer is not aware that the agency
relationship has come to an end.
94
10. Sale by one of Joint Owners – When goods are sold by

one of the several joint owners, the buyer shall get a valid
title if the following conditions are satisfied:
 The joint owner who makes the sale was in
possession of the goods with the permission of the
other joint owners;
 The buyer acted in good faith and without notice
that the seller had no authority to sell.
Goods - The subject matter of contract of sale must be movable

goods. Sale and purchase of immovable property is regulated by
various Transfer of Property Acts. Contracts relating to services
are also not treated as contracts of sale. Thus, the subject matter
of a sale of goods contract must be goods which can be moved.
Goods are defined by the Black‟s Law Dictionary79 as tangible or
movable personal property other than money, especially articles of trade or
items of merchandize. It includes all things which are moveable at
the time of identification to the contract for sale other than the
money in which the price is to be paid, investment securities, and
things in action. Section 62(1) of the Sale of Goods Act defines
goods to include all chattels personal other than things in action and
money goods includes emblements such as industrial growing crops, and
things attached to the land, but to be severed before sale or under the
contract of sale.
While the above definition is fairly extensive and virtually all

embracing there are nevertheless some goods or things which do
not, or may not fall within the definition. The definition clearly
excludes non–physical items of commercial value and transaction
such as company shares, which are technically “things in action”
79
Op.cit.
95
or incorporeal movables and so are excluded by the plain words

of the definition.
Similarly, “intellectual property” such as copyrights, patents, and

trademarks are not personal chattels or incorporeal movables and
so fall outside the definition, although of course goods may exist
which embody these intellectual property rights. Another modern
area of doubt as to the scope of the definition of goods has been
noted. It is not wholly clear whether the term goods would cover
human blood transfusion or other similar items not ordinarily
thought to be the subject of commerce.
Furthermore, in modern times an important point not yet wholly

resolved, is whether computer software may constitute “goods”
within the meaning of the Act. Software is normally embedded in
some physical form, such as disks, or as part of a package in
which it is sold along with computer hardware such as computer
parts. It is protected as a literary work by the law of copyright.
Usually only the medium, in which the software is embedded,
such as a disk, is sold. The copyright in the software remains the
property of the maker who developed it. The software house
licenses the user to make working copies of the disks and to load
the software into a computer, acts which otherwise would be
infringements of copyright.80 Software can also be delivered
online subject to licensing terms.
The question as to whether or not a supply of computer software

amounts to a sale of goods, has had to be answered both by the
Outer House of the Court of Session and by the Court of Appeal
in the case of Beta Computers (Europe) Ltd v. Adobe Systems (Europe)
Ltd81, wherein Lord Penrose held that “the supply of a proprietary
80
See Section 17(1) and (2) of the Copyright, Design and Patents Act 1988.
81
(1996) SLT 604.
96
software for a price was a single contract sui generis though it contains
elements of a contract for sale of goods and grant of license. If the medium
on which the programme was recorded, right to access and use of the
software were accepted by the buyer it could be called contract of sale of
goods”.
Similarly, in the case of St. Albans City and District Council v.

82
International Computers Ltd Scott Baker J and Sir Lain Glidewell
of the Court of Appeal held that a computer software contained in
a disk was „goods‟ within the express provisions of Section 61
now 62 of the Act in as much as where such disk is defective, the
seller would be in breach of the implied conditions as to fitness
and quality.
Finally, Steyn J in Eurodynamics Systems v. General Automation

Ltd83held that the transfer of software whether in a physical
medium or online is a transfer of products just like books and as
such should be seen as goods within the meaning of the
provisions of the Act.
Different Types of Goods
Goods may be classified into:
Existing Goods - These are the goods owned and possessed by

the seller at the time of the contract. They are goods actually in
existence when the contract is made. Such existing goods may
either be specific or unascertained.
Future Goods - These are goods not yet in existence, and goods in
existence but not yet acquired by the seller. In other words, they
82
(1996) All ER 481.
83
6th of September, 1988, Unreported.
97
are goods yet to be acquired or manufactured by the seller after

the contract has been made or concluded. For purposes of passing
of property it is however safe to say that future goods, if
sufficiently identified, may be termed specific goods, the
destruction of which may frustrate the contract. Thus in Howell v.
Coupland84, a sale of 200 tons of potatoes to be grown on a
particular piece of land was held to be a sale of specific goods,
despite the fact that they were not in existence yet.
Specific (Ascertained) Goods - These are goods which have been

identified and agreed upon at the time of making the contract. For
example a 2009 Toyota Camry with a given Chassis and Engine
number. Section 17(1) of the SGA provides that where there is a
contract for the sale of specific or ascertained goods, the property
in the goods is transferred to the buyer at such time as the parties
intend it to be transferred.
Unascertained Goods - These are goods sold by description, but

which are not identified or agreed upon at the time of the contract
but included in a particular class of goods, for example „12 tons
of grade one cocoa‟.
Price (Consideration) - The price of the goods sought to be sold

is one of the necessary pre-requisites and as such an essential
element of a valid contract of sale. According to Black‟s Law
Dictionary 8th edition, it is defined as the amount or other
consideration asked for or given in exchange for something else.
It is the value or the cost at which something is bought or sold.
Before there can be a contract, there must be a definite offer by
the offeror and a definite acceptance by the offeree and ordinarily,
84
(1876) 1 Q.B 258.
98
contracts are enforceable when there is consideration.

Consideration is therefore something that indicates conclusively
that the promisee intended to be bound. It is thus mandatory for
enforceability of a commercial contract.
Consideration must move from the promisee and although it need

not be adequate but it must have some value in the eyes of the
law. There are some contracts where it is difficult to identify the
offer, acceptance, and consideration. Instances will include some
multipartite and settlement contracts. In such a situation a valid
contract exists when the parties are ad idem on all the terms of
their agreement and this is established by all sides to the
agreement appending their signatures to the contract document.85
Further, Section 8 of the Act provides thus;
 The price in a contract of sale may be fixed by the

contract, or may be left to be fixed in the manner thereby
agreed, or may be determined by the course of dealing
between the parties.
 Where the price is not determined in accordance with the
foregoing provisions, the buyer must pay a reasonable
price. What is a reasonable price is a question of fact
dependent on the circumstances of each particular case.
In other words, price in a contract of sale may be fixed by the

parties or be left to be fixed in a manner provided by the contract
such as valuation or an arbitration; it may be determined by the
course of dealing between the parties such as previous
transactions between them or any relevant custom of trade or
85
See Abba v. S.P.D.N.L.(2013) All F.W.L.R. (Pt. 708) Pg. 812 @ 815 – 817;
College of Medicine v. Adegbite (1976) 5 SC 149.
99
profession. If however the price is not so fixed or determined,

there is a presumption that the buyer will pay a reasonable price.86
Section 8 of the Act appears to have given rise to more difficulty

than might have been contemplated by the legislature. The section
assumes that a contract has been made by the parties and then
proceeds to explain the methods by which the price can be
ascertained. But the first point which must be considered in an
action on the sale of goods is whether a contract has in fact finally
been agreed upon by the parties as the absence of an agreement
regarding the price may show that the parties have not yet reached
a conclusive contract.
Another problem concerns the question as to whether the parties

can make a binding contract in which they agree to fix the price at
some future date. While Section 8 of the Act says that the price
can be left to be fixed in a manner agreed, does this exclude the
possibility that “the manner‟ may simply require the parties to
“agree” on the price? One view is that the parties simply cannot
make a binding contract for the sale of goods at a price to be
„agreed‟, and that Section 8 does not apply to such cases, because
under that section the buyer would have to pay a reasonable price,
which is the price that was fixed by a judge, which is not the
same thing as a price agreed between the parties.
Offer and Acceptance - An offer is a promise by the offeror to

do or abstain from doing something, provided that the offeree will
accept the offer and pay or promise to pay the price, while an
acceptance is an offerree‟s assent, either by express act or by
implication from conduct, to the terms of an offer in a manner
86
See Matco Ltd. v. Sante Fe Development Co. Ltd (1971) 2 N.C.L.R. 1.
100
authorized or requested by the offeror, so that a binding contract

is formed. Where there is a contract by which one party
undertakes to supply the other with goods, the buyer upon
accepting the delivery of the goods is bound to pay the purchase
price of the goods.87 In a contract for sale of goods, due delivery
requires the buyer‟s acceptance of the goods delivered by the
supplier. Consequently, unless and until the buyer or his
representative accepts and signs the waybill, due delivery is not
done.
Offer and acceptance as essential prerequisites of contract of sale

of goods are usually terms, conditions and representations made
by the parties in the course of commercial transactions. These
representations may be incorporated in the contract as express
terms of the contract. Such terms may either be in the form of
conditions or warranties depending on their nature.
The Act provides certain conditions and warranties that are

statutorily implied in the absence of any contrary agreement the
breach of which may amount to a substantial failure of the
contract or entitle an aggrieved party in the case of breach of an
implied warranty to an award of damages, but not a right to reject
the goods and treat the contract as repudiated. These implied
conditions relate mainly to title, description, fitness for a purpose,
merchantability, and the bulk corresponding with the sample. The
implied conditions as provided in the Act are as follows:
Title - There is an implied condition that the seller of goods in the

case of a sale, has a right to sell the goods and that in the case of
an agreement to sell, he will have a right to sell the goods at the
87
See Abba v. S.P.D.C.N.L.(supra); Akerele v. Atunrase (1969) 1 All N.L.R.
201; and, Adelaja v. Fanoiki (1990) 2 N.W.L.R. (Pt. 131) Pg. 137.
101
time property is to pass88. The remedy for the breach of this

condition is rescission. No property in the goods will pass to the
buyer therefore and the buyer can recover any price paid or if he
has not paid he can refuse to pay. This statutory position is in
contrast with the Common Law principle of caveat emptor
meaning „buyer beware‟.
Compliance with Description - In a contract for sale of goods by

description, there is an implied condition that such goods sold by
description shall correspond with the said description.89 This
condition usually applies where the buyer has not had the
privilege of seeing the goods physically but is relying on the
description given by the seller. If it is shown that the goods do not
correspond with the description, the buyer may reject them.90
Fitness for Purpose - Where a buyer expressly or impliedly makes

known to the seller the particular purpose for which the goods are
required showing that the buyer relies on the seller‟s skill or
judgment and the goods are of a description, there is an implied
condition that the goods shall be reasonably fit for that purpose.91
Here there is a proviso that in the case of a contract for sale of a
specified article under its trade name, there is no implied
condition as to its fitness for any particular purpose. It is also
noteworthy that before this implied condition can be invoked, it
must be shown that: (i) the seller sold the goods of that
description; (ii) that the seller actually knew the purpose for
which the goods were required; and (iii) that the buyer placed
reliance on the seller‟s skill and judgment.
88
Section 12(1) of the Sale of Goods Act (SGA), 1893.
89
Section 13, SGA.
90
See Re Moore and Co Ltd v. Landauer and Co.(1921) 2 K.B. 519.
91
Section 14(1), SGA
102
Merchantability - Another implied condition is that of

merchantability. Where goods are bought by description from a
seller who deals in goods of that description whether or not he is
the manufacturer, there is an implied condition that the goods are
of merchantable quality92. If however the buyer has had the
opportunity of examining the goods, there shall be no implied
condition as regards defects which such examination ought
ordinarily to have revealed.
Bulk to Correspond with the Sample - Where there is a sale by

sample Section 15(2) provides that: (i) There is an implied
condition that the bulk shall correspond with the sample in
quality;93 (ii) There is an implied condition that the buyer shall
have a reasonable opportunity of comparing the bulk with the
sample. (iii) There is an implied condition that the goods are free
from any defect rendering them un-merchantable which would
not be apparent on reasonable examination of the sample.
Outside these conditions hereinabove mentioned, there is an

implied warranty that: (1) the buyer would enjoy quiet
possession of the goods; and that (2) the goods shall be free from
any charge or encumbrances from any third party not declared or
known to the buyer.94 Breach of Section 12(1) will entitle an
aggrieved party to the right to recover the price of the goods,
while breach of Section 12(2) will entitle an aggrieved party to
recover additional damages.
92
Section 14(2), SGA.
93
Sale of Goods Act.
94
See Rubicon Computers Systems Ltd v. United Paint Ltd (2000) 2 T.C.L.R.
454; See also Section 12(2) & (3) of the SGA.
103
Intention to create legal relations - Parties‟ intention to create a

legal contract is also an essential requirement of a contract for the
sale of goods. The Act in Section 12(2) states that for the purpose
of ascertaining the intention of the parties, regard shall be had to
the terms of the contract, the conduct of the parties, and the
circumstances of the case.95 Where however the intention of the
parties cannot be discovered, Section 18 of the Act lays down five
rules for ascertaining the intention of the parties as to the exact
time when the property in the goods is to pass to the buyer. It is
relevant to note that even if the parties expressly state in the
agreement when they intend the property to pass it will have no
effect if prior to the said agreement the property in the goods had
expressly passed to the buyer.
The first four rules in Section 18 of the Act deal with specific
goods while the fifth deals with unascertained goods. Here it is
important to note that, the rules will only apply where there is no
different intention between the parties for Section 18 specifically
states „unless a different intention appears‟.
Rule 1: Where there is an unconditional contract for the sale of

specific goods in a deliverable state, the property in the goods
passes to the buyer when the contract is made. It is immaterial
whether the time of payment or delivery or both be postponed.
Rule 2: Where there is a contract for the sale of specific goods

and the seller is bound to do something to the goods for the
purpose of putting them in a deliverable state, the property does
not pass until such thing is done and the buyer has notice thereof.
95
Afrotec Technical Services (Nig) Ltd v. MIA & Sons Limited & Anor
(2000) L.P.E.L.R. – SC.132 / 1992.
104
Rule 3: Where there is a contract for the sale of specific goods in

a deliverable state but the seller is bound to weigh, measure, test
or do some other acts or thing with reference to the goods for the
purposes of ascertaining the price, the property does not pass until
such act or thing is done and the buyer has notice thereof.
Rule 4: When goods are delivered to a buyer on “approval” or on

“sale or return” or other similar terms, the property therein passes
to the buyer:
a. When he signifies his approval or acceptance to the seller,

or does any other act adopting the transaction; or
b. If he does not signify his approval or acceptance to the
seller, but retains the goods without giving notice of
rejection, then if a time has been fixed for the return of the
goods, on the expiration of such time, and if no time has
been fixed, then on the expiration of a reasonable time.
Rule 5: Where there is a contract for the sale of unascertained or

future goods by description and goods of that description and in a
deliverable state are unconditionally appropriated to the contract
either by the seller with the assent of the buyer or by the buyer
with the assent of the seller, the property in the goods thereupon
passes to the buyer. Such assent may be express or implied and
may be given either before or after the appropriation is made.
Where in pursuance of the contract, the seller delivers the goods

to the buyer or to a carrier or other bailee or custodian whether
named by the buyer or not for purpose of transmission to the
buyer and does not reserve the right of disposal, he is deemed to
have unconditionally appropriated the goods to the contract.
105
Sale Distinguished from Other Transactions
Sale and Exchange - The consideration required under Section

1(1) of the Act must be money in respect of a contract for a sale
transaction, whereas an exchange involves a transfer of goods and
other goods. A contract of exchange simply means the giving of
goods to the person in exchange for the other person‟s goods
otherwise called trade by barter. In other words, money, which is
a pre-requisite for a contract of sale is not involved in a contract
of exchange. Nevertheless, when there is exchange, the property
in the goods passes. A contract of sale may involve an exchange
of goods, on the one hand, with the other person‟s goods plus
money, on the other hand. In other words, consideration may be
partly in money and partly in goods or some other article of value.
Sale and Bailment - A bailment is a transaction under which

goods are delivered by one party, called the bailor to another
referred to as the bailee on certain specified terms, which
generally provide that the bailee is to have possession of the
goods and subsequently to redeliver them to the bailor or in
accordance with his instructions. The property in the goods is not
intended to, and does not pass on delivery, and in fact remains
with the bailor, though it may sometimes be the intention of the
parties that it should pass in due course, as in the case of the
ordinary hire-purchase contract.
In a sale on the other hand, there is usually an indication that the

property in the goods would pass to the other in the transaction.
In other words, in a contract for bailment there is no transfer of
property in the goods from the bailor to the bailee rather only
possession, whereas in the case of a sale, from our definition
under Section 1(1) of the SGA, the property in the goods will be
transferred from the seller to the buyer.
106
Sale and Skill & Labour - A contract for skill and labour
involves a situation where a person in exchange for money offers
services. A contract for sale of goods however contemplates the
delivery of a chattel. But if the substance of the contract is for the
exercise of skill and the delivery of the chattel is only subsidiary,
the contract is not one of sale of goods. For instance if a picture
dealer engages an artist to paint a picture which the dealer then
sells in the ordinary course of business, there is a contract of sale
of goods, but if a person who is not a dealer commissions an artist
to paint a portrait, the contract is not one of sale but for skill and
labour. In Robinson v. Graves96 it was held that whether a transaction
is a contract for sale or contract for skill and labour will depend
on which is substantive or ancillary: if the product is the
substance of the transaction, then it is a contract of sale, but if it is
ancillary, then it is one of skill and labour.
Sale and Hire-Purchase–A hire-purchase agreement is strictly

not a contract of sale. It is a bailment of goods to the hirer
coupled with an option to purchase on some specified terms or to
return the goods. In hire-purchase agreements, there is only a
transfer of possession. The property in the goods remains vested
in the owner. A hirer under a hire-purchase agreement only has an
option to buy which he may not exercise. In legal sense, the
distinction between a contract of sale and a hire-purchase
agreement is clear and extremely important. A sale is a contract
whereby the seller transfers or agrees to transfer the property in
goods to the buyer. It follows that as soon as the contract of sale
is made, the ultimate destination of the goods is determined, even
though the property is not to pass for some considerable time, for
instance, until all instalments of the price have been paid.
96
(1935)1 K.B. 579; (1935) All E.R. 935.
107
A contract of hire-purchase, on the other hand, is a bailment of

goods coupled with the option to purchase them, which may or
may not be exercised. It is only when the option is exercised that
a hire-purchase agreement is converted to a contract of sale. A
contract of sale usually involves two parties while hire-purchase
sometimes involves three parties whereby the seller of the goods
sells them to a finance company, which in turn lets the goods on
hire-purchase terms to the hirer who may become the buyer.
Under a hire-purchase transaction, the hirer who may become the
buyer has possession of the goods and is entitled to their use,
although he is not the owner. The financier or the finance
company usually has reasonably protected interest, for he actually
has a charge or mortgage on the goods.
Sale and Gift - Ordinarily, there is no difficulty in distinguishing

between a sale and a gift. A gift is a transfer of property without
any consideration and as such, it is usually not binding while it
remains executory unless made by deed. But difficulties may
arise with regard to transactions in which a “free” gift is offered
on the condition of entering into another transaction. In the case
of Esso Petroleum Ltd v. Commissioner of Custom & Excise97 garages
selling petrol advertised a „free‟ gift of a coin bearing a likeness
of a footballer to anyone buying four gallons.
It was held by the House of Lords that, although the transaction

was not a gift, in as much as the garage was contractually bound
to supply the coin to anyone buying four gallons of petrol, it was
not a sale of goods either. The transaction was characterized as
one in which that garage promised to supply a coin in
consideration of a customer buying the petrol. It was thus, in
97
(1976) 1 All E.R 117.
108
substance, a collateral contract existing alongside the contract for

sale of petrol.
In England, under the Unsolicited Goods and Services Act of

1971, an unsolicited offer to sell goods, accompanied by a
delivery of those goods to the offeree, may be treated as a gift if
the goods have been left with the offeree for six months, or for
thirty days after notice has been given to remove them. This
deemed gift now takes place immediately and the rights of the
sender are extinguished.
Sale and Agency - Agency is a consensual relationship that exists

between two persons by which one, the agent is expressly or
impliedly authorized to act on behalf of another, the principal in
dealing with third parties. In agency contracts, there may be
privity of contract between the buyer and the seller‟s agent.
Another factor distinguishing the relationship of an agent and a
seller may be that the duties of a commission agent are less
stringent than those of a seller, and in the event of a breach of
contract, the measure of damages may also be different.
Thus if a seller delivers less than he is bound to under the

contract, the buyer can reject the whole but if, despite his best
endeavours, a commission agent delivers less than the buyer has
ordered, he has committed no breach of contract and the buyer is
bound to accept whatever is delivered. Again, should the
commission agent deliver goods of wrong quality he will only
have to pay as damages the actual loss suffered by the buyer.98
On the other hand, should a seller be guilty of such a breach he

may have to pay as damages the buyer‟s probable loss of profit.
98
See Cassaboglou v. Gibb (1883) 11 QBD 767.
109
So, also, an agent who merely introduces a seller to a buyer is not

necessarily offering a warranty as to the seller‟s title to sell,
whereas if he is buying and reselling, such a warranty is
invariably implied. Where one person contracts to manufacture
goods for another out of materials to be supplied by that other, it
may again be doubtful whether the manufacturer is a seller or an
agent.99
The Sale of Goods Act and e-Transactions
This sub topic will look at situations where the Internet retailing
platform enables consumers to engage in transactions that the
drafters of the Sales of Goods Act, 1893 assumed would only take
place between merchants in a face to face transaction. The
Internet allows businesses to bypass portions of the traditional
supply chain, and sell directly to consumers. The Internet has
facilitated a dramatic increase in consumer purchases of goods
that are delivered via courier. Unfortunately, there is a paucity of
legislation in this area and as such, the only law which appears
suitable and so applicable to such situations is the Uniform
Commercial Code (UCC)100 which is mainly applicable in the
States of America though adopted by some other jurisdictions
subject to the tailoring of the language to meet their unique needs
and preferences.
History of Electronic Transactions Between Businesses -

Businesses have been transacting electronically long before the
99
See Dixon v. London Small Arms Co Ltd (1876) 1 App Cas 633; Hill &
Sons v. Edwin Showell (1918) 87 LJKB 1106.
100
Millstein, J.S., Neuburger, J.D., & Weingart, J.P., Doing Business on The
Internet: Forms And Analysis, Law Journal SeminarPress, New York:1999.
110
World Wide Web was widely used for commercial activity101.

The first commercial application of electronic transactions was a
system called Electronic Data Interchange (EDI).102 Traditional
EDI transactions were handled by businesses communicating
directly from one computer to the other. Over time, businesses
shifted to more “Open” systems where buyers and sellers can use
the internet to transact without creating a custom network.103
EDI users used private networks over which two computers could
send and receive data in a format agreed upon by the parties. This
data was generally sent over “value-added networks” (VANs).
These Value Added Networks were customized and established
relationships between two existing trading partners‟ computers.
Electronic Auctions - Auctions can take place between

consumers, businesses, or any combination of the two. The basic
difference between most electronic auctions for goods and face-
to-face auctions is that in the latter, the goods, the seller, and the
buyer are generally in the same place physically for auctions of
the classic variety.104 Section 2-509(3)of the UCC would
generally apply to the classic auctions where the buyer/bidder
physically removes goods from the auction site.105 In many
Internet auctions however, the goods are shipped directly from
101
Ibid
102
See Ritter, J., & Harmon, J.K., „Electronic Data Interchange: The
Foundation Technology for Electronic Commerce‟, 452 PLI/PAT 467; 469,
Order No. G4-3988, Sept. 1996, accessed, 6th July, 2017.
103
See also INTERNETWEEK, „Tap XML‟s Potential Now‟, XML referring
to XML “open EDI”, accessed, 14th April, 2017.
104
See for instance, eBay Inc., Company Overview
http://pages.ebay.com.community/aboutebay/overview/index.html, accessed
23rd September, 2017.
105
See Taylor & Martin, Inc., v. Hiland Dairy, Inc.,(1984) 676 S.W.2D 859,
871 (Mo. Ct. App. ).
111
seller or auction site to the buyer.106 An auctioneer will generally

be classified as a merchant, as will a seller who employs an
auctioneer. Most electronic sales of goods involve goods shipped
by carrier. However, there are some increasingly common
electronic transactions where goods are delivered directly from
merchant to consumer. „eBay‟ bills itself as the “world‟s first,
biggest, and best online trading community.”107 eBay protects
both its “members,” and itself in several ways. As such, one must
first register as a member to participate in an eBay auction as a
buyer or seller.108 Furthermore, „eBay‟ tells its users clearly that it
is not a seller. Thus, on its website, the section marked “user
agreement” states: “our site acts as the venue for sellers to list
items or, as appropriate, solicit offers to buy, and buyers to bid on
items. We are not involved in the actual transaction between
buyers and seller.” „eBay‟ also separates itself from the
transaction by using a third party to handle the payment for goods
purchased via „eBay‟.109
In Africa, there is a similar retail website known as KLX. It

serves the same purpose as „eBay‟. Back in Nigeria we also have
some major online shops like Konga, Jumia, etc. They deliver
nationwide any product you order from their online shop to any
address you give them and the customer pays for such products at
the point of delivery.
106
See generally „eBay Inc., The World‟s Online Marketplace‟
http://www.ebay.com/ accessed, 7th October, 2017.
107
See „eBay‟ Inc., Company Overview, at
http://pages.ebay.com/community/aboutebay/overview/index.html, accessed,
7th October, 2017.
108
„eBay‟ Inc., User Agreement, at
http://pages.ebay.com/help/community/png-user.html , accessed, 10th October,
2017.
109
Compare with Emerald Enterprises, Auction Winner‟s Circle at
http://www.emeraldenterprises.com/winner.html, accessed, 10th October, 2017.
112
Payment Systems - The use of credit cards is the dominant

payment system on the Internet.110 In America, any purchase
made with a credit card gives the cardholder powerful
protections. The cardholder has the right to “assert against the
credit issuer all claims other than tort claims and defences arising
out of the transaction and relating to the failure to resolve the
dispute.”111 The cardholder may withhold payment up to the
amount of the disputed transaction. The card issuer will pass the
deficit in payment back to the merchant who shipped the
goods.112
Unfortunately, our system in Nigeria is not strong enough yet to

give a consumer such protection. Where for instance a customer
who is in a different state shopped in one of the supermarkets and
paid with a credit card using the Point of Sale (POS) device.
Assuming at the time of payment the network was down and the
transaction was not completed, the seller will not allow the
customer go away with any of those goods. If peradventure by the
time the customer gets to his destination, perhaps outside the state
in question he realizes that money has been deducted from his
account as a result of that failed POS transaction, the question
becomes: how do you get back the money, since you do not have
the goods? Or, how do you go back to collect the goods since the
money has already been deducted from your account? The Sale of
Goods Act clearly did not make provision for such problems and
consumers in Nigeria need some kind of protection in situations
like this.
110
U.S. Dept. of Commerce, The Emerging Digital Economy A5-9 (1998),
available at http://www.doc.gov/ecommerce/EmmergingDig.pdf, accessed, 10th
October, 2017.
111
12 C.F.R. Ss 226.12© (2001).
112
Lawrence, L., An Introduction To Payment Systems, USA: Aspen
Publishers, 1997, 523.
113
The Seller’s Obligations
It is the duty of the seller to deliver the goods and the buyer to
accept and pay for them in accordance with the terms of the
contract of sale.113 Section 62(1) of the Sale of Goods Act defines
delivery as the voluntary transfer of possession from one person
to another. The Black’s Law Dictionary114 however defines it as
the formal act of transferring something such as a deed; the giving
or yielding of possession or control of something to another. It is
however pertinent to note that in some instances, the seller may
deliver goods out of a duty imposed by law or an order of court
and so, delivery must not be voluntary.
The seller‟s obligation to deliver the goods sold to the buyer is the
counterpart of the buyer‟s obligation to accept and pay for
them.115 The acceptance and payment must be in accordance with
the terms of the contract in order to constitute a valid discharge of
this obligation. Thus, from the clear wordings of Section 28 of the
SGA, payment and delivery are concurrent conditions. It
provides:
“Unless otherwise agreed, delivery of the goods and payment of the

price are concurrent conditions, that is to say, the seller must be
ready and willing to give possession of the goods to the buyer in
exchange for the price and the buyer be ready and willing to pay the
price in exchange for possession of the goods.”
Consequently, the primary responsibility of the seller is to deliver

the goods contracted for. Any failure or neglect to do so is a
complete negation of this obligation and the buyer is thereby
entitled to be relieved of his own obligations under the contract.
113
Section 27 of the Sale of Goods Act, 1893
114
Garner, B.A., Minnesota, West Publishing Co., 2004, 494.
115
Igweike, K.I., Nigerian Commercial Law, Jos: Fab Education Books,
1992,150.
114
Section 51(1) of the SGA goes further to buttress this assertion by

providing that „when the seller wrongfully neglects or refuses to
deliver the goods to the buyer, the buyer may maintain an action
against the seller for damages for non-delivery.
Thus, the seller will be in breach of his contract of sale if he fails

or neglects to deliver the goods contracted for in accordance with
the terms of the contract. This could happen if he delivers less
that the contracted quantity or out of the stipulated time,
especially where time is of essence in the contract, or delivers a
mixture of other goods not contracted for. Thus, in the case of
116
Amadi v. Thomas Alpha and Co. Ltd , where the defendant failed to
deliver stockfish as stipulated in the contract, and the goods were
meant for resale, the Supreme Court held that time was of essence
in the contract.
The seller‟s liability in damages under the provision is however

dependent upon his failure or perceived refusal to deliver being
negligent, inadvertent, wrongful, or a combination of some or all
of these. This view finds support in the case of Joseph Patrick
117
Damodu v. B. Anderson & Co. Ltd. In this case, the defendants
contracted to sell and deliver to the plaintiff, two hundred bales of
stockfish which were to be shipped from Norway. When the
defendants failed to do so, the plaintiff sued the defendants for
damages. The defendants contended that their failure to make
delivery was due to unforeseen circumstances which made the
suppliers in Norway unable to obtain the stockfish or reach the
fishermen. The divisional court sitting in Lagos, after examining
the circumstances of the case including the terms between the
parties held that there was no actionable breach by the defendants.
116
(1962) 6 N.L.R. 106.
117
(1972) 1 All N.L.R. (Pt.1) 409 at 420.
115
Place and Mode of Delivery - Ordinarily, the mode of delivery

depends on the express or implied terms of the contract. But
where there is no express agreement between the parties, it is
usually the seller‟s place of business. Where he has none, his
residence will be the place of delivery. Where however to the
knowledge of both parties, the goods are in some other place, then
that place will be the place of delivery in the absence of any
contrary intention.118
Curiously, the Sale of Goods Act is silent on the issue of delivery

to the wrong person. Consequently, the seller‟s duty to deliver the
goods to the buyer is discharged if he delivers the goods to the
buyer‟s premises or to any person who has apparent or ostensible
authority to receive them. Thus, in the case of Galbraith & Grant v.
119
Block , the plaintiffs sold a crate of wine to the defendant on the
terms that it should be delivered to the defendant‟s premises. The
plaintiff contracted and paid a carrier who delivered the crate of
wine to someone at the premises of the defendant who signed the
delivery note in the name of the defendant. The defendant never
saw nor received the goods. Nonetheless, the trial court held that
the plaintiffs had delivered and that the defendant was liable for
the price.
On appeal, Lush J. stated the duty of the seller to deliver as

follows:
“a vendor who is said to deliver goods at the purchaser‟s premises

discharges his obligation if he delivers them there without
negligence to a person apparently having authority to receive them.
He cannot know what authority that actual recipient has. His duty is
to deliver the goods at the proper place, and of course to take all
proper care to see that no unauthorized person receives them. He is
under no obligation to do more”.
118
Section 29 of the SGA.
119
(1922) 2 K.B. 155.
116
Although this is the position of the law, this approach is rather

harsh and does not appear to ensure substantial justice. It is
therefore suggested that the legislature in Nigeria should amend
the law by providing more equitable rules regarding delivery in
such situations via immediate legislative action. This is in view of
the commercial realities attendant to modern businesses
particularly in big cities where several individuals and
organizations occupy the same premises. Either way, the
expenses of, and incidental to putting the goods in a deliverable
state must be borne by the seller, unless otherwise agreed.
Delivery of Wrong Quantity or Mixed Goods - Section 30(1) of

the SGA provides that where the seller delivers to the buyer a
quantity of goods less than he contracted to sell, the buyer may
reject them. But if the buyer accepts the goods so delivered, he
must pay for them at the contract rate. In the case of Shipton,
Anderson & Co. v. Weil Bros & Co.120 Lush J. espoused the rationale
behind the right of the buyer to reject as follows:
“The right to reject is founded upon the hypothesis that the seller
was not ready and willing to perform, or had not performed his part
of the contract. The tender of wrong quantity evidences an un-
readiness and unwillingness, but that… must mean an excess or
deficiency in quantity which is capable of influencing the mind of
the buyer.”
However, where the seller delivers goods he contracted to sell,

mixed with goods of a different contract description not included
in the contract, the buyer may accept the goods which are in
accordance with the contract and reject the rest or he may reject
the whole.
120
(1912) 1 K.B. 574.
117
Delivery in Instalments - As a general rule, in contracts for the

sale of goods, the seller is under an obligation to supply goods of
the right quantity and in one consignment except there is an
express agreement to the contrary. In support of this assertion,
Section 31 of the SGA provides: „unless otherwise agreed, the
buyer of goods is not bound to accept delivery thereof by
instalments‟.
Where there is an express agreement to deliver goods by stated

instalments which are to be separately paid for and the seller
makes a defective delivery in respect of one or more instalments,
it is a question in each case depending on the terms of the contract
and circumstances of the case, whether the breach of contract is a
repudiation of the whole contract or whether it is a severable
breach giving rise to a claim for compensation but not a right to
treat the whole contract as repudiated.
Thus, in Mustapha & Co. v. S.C.E.I.121 where the term of the contract
was that all the goods should be delivered from January 1954,
only some of the goods actually left the factory at that date. The
Supreme Court held that the buyers were entitled to reject the
whole since the contract was not severable.
Delivery to Carrier - Unless there is an agreement to the

contrary, delivery to a carrier means delivery to the buyer. 122 An
exception however arises where the said carrier is an agent or
servant of the seller himself. In such a situation, delivery to him
cannot constitute delivery to the buyer for it is merely delivery to
121
(1921) N.L.R. 69.
122
Section 32(1), SGA.
118
the seller‟s alter ego.123 Thus, in a F.O.B contract, the obligation

of the seller is to place the goods sold free on board the
nominated ship.
Consequently, delivery is effected once the goods are received on

board the ship. In the case of Nads Imperial Pharmacy v. Messrs
124
Siemsqluese and Sons & Anor, the High Court of Lagos State
interpreting Section 32(1) of the SGA, 1893 affirmed this
principle.
Even though the contract falls under Section 32(1), where the
carrier for the buyer is one nominated by the seller himself, the
SGA still protects the buyer. Indeed, Section 32(2) provides that
„unless otherwise authorized by the buyer, the seller must make such
contract with the carrier on behalf of the buyer as may be reasonable, having
regard to the nature of the goods and other circumstances of the case.‟ If
the seller omits to do so, and the goods are lost or damaged in
transit, the buyer may decline to treat the delivery to the carrier as
a delivery to himself, or may hold the seller responsible in
damages.
Thus, in the English case of Thomas Young & Sons Ltd v. Hobson
125
&Partners, the parties agreed that the seller should transport the
goods in railway wagons for onward transmission to the buyer.
The goods were so transported but the seller failed to secure them
in the wagons. As a result, they were damaged before they arrived
their destination. The buyer refused to accept them as they were
transported at “owner‟s risk” which meant that he had no remedy
against the carrier.
123
Galbrath & Grant Ltd. v. Block, Supra.
124
(1959) L.L.R.21.
125
(1949) 65 T.L.R., 365.
119
The Buyer’s Obligations
The buyer‟s obligation refers to the duties expected of the buyer

and which he owes the seller in the course of the transaction.
Such obligations include:
1. Duty to Pay the Price – Once the seller has delivered the
goods, and the buyer has accepted or is deemed to have accepted
them in accordance with the provisions of Section 35 of the SGA,
the buyer is under a duty to pay for the goods so accepted. The
principle of cash on delivery is implied in all contracts for the sale
of goods. Section 28 of the SGA supports this assertion. It
provides:
“unless otherwise agreed, delivery of goods and payment of the

price are concurrent conditions, that is to say, the seller must be
ready and willing to give possession of the goods to the buyer in
exchange for the price and the buyer must be ready and willing to
pay the price in exchange for possession of the goods.”
For this purpose, delivery includes both actual and constructive

delivery. Accordingly, payment of purchase price becomes due as
soon as delivery is effected by either method. Thus, in Clemens
126
Horst & Co. v. Biddell Bros , a CIF contract contained no express
term providing for payment against shipping documents. The
buyer contended that in the absence of such a term, he was
entitled to physical delivery of the goods before payment. The
House of Lords in rejecting the argument held that Section 28 of
the SGA was applicable, and that the seller was entitled to
payment upon his shipping the goods and tendering to the buyer
the Bill of Lading and Insurance policy.
However, the provisions of Section 28 of the SGA is subject to

any contrary agreement between the parties. In J.B Bekederemo v.
126
(1912) A.C.18.
120
127
Palmolive (Nig.) Ltd, the contract term stated that all purchases of
the company‟s goods shall be strictly by cash payments; provided
that the company will grant up to thirty days‟ credit after delivery
of the goods within which the buyer shall make payment in full
for all the goods delivered. The seller supplied goods to the buyer
on nine specific occasions leaving a substantial balance.
In spite of the outstanding balance, the Appellant/buyer insisted

that he was entitled to further supply of goods and that the
Respondent/seller‟s failure to do so was a breach of the
agreement. The lower court held that the obligation of the
appellant and his undertaking to pay cash immediately or within
thirty days were concurrent and correlative promises, and that the
appellant could not insist on delivery of the goods when he
showed no ability to pay for them. This decision was upheld by
the Supreme Court.
Readiness and willingness to pay is therefore all a buyer needs to

show in order to succeed in an action for non-delivery. In Pickford
128
v. Grand Junction Railway & Co., Park B., of the Court of
Exchequer held that actual tender of the price was not necessary
because whenever a duty is cast on a party in consequence of a
contemporaneous act of payment to be done by another, it is
sufficient if the latter be ready to pay when the other is ready to
undertake the duty.
Furthermore, in De Medina Norman129, Lord Abinger held that

readiness and willingness in this context imply not only the
disposition but also the capacity to deliver or pay, as the case may
be. This is obviously a better interpretation of this section as it
127
(1976) 6 S.C. 35.
128
(1841) 8 M&W.372.
129
(1842) 9 M & W 820 at 827.
121
will not be just to allow a buyer whose capacity to pay is not

certain to maintain and succeed in an action for non-delivery,
when in fact he may not have the capacity to pay if the goods
were delivered and would in fact not have been able to tender the
price.
It should be noted that Section 28 does not take care of situations

where goods perish after the risk had passed to the buyer. In such
cases, the seller‟s right to receive payment ceases to be dependent
upon his willingness to deliver the goods. In McPherson Thom,
130
Kettle & Co. v. Dench Bros, non delivery was excused because of
the loss of the goods which at the time were at the purchaser‟s
risk. This situation should be a subject of legislative action by the
Nigerian National Assembly.
Method, Place and Time of Payment - The method, place and

time of payment are determined by the terms of the contract. But
in the absence of any prior agreement, regard may be had to the
trade, custom, profession, or the usual course of dealings between
the parties. Payment must also be by legal tender except there is
an agreement to the contrary. The general rule is that the payment
should be made at the place where the seller resides or carries on
business at the time of the contract.
Regarding the time of payment Section 10(1) of the Sale of

Goods Act provides that unless a different intention appears from
the terms of the contract, stipulations as to time of payment are
not deemed to be of essence of a contract of sale. While this
provision may seem to be in conflict with the provision of Section
28, the reality is that there is no such conflict. The reason is
130
(1921) V.L.R. 437.
122
because while Section 28 requires the buyer to be ready and

willing to pay the price in exchange for possession of the goods,
it does not insist that the payment must happen at the time of
delivery. What is important is the acceptance of the obligation to
pay.
Failure to pay for goods on delivery would make the buyer liable
in damages to the seller as an unpaid seller. Section 39(1) of the
SGA provides for the rights of an unpaid seller. They include a
right of resale, lien, stoppage in transitu, etc.
2. Duty to Take Delivery – The buyer has a duty to accept the

goods bargained for by taking delivery of them. The rule is that it
is for the buyer to take delivery of the goods from the seller‟s
place of business and not for the seller to send the goods to the
buyer. This does not change the fact that in reality, buyers often
agree with the sellers to arrange to send the goods to them.
Although the time of the delivery of the goods need not be
immediate, there are instances in which time is of essence such as
where the goods in question are perishable.
However, the buyer‟s failure to take delivery of the goods at the

time agreed does not itself justify the seller disposing of them
without the buyer‟s authority. If the seller thinks that the buyer is
repudiating the contract by not taking delivery at the stipulated
time, he may have the option of reselling the goods in addition to
suing the buyer for damages for non-acceptance.
Where the buyer validly rejects the goods, he is not bound to

return them to the seller, so long as he notifies the seller that he
has refused to accept them. In Danjuma v. Standard Co. Nigeria Ltd,131
groundnuts were delivered to the defendants premises in Kano in
131
(1922) 4 N.L.R. 52.
123
performance of a contract. The defendant without informing the

plaintiffs of their rejection allowed the groundnuts to remain in
their premises for several weeks. It was held that the defendant
had accepted the nuts. Note however that a buyer will not be
deemed to have accepted goods delivered to him which he has not
previously examined. He will only be deemed to have accepted
them if he has had a reasonable opportunity of examining them
for the purpose of ascertaining whether they are in conformity
with the contract.
Where a contract for delivery is required, the buyer may be under

a duty to give notice of his requirements to the seller as a prelude
to actually taking delivery. Where the buyer contracts to take
goods and services as soon as possible and no time limit is
actually imposed, he is under an obligation to remove the goods
within a reasonable time.
If the contract provides for the delivery of the goods in

instalments and the buyer wrongfully refused to accept one or
more of them, the seller can repudiate the contract and claim
compensation by way of damages. In practice, the issues usually
involve breach by the seller rather than the buyer, and the
question to be considered is the gravity of the breach in relation to
the whole contract and the probability of its recurrence. If the
contract does not provide for delivery in instalments, the seller
cannot repudiate the contract should the buyer refuse to accept
some part of the goods only.
Remedies and Rights of the Seller
An unpaid seller is one who has not been paid either by cash or
where a negotiable instrument issued to him is rejected upon
124
being tendered.132 Basically, an unpaid seller has two personal

remedies against the buyer. They are: an action for the price of
the goods, and an action for damages for non-acceptance.
1. An action for the Price of the Goods – An unpaid seller can

file an action for the price of the goods to be paid to him by the
buyer in any of the following situations: where property in the
goods, otherwise referred to as title or ownership rights has
passed to the buyer; where the price is payable on a day certain
and that day has reached; or where the goods cannot easily or
readily be resold for a reasonable price.
In the first instance, the action is for recovery of a debt simpliciter

and not for damages. As such, the seller must prove that property
has indeed passed to the buyer. Where the price is payable on a
day certain however, as in the second scenario, the seller can still
sue for the price if the buyer wrongfully neglects or refuses to pay
such price notwithstanding that the property in the goods has not
passed and the goods have not been appropriated to the
contract.133 An action for the price in either case is an option
adopted by the seller to seek the mandate of the court in the form
of an order to force the buyer to pay the price agreed upon by
both parties in the contract of sale.
2. An action for Damages for Non-Acceptance – An unpaid

seller can also institute an action for damages for non-acceptance
in case of wrongful neglect or refusal by the buyer to accept or
pay for the goods sold. The measure of damages in such a
situation is the estimated loss directly or naturally resulting in the
ordinary course of events from the buyer‟s breach of contract.134
132
133
134
Section 50 of the SGA
125
Where there is an available market for the goods, the damages to

be paid would be prima facie the difference between the market
price and the contract price at the time the buyer was supposed to
accept the goods. If no time was fixed for acceptance however,
the relevant time would be the time that the buyer rejected the
goods.
It must however be noted that in such situations, if when the

buyer refuses to accept the goods there is a market where other
buyers are ready to take them off the seller‟s hands and pay the
going price, he has a duty to mitigate and will be discharged of
this duty if he disposes of the goods promptly to such other
buyers. If however the seller does not do this, and he is later only
able to obtain a lower price, the buyer will rightly be able to argue
that he should not be liable for the whole of the seller‟s loss since
the opportunity to mitigate was not taken.
In addition to these two personal remedies for breach of contract,

an unpaid seller has a number of other rights which have been
provided for by Section 39 of the Sale of Goods Act, 1893. They
are:
1. A Lien on the Goods – An unpaid seller equally has a

possessory lien on the goods sold and is not bound to deliver
them if the buyer has not paid him the price. This right is however
exercisable only if: (a) the goods are sold without any stipulation
as to credit; (b) the goods are sold on credit but the term of credit
has expired; and (c) the buyer has become insolvent.135 In any of
these situations, even if the seller has already delivered part of the
135
Section 41(1) of the SGA.
126
goods, he may still exercise the right of lien on the undelivered

portion of the items136.
The Act also provides that the seller can exercise this right
notwithstanding that he is in possession of the goods as agent,
bailee, or custodier of them for the buyer.137 The unpaid seller
however loses his right of lien: where he delivers the goods to a
carrier or other bailee or custodier for the purpose of transmission
to the buyer without reserving the right of disposal of the goods;
when the buyer or his agent lawfully obtains possession of the
goods; or, by waiver thereof.138 He does not however lose his
right of lien or retention by reason only that he has obtained
judgment or decree for the price of the goods.
2. Stoppage in Transitu (Transit) – Where the seller has not

been paid, and the goods are already in transit, the seller is
allowed in law to stop the goods provided they have not arrived
the buyer‟s place or custody. This is possible where for instance
the buyer has become insolvent.139 To achieve this, the seller
must either actually take possession of the goods sold or give
notice of his claim to the carrier or other person in possession. In
so doing, the seller must surrender any negotiable instrument
earlier offered to him if any, and he must undertake to bear the
expenses of delivery of the goods after the exercise of the right
upon payment or tender of the price.
For the purposes of this section, goods are deemed to be in the

course of transit from the time they are delivered to a carrier by
air, land, or water, or other bailee or custodier for the purpose of
136
137
138
139
127
transmission to the buyer, until the buyer or his agent in that

behalf takes delivery of them from such carrier or other bailee or
custodier. When the notice of stoppage in transitu is delivered to
the carrier, bailee, custodier or any other person in possession,
such person must re-deliver the goods according to the seller‟s
instructions.
3. Right of Resale – An unpaid seller has a special right to resell

the goods in some limited situations. This right is exercised:
where the goods are perishable; the buyer is in default for an
unreasonably long time; or, where it is stipulated that the seller
shall have the right to resell the goods in the sales contract in case
of default by the buyer. Where the unpaid seller in the contract of
sale reserves the right to resell the goods on the default of
payment by the buyer and the buyer defaults in payment, the
subsequent resale by the seller brings the contract to an end, but it
does not affect the seller‟s right to recover damages from the
initial and defaulting buyer.
4. Right to Withhold Delivery – Sometimes an unpaid seller can

validly withhold delivery of the goods if they are still in his
possession or under his authority and control especially when
property has not passed to the buyer. This is in addition to his
other remedies and so this right is similar to and co-extensive
with his rights of lien and stoppage in transitu which he would
have had if the property had passed. It is thus apparent that a lien,
although it may only arise stricto sensu when the property held
belongs to another such as the buyer, on the other hand, the
„fight‟ to withhold delivery exercised by the unpaid seller over
goods in which he still has the property, has quite rightly been
described as a quasi-lien in Ex Parte Chalmers.140 In the result
140
(1873) L.R. 8 Chan. App. 289 at 292.
128
therefore, the unpaid seller has the same right of retention or

withholding delivery of the goods in his possession sold whether
or not property in them has passed to the buyer.141
5. Right to Rescind – The unpaid seller has a special right of

rescission in some situations such as where it is expressly
stipulated and agreed upon by the parties or where the buyer is in
default for an unreasonably long time. In order to exercise this
right, the seller must give notice to the buyer of his intention to do
so. In such a situation, the seller may still invoke the right to
rescind even if property had earlier passed to the buyer. Thus,
where the buyer wrongfully fails or refuses to perform one or
more of his obligations under the contract, this may be a breach or
repudiation of the contract which will allow the seller to terminate
the contract and treat himself as discharged from further
performance. Whether he can do so in reality is usually
determined by normal principles of the law of contract.
Buyer’s Remedies
A buyer in a sale of goods transaction equally has certain
remedies against the seller in instances where the latter commits a
breach of the agreement. The said remedies include:
1. An action for Recovery of the Price – Where the buyer has

paid the price and the goods are not delivered to him, he can
institute an action to recover the amount paid. This he can do
upon rightful rejection, justifiable revocation, or repudiation of
the contract. In so doing, the buyer has a security interest in the
141
Afrotec Technical Services (Nig) Ltd v. MIA & Sons Limited & ANOR,
(Supra).
129
goods where they are already in his possession or control for any
such payments made on their price in addition to any expenses
reasonably incurred in their inspection, receipt, transportation,
care, and custody. This right of action is obviously based on the
law of restitution which is a „gains-based‟ recovery action. When
a court orders restitution, it in effect orders the seller to give up
his gains to the buyer.
The orthodox view was that there is only one principle on which
the law of restitution was dependent, namely the principle of
unjust enrichment. However, the modern position seems to be
that other causative agents can now trigger or justify same.
2. An Action for Damages for Non-Delivery – Where the seller

wrongfully fails, refuses, or neglects to deliver the goods to the
buyer, the buyer may elect to sue the seller for damages for non-
delivery.142 This remedy is in addition to the buyer‟s right to
recover the price if he has already paid for the goods and so the
two remedies are not mutually exclusive. The measure of
damages is the estimated loss resulting naturally from the seller‟s
breach of the contract. If there is a market for the goods, then the
measure of damages is prima facie the difference between the
market price and the contract price at the time the goods were
supposed to be delivered. If however there is no stipulated time
for delivery, the relevant time would be the time when the seller
refused to deliver the goods.
3. An Action for Specific Performance – In deserving

circumstances such as where the goods are of a special nature or
uncommon, the buyer may sue the seller for specific performance
of the contract and the court in its discretion can order the seller
to deliver the goods to the buyer. This is especially so in contracts
142
130
involving specific or ascertained goods.143 The court is usually

more disposed to compelling the seller to do so in instances
where the award of damages alone will not be an adequate
remedy. The court can do this therefore without allowing the
seller the option of retaining the goods on the payment of
damages. The order could be unconditional or could be made
according to such terms and conditions as the court thinks just.
4. An Action for Breach of Warranty – Where there is a breach

of a warranty by the seller, or where the buyer elects or is
compelled to treat the breach of a condition as a breach of
warranty, the buyer cannot reject the goods. He may however: (a)
set up the breach of warranty in diminution or extinction of the
price144 payable by him; or, (b) sue the seller for damages for
breach of the warranty.
A warranty is defined in Section 11(1)(b)of the SGA as a

stipulation in a contract the breach of which would not give rise
to a repudiation of the contract, but only an action for damages.
The measure of damages for a breach of warranty is the estimated
loss that results directly and naturally from the breach of such
warranty. In case of a breach of warranty as to quality for
instance, such loss is prima facie the difference between the value
of the goods at the time they were delivered and the value they
would have had if they answered to the warranty.
5. An Action for Damages for Repudiation of the Contract –

Where the seller repudiates the contract before the date of
delivery of the goods, the buyer may adopt any of the following
courses of action: (a) he may treat the contract as rescinded and
sue the seller for damages. This is also known as „damages for
143
144
131
anticipatory breach‟. In such instances, the damages will be

assessed according to the prices of the goods on the date of the
breach; or (b) he may treat the contract as subsisting and wait till
the date of delivery. The contract remains open in such a situation
at the risk and for the benefit of both parties. If the seller
subsequently chooses to perform, there shall be no damages
payable, otherwise he shall be liable to damages to be assessed
according to the price on the day stipulated for delivery.
If the buyer accepts repudiation of the contract immediately upon

breach, he must minimize the loss caused thereby. If the seller
cancels the contract, the buyer is not required to wait till the due
date. He can buy the goods immediately from the market and wait
if the prices are rising and thereby claim damages for increased
price on the due date. Either way, the buyer must take all
reasonable steps to mitigate the effects of breach.145
6. An Action for Interest – The buyer may ask the court for
interest on the sum paid to the seller by way of special damages in
his lawsuit.146 This is normal in the absence of a contract to the
contrary. The rate is usually such as the court thinks fit on the
amount of the price from the date on which the payment was
made. This is meant to serve as compensation for any loss or
damage caused him by the seller‟s breach after receiving his
money which loss the seller ought to have known when he made
the contract to be likely to result from such breach.
It must however be noted that the buyer can only recover interest
when he is entitled to recover the purchase price, that is to say,
when he can sue for the price prepaid as money had and received
by reason of total failure for consideration. He cannot recover
145
146
132
interest when his only remedy is to sue for damages for instance
for a breach of warranty, even though those damages may be
sufficient to extinguish the price.
7. Refund, Price Reduction, Repair, or Replacement – Where

the goods that constitute the subject-matter of the contract are
digital contents such as data or softwares which are produced and
supplied in digital form, it is the requirement of the law in line
with extant provisions that such digital content should be of
satisfactory quality, fit for purpose, and must comply with
description. In the event of a breach by a seller in its provision of
digital content, the buyer has the right to a refund, to a price
reduction, to a repair, or replacement at the cost of the seller,
unless this is disproportionate to the cost of other remedies
available.
It is worthy of note that there is no right to reject digital content,

and there is no way in which digital content can be returned.
Digital content may sometimes even damage a buyer‟s device
such as a tablet or laptop. Damage caused by a virus is a typical
example. In such a case, the seller is legally required to pay for
the cost of replacing the damaged device or digital content.
Internet service providers or mobile service providers are
nonetheless excluded from liability in such situations.
8. Right to Reject the Goods – As earlier stated, where the seller

delivers or tenders goods not of the contract description, whether
as regards quantity or quality, the buyer may subject to the usage
of the trade, special agreement, or course of dealing147 reject the
goods or accept them and pay the contract rate. Where also the
supplied goods are mixed with goods of other description not
147
133
included in the contract, the buyer may accept in accordance with

the contract and reject the rest, or reject the whole.
Where however the seller broke a condition or committed a

serious breach of an innominate term, the buyer may reject the
whole goods. In such a situation where the buyer is at liberty to
reject the goods, he can do so for any reason he likes and is not
required to act reasonably in choosing the option of rejection
rather than any other remedy. This is so even if property had
passed to him earlier provided he did not accept the goods.
However, the problem that usually arises with regard to the buyer
is with respect to the sale involving delivery in instalments.148 If
goods are to be delivered in instalments, the circumstances will
determine whether breach in delivery of one or more of the
agreed instalments will entitle the buyer to repudiate the contract
or merely sue for damages. In the face of this uncertainty, resort
is had to the Act for some guidance on the issue.
Where there is a contract for the sale of goods to be delivered by

stated instalments which are to be separately paid for, and the
seller makes defective deliveries in respect of one or more
instalments, or the buyer neglects or refuses to take delivery of or
pay for one or more instalments, it is a question in each case
depending on the terms of the contract and the circumstances of
the case, whether the breach of contract is a repudiation of the
whole contract or whether it is a severable breach which will give
rise to a claim for compensation but not to a right to treat the
whole contract as repudiated149.
148
Achike, O., Commercial Law in Nigeria, Enugu, Fourth Dimension
Publishers, 1985, 248.
149
134
Where however the contract is not severable in which case the

transaction is treated as one individual contract, then a breach in
respect of delivery of one or more instalments is to be treated in
the same way as a total breach, and the buyer will be entitled to
repudiate the contract and perhaps reject the goods. It is
noteworthy however that in a case of short delivery, the rule that
the buyer can reject all the goods does not apply to a severable
contract.
Loss of Right to Reject where there is Acceptance.
The possibility of losing the right to reject the goods exists and
this is provided for by Section 35 of the SGA. The said section
states that the buyer is deemed to have accepted the goods when
he intimates the seller that he has accepted them, or when the
goods are delivered to him and he does any act in relation to them
which is inconsistent with the ownership of the seller, or when
after the lapse of a reasonable time, he retains the goods without
intimating the seller that he has rejected them.
Section 34 however appears to provide a proviso to this position

of the law. It does this by virtue of the following provisions:
1. Where goods are delivered to the buyer, which he has not previously
examined, he is not deemed to have accepted them unless and until
he has had a reasonable opportunity of examining them for the
purpose of ascertaining if they are in conformity with the contract.
2. Unless otherwise agreed, when the seller tenders delivery of the
goods to the buyer, he is bound on request to afford the buyer a
reasonable opportunity of examining the goods for the purpose of
ascertaining whether they are in conformity with the contract.
If and when the buyer has had a reasonable opportunity to

examine the goods or where he resells the goods to a subsequent
135
buyer, he will lose the right of rejection, and it makes no

difference that he did not in fact examine the goods before
dispatching them to the subsequent buyer. The reason for this
view seems to be that it would be unjust to compel the seller to
retrieve the goods from the subsequent buyer‟s premises.
Special Commercial Contracts.
There are some special clauses that are peculiar to international

commercial transactions. These clauses, which regulate the right
of the parties regarding delivery, payment and risk, are meant to
streamline the position of the parties and indeed assist the courts
in resolving disputes arising therefrom. Most of these clauses
have now been so developed that they assume standardized roles
in the arena of international sale of goods contracts. They include
Free on Board (FOB), Free on Rail (FOR), Cost Insurance and
Freight (CIF), Free on Truck (FOT), Ex Ship, Ex Works, etc.
1) Cost, Insurance, and Freight (CIF) Contracts.
In CIF contracts, the overseas seller assumes three important legal

responsibilities regarding the goods: the first is that he assumes
the responsibility of putting the goods on board a ship, truck,
vehicle, or any other specified place for the purpose of
transporting them; second, he also assumes the additional
responsibility of making a contract of carriage with the ship or
other means of freight to carry the goods to their agreed
destination for the purpose of delivering them to the buyer; and
third, he further assumes the legal obligation of effecting an
insurance coverage of the goods for the benefit of the buyer.
136
In addition to these responsibilities, the seller then has an

obligation to forward the Bill of Lading or Air Waybill to the
buyer thereafter. The Bill of Lading or Air Waybill as the case
may be is a document containing the full particulars of the goods
shipped on board a ship or aircraft. This is sent together with the
Insurance policy and the sales Invoice.
It is noteworthy that once the overseas seller has completed the

above processes, the buyer is bound to pay for the goods. The
rationale behind this position of the law is that once the Bill of
Lading or Air Waybill has come into the possession of the buyer,
together with the Invoice and Insurance certificate which guards
against the risk of non-delivery by the ship owner, the buyer is in
as good a position as if he were in physical possession of the
goods. In such instances therefore, the buyer is in fact legally
bound to pay for the goods in cash upon the delivery of the
documents which is regarded as the symbolic delivery of the
goods.
Note finally that an important point about CIF contracts is the

importance placed on the time factor. Generally, time is regarded
as being of the essence in CIF contracts. If the contractual
documents contained any stipulation as to the time of shipping the
goods therefore, a breach of this term of the contract no matter
how slight will be fatal to the whole transaction and the buyer
will be at liberty to reject the goods upon arrival if they were
shipped after the date agreed upon by the parties for shipping by
the seller.
2) Free on Board, Rail, or Truck (FOB, FOR, or FOT) Contracts.
These are contractual terms in International trade that indicate

whether the seller or the buyer has liability for the goods at any
given time in case they are damaged or destroyed during
137
shipment between the parties. Free on Board is otherwise referred

to as FOB. There are two scenarios that may be contemplated or
agreed upon by the parties. Where the agreement is made “Free
On Board Shipping Point (or origin)”, the buyer will bear the risk
from the moment the goods are placed on board a Ship, Rail, or
Truck as the case may be. Where however the agreement is made
“Free On Board Destination”, the seller retains the risk of loss
until the goods reach the buyer‟s location which is the agreed
destination of the goods.
Free on Board is therefore a contractual term that refers to the

requirement that the seller deliver goods at his cost via a specific
route to a destination designated by the buyer. FOB, FOR, or
FOT terms indicate when the risk of loss shifts from the seller to
the buyer. These terms are very important to participants in
International transactions particularly for contracts involving
delicate items or items that are vulnerable to theft.
Sometimes referred to as Freight on Board, FOB presupposes that

the buyer pays for the goods or that the seller is entitled to the
price as soon as the said goods are put on the ship, train, or truck.
In most instances, the reference point is the origination port or
station except parties otherwise agree. Thus, the seller will load
the goods on the ship, train or truck and then his obligation is
fulfilled. Usually it is the seller that designates whether it is FOB
at his location or FOB the destination which is the buyer‟s
location.
It is pertinent to note that FOB terms relate to risk and as such are
mostly decided by the parties. It does not however conclusively
determine ownership. This is because, in International trade, the
ownership of the cargo or goods is defined by the Bill of Lading
or the Waybill. The term is used in International Commercial Law
138
to specify at what point respective obligations, costs, and risks

involved in the delivery of goods shift from the seller to the
buyer. FOB is mostly used in non-containerized sea freight or
inland waterway transport.150
3) Ex-Works, Ex-Warehouse, or Ex-Store.
Ex Works (EXW) is an international trade term that describes an

agreement in which the seller is required to make goods ready for
pickup at his own place of business. All other transportation costs
and risks are assumed by the buyer. The seller is only responsible
for packaging the goods and making them available at a
designated location, such as his warehouse. He may however
assist the buyer obtain export licenses or other necessary
documentation, but at the buyer‟s expense.
Once the goods have been placed at the buyer‟s disposal, the
buyer is responsible for all costs and risks related to the goods. In
practice, this entails loading them onto a truck, transferring them
to a train, ship, or plane, handling customs procedures, unloading
them at their destination and storing, using, or reselling them as
the case may be. In such situations, even if the seller assists the
buyer by loading the goods onto a truck for instance, the buyer is
still the one liable for any damage during the entire process.
In line with this, where there is an agreement between a buyer and

a seller in which the seller delivers goods at his own expense and
risk to a certain warehouse, once it arrives at the warehouse,
expenses and risk transfer to the buyer who is responsible for
transporting the goods from there. Such a contractual arrangement
is referred to as Ex-Warehouse. An Ex-Warehouse price is
150
International Chamber of Commerce, Rules “FOB Preamble”, 2010.
139
therefore one where the seller makes the goods available at a

particular warehouse, and the buyer is responsible for arranging
and paying for the goods to be transported to where they are
needed.
Similarly, where the transaction is tagged Ex-Store, the

understanding is that the goods are sold with shipping cost from
the store to be paid by the buyer or consignee. Usually in such
situations, the buyer appoints a shipping and freight forwarding
company to collect goods from the seller‟s store to the buyer‟s
place including insurance of goods. In effect, the terms all mean
the same thing basically. In each case, the seller has a duty to
notify the buyer that the goods are at his disposal. Once this is
done, the buyer then has to take immediate steps to take delivery
of the goods.
In the course of taking delivery in this case, the buyer bears all
risks of loss of or damage to the goods from the time they have
been placed at his disposal at the named place of delivery on the
date or within the period stipulated or, if no such place or time is
stipulated, at the usual place and time for delivery of such goods,
provided however that the goods have been duly appropriated to
the contract, that is to say, clearly set aside or otherwise identified
as the contract goods. Indeed, according to Incoterms Rules,
2010151, in Ex-Works transactions, the seller does not need to
load the goods on any collecting vehicle, nor does he need to
clear the goods for export, where such clearance is applicable.
151
Ibid.
140
CHAPTER FIVE
HIRE-PURCHASE
Introduction.
It is important to note that contracts of sale are very different

from hire-purchase contracts. For instance, both the Factors Act,
1889 and the Sale of Goods Act 1893 contain overlapping
provisions which enable a person who has bought or agreed to
buy goods and who obtained with the consent of the owner
possession of them to transfer valid title to them to an innocent
purchaser for value.152 Such a transfer or sale to the third party
will be valid even when the original owners may not have
received the price for the goods or if they did, this might be after
a considerable passage of time or a protracted litigation. In a hire-
purchase transaction however, the hirer cannot transfer title to a
third party before the last instalment is paid whereupon he would
have exercised the option to purchase the goods or item.
By way of definition therefore, a hire-purchase is an agreement

for the delivery of goods by the owner to another called the hirer
under which the latter is granted an option to purchase those
goods. This option to purchase is exercised by the hirer being able
to pay all the instalments agreed before which the goods remain
the property of the owner who will be entitled to repossess the
goods should the hirer default in the payment or violate any other
condition agreed upon by the parties.
152
Section 9 of the Factors Act, 1889; Section 25(2) of the Sale of Goods Act,
1893.
141
Rationalizing this position in the case of Helby v. Mathews153, the

English House of Lords held inter alia that since the hirer could
return the piano before the last instalment had been paid, he was
not a person who had bought or agreed to buy the piano within
the meaning of Section 9 of the Factors Act, 1889. The
justification for this practice was further explained by Lord Shand
thus:
An agreement to purchase would infer an obligation to pay a price,

the payment of which could be enforced by action, while here it is
plain that no action for any balance of the alleged price could be
maintained if the hirer thought it fit at any time to return the
instrument to its owner.
The above case obviously gave birth to the modern hire-purchase

system and which operated in Nigeria prior to the coming into
effect of the Hire-purchase Act, 1965. It had been posited by
scholars that the Act itself was limited in scope thus leaving a
considerable area in which the Common Law rules still remained
applicable in Nigeria.154 Hire-purchase system under the
Common Law caused considerable hardship to the hirer owing to
the fact that it only afforded him minimum protection. This led to
abuses and created injustices against the hirer of goods. Some of
the abuses and injustices of the system can be summarized as
follow:
1. There is the absence of the right of the hirer to redeem the

hired goods after default in his instalments leading to
repossession. This is so even if he has punctually paid all
previous instalments but became a day late in paying the last
one.155
153
(1895) A.C.471.
154
Igweike, K.I. Op.cit.4.
155
Bentworth Finance (Nigeria) Ltd v. De Bank Transport Ltd (1968) 3
A.L.R. Comm. 52.
142
2. If the hirer wrongfully returns the goods to the owner

before the expiration of the period of the hire, he will remain
liable to pay all the accrued rents for the entire hire period for
which he made use of the goods.
3. Even where the hirer has made substantial sums of

payment towards the hire-purchase agreement, no property or
proprietary interest in the goods is transferred to him until he has
exercised the option to purchase the goods by paying the last
instalment.
4. The hirer has no legal interest in the goods repossessed or

the proceeds of its resale by the owner even where the subsequent
resale yields a substantial surplus over and above the outstanding
on the hire purchase price. This was the position of the court in
the case of D.O. Williams v. U.A.C. Ltd.156
5. The hirer may become liable to pay an excessive amount

under the “minimum payment clause” on termination of the
agreement. Thus, where a hirer exercises his right of an option to
return the goods which he is entitled to by the hire-purchase
agreement, he cannot complain that the minimum payment clause
amounts to a penalty. This is because, the law presumes that he
purchased the option on the terms of the contract, i.e. at the price
for which he bargained.157 A hire-purchase is therefore a bailment
of goods in pursuance of an agreement under which the bailee
may buy the goods or under which the property in the goods will
or may pass to the bailee.158
156
(1937) N.L.R. 134 t 135.
157
Amusan & Anor v. Bentworth Finance (Nig) Ltd. (1966) N.M.L.R. 276.
158
Section 20(1) of the Hire-Purchase Act.
143
In the case of Samuel Aro v. Joe Allen & Co. Limited159 the Nigerian
Court of Appeal held that essentially, a hire-purchase is a system
whereby the owner of goods lets them on hire for periodic
payments by the hirer upon an agreement that when a certain
number of payments have been completed, the absolute property
in the goods will pass to the hirer, but so however that the hirer
may return the goods at any time without any obligation to pay
further balance of rent accruing after return; until the conditions
have been fulfilled, the property in the goods remain in the owner.
The Nigerian Hire-Purchase Act of 1965160 was modelled after

the United Kingdom Hire-Purchase Act of 1938 and the
Advertisement (Hire-Purchase) Act of 1957. It was the first local
statute to regulate hire-purchase transactions in Nigeria. However,
some modifications were incorporated to meet the particular
needs of the Nigerian society, and especially for the purpose of
correcting the abuses and perceived injustices of the Common
Law and English statutory positions while affording better
protection to the hirer against these hardships prevalent in the pre-
1965 era.
Despite this disposition of the Act, there is still a considerable

area in which the rules of Common Law still remain applicable.
This is so because: the original Act was made applicable only to
hire-purchase agreements entered into on or after October 1,
1968, the effective date of the Act itself; and, the Act defines the
limit of the application of its provisions and applies only in
respect of: (a) all hire purchase and credit sale agreements in
respect of goods under which the hire-purchase price or total
purchase price, as the case maybe, does not exceed £1,000
159
(1979)2 F.N.R. 292.
160
Now the Hire-purchase Act, Cap.H4 Laws of the Federation of Nigeria,
2004.
144
(N2,000); and, (b) all such agreements in respect of motor

vehicles, irrespective of the hire-purchase price or the total
purchase price.
Thus, the Common Law rules still apply to cases falling outside
the scope of operation of the Act. These include all agreements
which became effective before October 1, 1968 and those in
relation to goods other than motor vehicles whose hire-purchase
or total purchase price exceeds £1,000 (2,000). Besides, being a
species of bailment, and having regard to the definition of
“goods” under the Act, it applies only in respect of chattels
personal capable of physical delivery. It is therefore generally not
applicable to agreements relating to land or to choses in action, or
to the provision of services.161 However, as regards lands, the
same result can be achieved by granting a term of years with an
option to purchase.
With a view to protecting the hirer therefore against the hardships

prevalent in the Common Law position and previously applicable
English statutes, the Nigerian legislation made the following
novel provisions by way of reforms:
First, it ensures that the hirer is properly informed, not only about
the goods but also about the exact nature of the hire-purchase
agreement itself.
Second, it restricts the contractual freedom of the owner by

providing for the inclusion of certain terms in the agreement
while also preventing the owner or his agent from imposing
certain onerous terms on the hirer.
161
Igweike, K.I., Op. cit., 8.
145
Third, the Act implies certain conditions and warranties into the
agreement and in so doing makes ineffective any attempt by the
owner to exclude some of them.162
Fourth, while granting to the hirer a statutory right to terminate

the agreement at any time, the Act curiously limits his liability,
whether imposed by the owner or not upon such termination.
Fifth, the Act restricts and regulates the right of the owner to
repossess the hired goods from the hirer when he is in default of
payment or otherwise in breach of the agreement.
Finally the Act grants the Minister extensive power of regulation

of even existing agreements which he, more often than not
exercised in the interest of the hirer.
In spite of the tremendous changes and the general advancement

of commercial activities and industry, the Hire-purchase Act of
1965 has only been amended once in 1970. Subsequently upon
the recompilation of the extant federal legislations into the Laws
of the Federation of Nigeria 2004, the then Hire-Purchase Act as
amended became the Hire-Purchase Act, Cap.H4, Laws of the
Federation of Nigeria 2004 hereinafter referred to simply as the
“Hire-purchase Act”.
It is noteworthy that by virtue of Section 1 of the Revised Edition

Laws of the Federation of Nigeria Act, 2007, the Laws of the
Federation of Nigeria 2004 became effective in 2007. This statute
also repealed the Laws of the Federation of Nigeria 1990. This is
currently the law regulating hire-purchase transactions in Nigeria.
Unfortunately, the recompiled Hire-Purchase Act did not amend
the statute to incorporate overdue amendments to the legislation.
162
Section 4 of the Hire-Purchase Act.
146
The recompiled Hire-Purchase Act is thus nothing but old wine in

new skin as it were.
A hire-purchase arrangement nevertheless affords an individual or

organization one of the principal methods of credit financing that
can help them in the acquisition of property which may otherwise
appear unaffordable. Thus, although it has its own disadvantages,
the hire-purchase option remains one of the most striking
developments in modern business financing. Despite the fact that
it was created as a legal fiction, it is this element that has greatly
facilitated its development. This term which originated in the
United Kingdom was originally called „rent-to-own‟ in the United
States.
Financing of a Hire-Purchase Transaction
A hire-purchase transaction may be financed either by the owner

himself or by a third party financier who has the financial ability
to do so. In the first scenario, the transaction will then be a
contract between two parties in which case the owner who is
letting out the goods on hire-purchase is equally the financier of
the business, and lets it out to the hirer. In all such instances, he
doubles as both the owner and the financer. This scenario is
commonly associated with large corporations with huge capital
outlay. In such situations, and in furtherance of the agreement, the
hirer may simply take possession of the goods while in exchange
he deposits some bills of exchange or promissory notes such as a
number of cheques which are usually post-dated or simply open.
The alternative is the situation where a third party financier bears

the immediate burden of paying for the goods which are then let
to the hirer on hire-purchase for an agreed period during which
the hirer is obliged to pay the hire rents to the third party with an
option to purchase or acquire the title ultimately upon completion
147
of the agreed payments or fulfilling any other condition that may

be agreed upon by the parties.
This situation usually presupposes the existence of a tripartite

agreement involving the three parties to the transaction, typically:
the seller, the hirer, and the third party financier which is usually
a bank or other financial institution and which for the purposes of
this transaction is actually the owner. In effect, the hirer ends up
paying a fraction on top of the original price of the goods which
represents the interest of the financier and is called a “hire-
purchase charge”. The promissory notes then constitute collateral
for the payment of the instalments. In some jurisdictions, this
hire-purchase charge is called the finance charge.
In such situations, there is primarily the relationship of buyer and

seller between the seller and the third party financier who in
effect actually buys the goods off the seller. As such, their rights
and obligations are regulated by the Sale of Goods Act. The
peculiar feature of the scenario here however is that since the
letting of the goods on hire-purchase to the hirer is considered as
an acceptance of the goods though constructively, or at the least
as an act inconsistent with the ownership of the seller, the
financier thereupon loses the right of rejection and repudiation of
the contract.
In reality therefore, no contract of sale or hire-purchase exists

between the original owner and the hirer. However, their
relationship might not be entirely void of legal effect. It is
possible that a collateral contract of warranty may exist by virtue
of which the original owner has undertaken a warranty relating to
the goods to the hirer in consideration of the latter entering into
the hire-purchase contract with the finance company or present
owner.
148
Hence, the three parties to the transaction in this instance play

vital roles in the unique nature of the hire-purchase contract
different from other commercial transactions. Where the original
seller has connected the hirer to the financier, he is paid in full the
cash price of the goods by the finance company which
automatically becomes the new owner, and subsequently enters
into a hire-purchase agreement with the hirer which entitles the
hirer to the possession and use of the goods. The implication of
this is that technically, and in actual fact, there are still two parties
to the hire-purchase agreement: the owner and the hirer, while the
shadow or third participant which is the original seller is in the
real sense of it no longer a party to the hire-purchase contract.
In practical terms however, the hirer, the original seller, and the
new owner who often times may be a finance company are in
most situations key factors in the hire-purchase transaction even
though the law recognizes only two of them for the purposes of
assumption of rights and obligations. In such instances therefore
the hire-purchase transaction seemingly takes a triangular form,
which additionally underscores the distinction between a hire-
purchase and other commercial transactions such as a sale of
goods contract. The distinction between a hire-purchase and a
sale of goods contract will be examined in detail subsequently in
view of the significance of their difference to a proper
understanding of the two subjects.
There has been some argument as to whether the seller is in effect

an agent of the financier for the purposes of understanding the
extent of responsibility of the parties to each other in a hire-
purchase contract. While there appears a lingering divergence of
views under the Common Law and the decision of English courts,
the Nigerian situation seems to be more certain. In the midst of
the seeming confusion, the position of the law in Nigeria is that
149
where negotiations for a hire-purchase contract are in fact

conducted by a seller, he shall notwithstanding any agreement to
the contrary, be deemed to be the agent of the finance company
for the purpose of any representations in respect of the goods
which are the subject-matter of the contract.163
Nature of Hire-Purchase Transactions
As a commercial transaction, hire-purchase has its distinguishing

features which mark it out from other commercial transactions. A
clear understanding of these is essential in appreciating the true
nature of such agreements. The general notion is that a hire-
purchase transaction has five basic characteristics. They are:
1. It is a Contract – Primarily, a hire-purchase transaction is

a contract between the owner of the goods or the financier of the
transaction and the hirer. It is however a special kind of contract
given its peculiarities and so by law must be in writing.164 In line
with the requirements of the law also, it must contain certain
basic terms.
2. It is a Bailment – In view of the fact that in a hire-

purchase agreement property in the goods does not pass to the
hirer until the option to purchase is exercised upon payment of the
last instalment, the relationship between the hirer and the owner is
that of a bailor and a bailee in which case the hirer is the bailee
while the owner is the bailor.
163
See Section 3(e) of the 1965 Act, now the Hire-purchase Act, Cap. H4,
Laws of the Federation of Nigeria, 2004.
164
Section 2(1) of the Hire-Purchase Act.
150
3. Retention of Title – The object of a hire-purchase agreement is

to ensure that the property in the goods, otherwise known as the
title remains with the owner or financier throughout the hire-
purchase duration until the last of the instalments is paid 165 and
perhaps any other condition agreed upon by the parties is
fulfilled. Thus, all the hirer will have is possession of the goods in
question and as such, he will be incapable of transferring valid
title to any third part during the continuance of the bailment.
4. Right to Terminate – The hirer in a hire-purchase contract is at

liberty to terminate the agreement at any point in time and return
the goods to the owner. Where this option is exercised, the hirer
ceases to be liable to make any further payments on the goods
except such sums as had already become due at the time he
returned the goods. The law is that any provision in a hire-
purchase agreement which excludes, restricts, or purports to
extinguish the right of the hirer to determine the hire-purchase
agreement is void, and ipso facto, unenforceable.166
5. Option to Purchase – One of the most basic features of hire-

purchase contracts is the existence of the option to purchase the
hired goods. This option is available to the hirer upon the
expiration of the agreed hiring period and the payment of the total
sum agreed upon in the contract. When this is done, the title or
property in the goods then devolves to him with all incidental
ownership rights. Thus, mixed in a hire-purchase transaction are:
a contract of hire; and, an option to purchase.167
165
Onojefegwono v. Agunbiade & Anor (Unreported) High Court, Benin, Suit
No. B/5/75.
166
Section 3(b) of the Hire-Purchase Act.
167
Per Ayoola, J.S.C. in Afrotec Technichal Services (Nig) Ltd v. MIA &
Sons Limited & Anor, Supra, 76.
151
The Hirer’s Right to Terminate the Agreement
Under the Common Law, the hirer‟s right to determine a hire-

purchase agreement was unqualified. No formality was required
in order to enable the hirer to terminate the agreement. In the case
of Helby v. Mathews168, Lord Macnanghten stated:
If the object of desire loses its attraction on close acquaintance-

if faults are developed or defects discovered-if a coveted treasure
is becoming a burden and an encumbrance, it is something, surely
to know that the transaction may be closed at once.
Under the Hire-Purchase Act, this right of the hirer is elaborated

upon.169According to the provision of the Act, the Memorandum
of Agreement must contain a notice advising the hirer inter alia
of his unfettered right to terminate the agreement. Also, according
to the provision of Section 3(b) of the Act, any term which
excludes the hirer‟s right to terminate the agreement would be
inapplicable. The procedure for terminating a hire-purchase
agreement by the hirer is specified under Section 8 of the Hire-
purchase Act. Specifically, according to Section 8(1), in order for
a hirer to terminate the agreement, he has to send a notice in
writing to the person entitled or authorized to receive any sums
payable under the agreement.
The Minimum-Payment Clause.
In some hire-purchase agreements, there is a clause which states

the minimum amount that the hirer is liable to pay upon his
exercise of his right to terminate the agreement. This is called the
minimum payment clause. The purpose of the minimum payment
168
Supra.
169
Section 8.
152
clause is to ensure that the owner does not suffer loss as a result
of the hirer‟s exercise of his right to terminate the agreement.
Under the Common Law, the owner of the goods can invoke the
minimum payment clause when the hirer terminates the
transaction or breaches the agreement.
In the case of Associated Distributors Ltd v. Hall170, the hirer returned

the bicycle he hired after paying just one instalment. There was a
minimum payment clause stating that upon termination of the
agreement, the hirer would pay half of the total hire purchase
sum. The court held that since this was the agreement of the
parties and it did not amount to a penalty the hirer has to pay this
sum of money.
Conversely, in the case of Cooden Engineering Co Ltd v. Stanford171,

after the hirer defaulted on the payment of the instalments, the
owner seized the goods and sued under the minimum payment
clause. The clause however in this case provided that in the case
of termination, the hirer would pay a hundred percent
compensation to the owner. The court held that this was an
instance of a penalty and thus, the minimum payment clause
could not be applicable.
Under the Hire-Purchase Act, Section 8(1) provides that the

maximum liability that can be incurred by the hirer under the
minimum payment clause is one half of the total hire-purchase
price. If on the termination of the agreement, the hirer has paid
less than one half, he has a duty to complete the payment until it
gets to half. If he owes arrears of instalments, he has to pay such
arrears and subsequently pay whatever amount that would make
the total payments to be equal to one half.
170
(1938) 2 K.B. 83.
171
(1953) 1 Q.B. 86.
153
It should be noted however that if the hirer has already paid a sum
which is more than one half of the hire purchase agreement, he
would incur no further liability upon termination of the contract.
As such, if a term increases a hirer‟s liability to more than the
stipulated amount under Section 8(1) of the Act, Section 3(b) of
the Act makes such a term inapplicable.
Benefits of a Hire-Purchase Contract.
A hire-purchase contract has some benefits which makes it

attractive to parties. These benefits are thus the reason for its
sustained existence in the arena of business till date and they
deserve special mention. They include:
1. Credit Facility – A hire-purchase contract is a form of credit

granted to the hirer by the owner or the financier. Consequently,
the obligation of the hirer at the commencement of the contract is
just to make an initial deposit representing a fraction of the value
of the goods while the subsequent payments are spread over a
period of time at agreed intervals. This affords the hirer an
opportunity to immediately take possession of goods he would
not otherwise have been able to afford if he were to pay for them
outright. It equally offers the owner an opportunity to ultimately
sell more of his goods since hirers need not have the full value
before transacting with him on the hire-purchase platform in the
face of the credit financing option as they would be required to in
a sales transaction.
2. Simplicity – The hire-purchase transaction offers the parties a

very simple business model that is easy to grasp and yet both
effective and beneficial. The implication is that the usual
controversies, complications, and uncertainties associated with
154
the calculation of the interest component of regular loans,

overdrafts, and other credit facilities are avoided by the adoption
of the hire-purchase model. Thus, the hirer is sure of his total
exposure and obligation within each interval while the owner is
equally assured of the title to his goods which remains with him
until all the outstanding instalments are paid.
3) Affordable Option – A hire-purchase agreement is obviously

the most affordable option to an individual or organization that
intends to buy goods. This is in view of the fact that all details of
the transaction are usually agreed upon at the inception by the
parties. This eliminates any possibility of an unforeseen
controversy as to the legal obligations of the parties. Indeed, in
modern day transactions, financial institutions and sellers factor
in the earning capacity of the hirer in determining what his hire
rents should be for each instalment and the volume of transaction
to allow prospective hirers. The aim is to avoid a situation in
which the regular payments become too burdensome on the hirer
thus engendering the likelihood of default.
4) Security of Asset – The retention of title or property by the

owner or the financier in a hire-purchase transaction creates
security of the asset in question as the risk to them is minimized.
This is especially so given the fact that the hirer is in effect
precluded from fraudulently transferring the title to a third party.
Indeed, in practice most financiers such as banks retain the
original title documents such as the vehicle particulars of a car in
a hire-purchase transaction involving goods of such nature or
other property having title documents until the option to purchase
is exercised.
155
The current state of the law on Hire-Purchase in Nigeria
It is disheartening to note that the extant law that regulates hire-

purchase transactions in Nigeria till date is in fact over 50 years
old with no serious amendments in the strict sense. The
implication is that the statute till date still retains its original
features and so is grossly inadequate and as such unsuitable in the
face of the dynamics of the modern business environment of the
21st Century. To better protect and preserve the rights of parties to
commercial transactions in this time and age therefore it is
pertinent to urgently amend this law in line with commercial
realities. This entails immediate legislative action to ensure the
security of parties in the arena of business. The following areas in
which the Act in its present form is deficient or inadequate
deserve the attention of the legislature:
1. Unrealistic Monetary Limit - By virtue of Section 1 of the Hire-

Purchase Act, the monetary limit for goods other than motor
vehicles to which the Act applies is N2,000.00.172 The provision
that the goods to be let on hire-purchase should be those whose
monetary value are not in excess of N2,000.00 is both ridiculous
and unreasonable. Although this limit made sense in 1965 when
the original Act was passed, the amount has since lost all value
owing to inflation. The implication therefore is that in reality,
only motor vehicles can be bought on hire-purchase in Nigeria as
no other type of goods can possibly be the subject-matter of a
hire-purchase contract if the value is not above N2,000.00. This
particular provision therefore is overdue for legislative review to
bring it in line with the realities of the day. This could be by
either increasing the monetary limit, or by out rightly removing
172
This value was arrived at using the conversion ratio of 1:2 from the Pounds
which was the currency in use in Nigeria as at 1965 when the original Act was
passed into law.
156
any form of upper financial limit to avoid a reoccurrence in the

future.
2. Personal Endorsement of the Hire-Purchase Agreement - The

requirement of Section 2 of the Act that the hire-purchase
agreement or the note or memorandum in respect thereof must be
signed by the hirer personally is out of tune with modern business
practice and inconsistent with the growing usage of agents in
concluding business transactions. This is especially so in view of
the fact that this requirement of the law does not apply to other
parties to the contract and so is in effect a discriminatory or
differential treatment of parties.
3. Requirement of Delivery of the Hire-Purchase Agreement - By

virtue of the provisions of Section 2(2)(d) of the Act, a copy of
the note or memorandum of the agreement should be delivered or
sent to the hirer within 14 days of the making of such agreement.
This provision is anything but clear. It actually gives the
impression that either the note or memorandum is made after the
agreement has been entered into, or that there is a different
agreement to be subsequently entered into by the parties thereto
separate from the note or memorandum.
4. Applicability to e-Commerce – There is an urgent need to

amend the Hire-Purchase Act to bring it in line with the evolving
influence of technology in business transactions particularly in
the area of online transactions and e-commerce generally. This
will then take care of situations in which hire-purchase
transactions are entered into online. This is especially so in view
of the admissibility of electronic evidence consequent upon the
review and amendment of the Evidence Act since 2011.
157
5. Remedy for Wrongful Recovery – By virtue of Section 9(2) of

the Act, where the owner or financier wrongfully recovers the
goods from the hirer, the hire-purchase agreement will
automatically come to an end and the hirer or his guarantor will
be entitled to recover all the payments already made to the owner
pursuant to the hire-purchase agreement. It is submitted that this
extreme position of the law confers undue advantage on the hirer
who would have used the goods within the period for which he
paid the hire rents. This provision therefore deserves immediate
legislative action to minimize the hardship it foists on the owner.
6. Protective Interim Re-Possession – By virtue of Section 9(5) of

the Hire-purchase Act, where three or more instalments of the
hire-purchase price of the motor vehicle under the agreement are
due and unpaid, the owner may remove the motor vehicle to any
premises under his control for the purpose of protecting it from
damage or depreciation and retain it there pending the
determination of any action, and the owner shall be liable to the
hirer for any damage or loss which may be caused by the
removal. While this provision is proactive and clearly has its
merits, difficulties however arise regarding the following issues.
Firstly, the fact that the section refers only to motor vehicles;
second, is the issue as to whether the action referred to by the law
must have been instituted by the owner against the hirer before
the owner can exercise the right of re-possession contemplated by
Section 9(5)173 or includes any action which may be instituted
subsequently; and third, there is some uncertainty as to whether
there is any legal distinction between “recovery” under Section
173
Achike ,O., „Limits to the Right to Retake Possession of Goods under Hire-
purchase Agreements in Nigeria‟ Nigerian Law Journal, (Vol.13, No.1) 1987,
22.
158
9(1) and this “removal” under Section 9(5). This distinction may
however be purely academic as in either case, intrinsically or
technically, there is a movement of the res from where they were
immediately preceding the recovery or removal to another place.
Finally, there is also the issue of whether the three or more

instalments due and unpaid to justify re-possession under Section
9(5) must be consecutive before the owner can exercise the right
of interim re-possession.
7) Rationale for the inclusion of Credit Sale provisions in the

Hire-Purchase Act – There has been a lingering confusion
regarding the justification for the decision of the legislature to
lump the credit sales provisions together with the provisions
regulating Hire-purchase transactions in one legislation.
While it is conceded that the two transactions have some

similarities, this does not derogate from the fact that they are
certainly dissimilar in nature, utility, operation, and consequence.
Of particular importance is the fact that in a hire-purchase
transaction, the hirer does not acquire title at the point of
transaction and signing of the contract unlike in a credit sale. As
such, he can neither transfer any better title to a third party, nor be
compelled to complete the transaction if he decides to return the
goods. In any case, the bulk of the provisions of the statute relate
to Hire-purchase contracts while only very few of the sections of
the Act relate to credit sales. Even then, the said sections deal
with matters of form rather than the substantive rights of the
parties to a credit sales agreement, thus the need for the
legislature to severe the two and provide for each in a separate
statute.
159
8) Right of assignment by the Hirer – Although the Hire-Purchase

Act generally makes no provisions for the assignment of the
rights of the hirer in a contract for hire-purchase, a careful perusal
of the definition of the term hirer in Section 20(1) thereof
however curiously makes reference to „a person to whom a
party‟s rights and liabilities under the agreement has passed by
assignment.‟ The absence of a clear provision for the right of the
hirer to assign his rights and interests in the contract is thus a
serious legislative oversight that ought to be addressed urgently.
In the absence of this, resort is naturally had to the Common Law
provisions by virtue of which the hirer can validly do so in the
absence of a clear prohibition against such transfer in the
agreement.
It is however possible for the legislature to provide for this option

without necessarily jeopardizing the right of the owner via
legislative action. This will be more consistent with commercial
realities as such a provision will not only save the owner from
incessant rejection or return of hired goods, but will equally
provide the hirer with an exit route in circumstances where the
hirer is either unable to afford the agreed instalments anymore, or
is otherwise precluded from conveniently continuing with the
contract due to circumstance beyond his control. This right should
thus be available not just to the hirer personally, but also to the
official receiver in instances where the hirer becomes insolvent.
9) Computation of Damages – In a hire-purchase agreement, two

distinct sets of damages may arise or enure to the parties. While
one relates to situations where there has been a default by the
owner to comply with the terms of the contract such as the supply
of goods that are deficient in quality, unlawful recovery of the
goods from the hirer, or wrongful interim re-possession of the
160
goods; the other relates to the default attributable to the hirer

himself by way of failure to pay the agreed instalments as and
when due, wrongful detention of the goods and use thereof,
failure to take reasonable care of the goods during the tenure of
the hire-purchase contract until the option to purchase is exercised
if possible, or any other term of the hire-purchase agreement.
Unfortunately, even though the Hire-Purchase Act has made

detailed provisions regarding the liability of each party in
damages arising from a breach of, or failure to comply with
obligations contained in the Act, yet the Act is curiously silent on
the method of computing these damages thus the need for
legislative action. The justification for this cannot be over-
emphasized in view of the fact that this will facilitate easy
computation of claims which would obviously come by way of
special damages.
While it is conceded that in the absence of specific legislative

guide resort may be had to the Sale of Goods Act to resolve
problems arising from such default, it must be noted that this, at
best may only be of much use regarding the issue of quality of
goods supplied by the owner. There is however no provision to
which resort may be had regarding most other issues that are
peculiar to hire-purchase transactions alone, and so the Sale of
Goods Act is in reality both inadequate and unsuitable.
10) Rights and Obligations of the Parties – The Hire-Purchase

Act in its present form does not have an organized list of the
rights and duties of the parties to a hire-purchase contract. The
implication then is that the said rights and duties are therefore
inelegantly provided for in a manner devoid of clarity and without
a sequence and so can only be gleamed from different provisions
161
scattered all over the Act. Indeed, some of the rights and
obligations are in certain instances left to conjecture, usage, and
suppositions thereby leaving much to be desired by judicial
officers, parties, and all other stakeholders.
It is suggested in the face of this unfortunate state of affairs that

the legislature should while amending this legislation create a
segment, or sections enumerating these rights and obligations
seriatim. This will make for clarity, accuracy, specificity, and in
fact certainty thereby obliterating the lingering uncertainty as to
the exact scope and latitude of these rights and obligations.
11) Service of Notice – It is instructive that although the Hire-

Purchase Act makes provision for the giving of notice for
different reasons by the parties to a hire-purchase contract, the
Act however has no provision stating where this notice is to be
given. In the face of this lack of express provisions in the Act
regarding where the notice should be given to be effective, resort
is then had to the preference or convenience of parties,
conjecture, or in some instances the usual practice between the
parties. This has the high tendency of occasioning hardship on a
party in some instances.
It is submitted that given the importance of the issue of notice, it

is pertinent that the legislature in reviewing the statute should
streamline this area of the law to make for clarity by stating the
exact mode of service of such notices and where. This will help
parties guard against problems attendant to such issues for
instance where service is made by post when it ought to have
been personal for instance.
162
12) Fines and Penalties– The existing penal provisions of the

Hire-Purchase Act are clearly out of tune with present day
economic realities. The reason for this is not far-fetched as the
sums stated therein have lost value in the face of inflation over
time thereby rendering them ridiculous in the current commercial
arena. They are therefore overdue for upward review so as to
effectively act as a deterrent to parties who may wish to violate
their obligations under such agreements. The legislature should
therefore urgently review all such fines and penalties in the
course of review of the Act itself taking into cognizance the
current value of the Naira against the background of international
financial indices and domestic realities.
13) Transitional Provision – In view of the elaborate and indeed

numerous areas being proposed for inclusion in a revised or
entirely new hire-purchase legislation, it is necessary to stipulate
in the new law the status of all existing hire-purchase agreements
at the commencement of the revised or new legislation. This is
basically to resolve the obvious argument as to the applicability
of the old or new versions to existing contracts that predate the
proposed enactment advocated for herein.
Distinction between a Hire-Purchase Transaction and a Sale.

Although there are similarities between a hire-purchase
transaction and a sale of goods contract, there remains a lingering
confusion between the two prompting scholars and lawyers to
always attempt a clear distinction between the two. This
distinction may not be easy but some indices have been identified
which serve as a guide in this exercise. The following elements
163
known as the 10-Ps postulated by one of such scholars174 is very

helpful in distinguishing the two types of transactions. They are:
parties, products, possession, property, price, payment, place or
premises, procedure, provisions, penalties.
1) Parties – Ordinarily, there are two parties to a hire-purchase

agreement; these are the hirer and the owner. While the owner has
absolute rights or authority over the goods the hirer is usually
only given possession and the right to use the item(s) for as long
as he makes good his promise to pay the hire rents regularly in
addition to keeping the goods in a good condition until he elects
to either return the goods and terminate the contract, or exercise
the option to purchase upon payment of the last instalment.
In a sale of goods transaction however, the parties are referred to

as the seller and the buyer. Furthermore, unlike the situation in a
hire-purchase transaction, in a sale of goods contract, the seller is
ready and willing to transfer the property or title in the goods to
the buyer while the buyer is equally ready to receive such title to
the goods and pay the price.
2) Products – By virtue of the provision of Section 1 of the Hire-

Purchase Act, the subject matter of the agreement in a hire-
purchase transaction are to be goods whose value are not in
excess of two Thousand Naira, and motor vehicles. This is
probably the reason for the non-development of the hire-purchase
practice in Nigeria. The reason is because, given the ridiculous
value of two thousand naira in the commercial arena presently,
174
Ofo, N., „Distinguishing Hire-Purchase Transactions from other
Commercial Transactions: The Ten Ps Test‟, SSRN:
https://ssrn.com/abstract=1267665 , accessed, 6th September, 2017.
164
nobody would contemplate buying anything on hire-purchase

except motor vehicles. Thus, the numerous calls for the
immediate review of the Act.
Conversely, the Sale of Goods Act, 1893 which is sadly the law
that still largely regulates sale of goods transactions in Nigeria
today in the absence of a comprehensive federal legislation does
not provide for any price limit regarding goods that are capable of
being sold. The implication therefore is that parties to a sale of
goods transaction are at liberty to engage in a transaction of
whatever value they want without restriction.
3) Possession – It is now settled that the primary object of a hire-

purchase transaction is for the hirer to acquire immediate
possession of the goods at the inception of the contract.
Consequently, the Act provides that the right of the hirer to reject
and return the goods at any time is sacrosanct subject of course to
the possibility of paying a minimum sum where there is a
minimum payment clause. This is in direct contrast with a sale of
goods situation in which the main object of the buyer is to acquire
title to the goods. In some instances therefore the seller may part
with the title even before payment is made in which case his
remedy lies in suing for the price should the buyer default or
otherwise refuse to pay.
4) Property – In a hire-purchase agreement, property or title in the

goods remains with the owner till the last day of payment. This is
obviously the reason why he is referred to as the owner at every
material time during the hire period until the option to purchase is
exercised. Conversely in a sale of goods contract as already
stated, the property in the goods may pass to the buyer before,
during, or after payment is made provided the parties have
agreed. The implication then is that it is the agreement between
165
the parties that determines when the title should pass to the buyer,
while possession and payment maybe deferred to a later date.
5) Price – Regarding the price of the goods, the law requires the
owner in a hire-purchase agreement to communicate both the
price at which the goods would be sold if the hirer were to buy
them outright for cash, and the hire-purchase price for which he
may hire the goods and pay hire rents in instalments during the
hire period subject to the final option to purchase. In a normal
sale of goods however, the seller only has a duty to communicate
the selling price of the goods which the buyer may accept and pay
outright or as agreed by the parties. It is noteworthy that the
essence of the distinction between the cash price and the hire-
purchase price is that the hire-purchase transaction usually
attracts a premium on top of the cash price which represents the
cost of the funding by either the original owner / dealer or the
financier. The cash price is thus always less than the hire-
purchase price.
6) Payment – In a hire-purchase transaction, there is no amount

that the hirer is obliged to pay beyond the initial or perhaps
minimum payment where there is such a clause. The implication
is that the hire rents to be paid by the hirer periodically is subject
to his liberty to continue with the transaction. Thus, the use of the
term “option to purchase”. In a sale of goods contract on the other
hand, the buyer has an obligation to pay the agreed amount to the
seller sometimes even when the goods are lost before they get to
him depending on the state of risk at the material time.
7) Place or Premises – A very important feature of the hire-

purchase transaction is that it must by law take place at the
premises of the owner or his place of business. This is the case
even where he elects to transact using an agent. A sale of goods
166
transaction on the other hand is not subject to such restrictions as

parties may transact at any location that suits them even without
necessarily having to be in the same place. This is typical of
international, online or related transactions. The implication is
that the buyer need not visit or know the place of business of the
seller all through the transaction.
8) Procedure – A hire-purchase transaction has some strict

formalities that it must conform with. Instances would include the
requirement that: the owner shall state in writing to the hirer, the
cash price175; the document evidencing a hire-purchase agreement
must be in writing and signed by the hirer personally176; and, the
instalments or hire rents should be paid as and when due. In a sale
of goods transaction however, there are no strict formalities and
so the parties may decide to transact orally or in writing. The
buyer may decide to transact personally or through an agent, and
the rules of procedure which are strictly followed in hire-purchase
transactions regarding formalities are not applicable to sale of
goods transactions.
9) Provision – Hire-purchase transactions are regulated by the

Hire-Purchase Act177, which consists of provisions stipulating the
procedure that most be adhered to religiously in entering a hire-
purchase agreement. In so doing, it itemizes terms that must form
part of a hire-purchase contract while stating terms that cannot be
imported by parties into such a contract even by consent.178 As
such, while the parties are at liberty to contract, their liberty in
this case is strictly regulated and emasculated. Sales transactions
on the other hand are regulated by the Sale of Goods Act, 1893
175
Section 2(1) of the HPA.
176
Section 2(2)(a).
177
Cap. H.4. Laws of the Federation of Nigeria, 2004.
178
Section 3 of the HPA.
167
and although this statute generally regulates the rights and

obligations of parties therein, it is not as strict as the Hire-
Purchase Act with particular reference to form.
10) Penalties – Another very important distinction between hire-

purchase transactions and sale of goods transactions is the fact
that the Hire-Purchase Act makes provision for penalties that are
payable by parties in case of default to perform their duties as
provided for in the Act.179 This is presumably in line with the
existence of the strict requirement of the need to comply with the
rules of form which is peculiar to only hire-purchase agreements.
The Sale of Goods Act on the other hand does not make any such
provision for penalties. This also underscores the fact that the
rules of form must not to be strictly adhered to in a sale of goods
transaction thereby enlarging the liberty of parties.
179
Section 6 of the HPA.
168
CHAPTER SIX
CONSUMERISM
Introduction.
Consumerism refers to a modern movement for the protection of

the consumer against useless, inferior, or dangerous products,
misleading advertising, unfair pricing, etc.180 Consumerism is
thus the protection of rights and interests of consumers especially
with regard to price, quality, and safety. The aim is to inform
consumers by requiring such practices as honest packaging and
advertising, product guarantees, and improved safety standards.
Consumer protection therefore entails the existence of laws and

institutions designed to ensure the rights of consumers as well as
fair trade, competition, and accurate information in the market
place. The laws are designed to prevent businesses that engage in
fraud or specified unfair practices from gaining advantage over
their competitors. They may also provide additional protection for
those considered most vulnerable in society.
Consumer protection laws are a form of government regulation

which aim at protecting the rights of consumers. Thus,
government regulations may require businesses to disclose
detailed information about products particularly in areas where
safety or public health is in issue such as food, drugs, etc.
Consumerism is linked to the idea of consumer rights, and to the
formation of consumer organizations which help consumers make
better choices in the market place as well as get help with
180
Collins English Dictionary, Complete and Unabridged, Harper Collins
Publishers, 2003.
169
consumer complaints. The goal of consumer protection laws is to

place consumers, who are average citizens engaging in business
deals such as buying of goods or borrowing of money on an even
par with companies or citizens who regularly engage in business.
Historically, consumer transactions such as purchase of goods, or

services for personal, family, or household use were presumed
fair because it was assumed that buyers and sellers bargained
from equal positions. However, starting in the 1960‟s, legislatures
all over the globe began to respond to complaints by consumer
advocates that consumers were inherently disadvantaged,
particularly when bargaining with large corporations and
industries.181 Consequently, several types of agencies and
statutes, both state and federal now work to protect consumers in
addition to voluntary organizations.
According to the West Encyclopedia of American Law182, a

consumer is someone who acquires goods or services for direct
use or ownership rather than for resale or use in production and
manufacturing. Consumer interest can be protected by
government through promoting healthy competition in the
markets which directly and indirectly serve consumers consistent
with economic efficiency. Consumer protection can also be
asserted via non-governmental organizations and individuals by
way of consumer activism.
Similarly, while the Black's Law Dictionary183 defines a

consumer as a person who buys goods or services for personal,
family, or household use, with no intention of resale, a natural
181
Craft, P.A., „State Consumer Protection Enforcement: Recent Trends and
Developments‟, Antitrust Law Journal, Vol. 59, 1991.
182
https://www.answers.com , accessed, 30th September, 2016.
183
Op.cit.
170
person who uses products for personal rather than business

purposes; the Encarta Dictionaries184 define a consumer as a
buyer of goods and services and as someone who consumes
something by eating it, drinking it, or using it up. Indeed,
President John F. Kennedy in his 15th March, 1962 Declaration
to the US congress aptly described consumers thus:
'They are the largest economic group, affecting and affected by

almost every public and private decision. Yet, they are the only
important group whose views are often not heard'. 185
One glaring fact in the above definitions is that there is no

uniform or generally accepted meaning of the term Consumer.
While some definitions confine the term 'consumer' to contractual
relationships, others infer that it is uninhibited by contractual
requirements. However, the decision in the famous English case
of Donoghue v. Stevenson186 clearly illustrates that the term
consumer goes beyond the realm of contract. The facts were that
a friend bought a bottle of ginger beer for the Plaintiff Mrs.
Donoghue and after drinking some of it, a decomposed snail
emerged from the bottle. The Plaintiff later took ill and a
physician diagnosed her with gastro entiritis whereupon she sued
the Defendant manufacturer of the ginger beer.
It is instructive to note that the Plaintiff did not bring an action for
breach of contract against Mr. Stevenson because she did not buy
the beer herself, rather her lawyers brought a claim that the
Defendant had breached a duty of care to consumers of his
product and in so doing had caused injury to the Plaintiff through
negligence. The Defendant through his lawyers challenged the
184
Microsoft Encarta version, 2017,
www.microsoft_encarta.en.downloadastro.com , accessed, 11th January, 2017.
185
Kennedy, J.F., Declaration to the US Congress on 15 th March, 1962.
186
(1932) H.L. 31.
171
action claiming that a manufacturer is only liable to the person he

entered into a contract with, in this case the buyer of the drink.
The court of first instance dismissed the case for lack of
precedence. The case went on appeal up to the House of Lords
where the earlier decision was reversed.
In arriving at its decision the House of Lords held inter alia that
Stevenson should be responsible for the wellbeing of the
individuals who consume his products given that they could not
be inspected. This position was based on negligence, duty of care,
and the neighbour principle. In the light of the above, consumers
are now protected from defective products of negligent
manufacturers through the enactment of various laws. Thus, the
parties injured can now sue on the basis of the duty of care, and
the action does not need to arise based on contractual relationship.
In line with this decision of the English House of Lords, it is now

a common practice for nations to make laws that are designed
specially to protect the interest of its citizens in the course of
buying and using of goods and services. The aim is to guard
against exploitation of consumers, reduce the risk of exposure to
harmful or substandard products and services, as well as provide a
platform for the consumers to seek redress in the event of
violation by businesses.
Consumer protection is therefore prompted by the allegations of

abuses of consumer rights in the market place. Consumer rights in
this sense are, the rights of a consumer to some basic entitlement
in the goods and services they consume. This basic entitlement
includes standard weight and measures, adequate and appropriate
quality of goods and services, as well as right to consumer
information, competitive choice, redress, and environmental
protection.
172
Such abuses sometimes take the form of false and misleading

advertisements. In this case, consumers are lured to buy products,
only to find out that such goods are not what they bargained for,
or that the product was ipso facto useless. Apart from false and
misleading advertisement, there are cases of flagrant promotion of
the consumption of bad or expired products despite the obvious
health hazards posed to society by such practices.
Global Consumer Protection.
The United Kingdom is a member of the European Union and as

such is bound by the consumer protection directives of the
European Union.187 Domestic UK laws originated within the
ambit of contract and tort, but with the influence of European
Union Law, it is emerging as an independent area of law.
Consumer protection issues are dealt with when complaints are
made to the Director-General of Fair Trade. The office of Fair
trading (OFT) will then investigate, impose an injunction or take
the matter to litigation. In practice, the OFT rarely prosecute
companies, however preferring a light touch regulation
approach.188
In the United States, a variety of laws at both the federal and state
levels regulate consumer affairs. Among them are the Federal
Fair Debt Collection Practices Act, the Fair Credit Reporting Act,
Truth in Lending Act, Fair Credit Billing Act, etc. Federal
consumer protection laws are mainly enforced by the Federal
Trade Commission, the Consumer Financial Protection Bureau,
187
In a referendum on 23rd June, 2016, 51.9% of the participating UK electorate
voted to leave the European Union (EU).
188
OFT Annual Report, 2013
173
and the U.S. Department of Justice. At the state level, many states
have adopted the Uniform Deceptive Trade Practices Act. This
statute allows local prosecutors or the Attorney General to press
charges against people who knowingly use deceptive business
practices in a consumer transaction and authorizes consumers to
hire a private attorney to bring an action seeking their actual
damages, punitive damages, and attorney‟s fees.
Other states in the United States have been the leaders in specific
aspects of consumer protection. For example, Florida, Delaware
and Minnesota have legislated requirements that contracts be
written at reasonable readability levels as a large proportion of
contracts cannot be understood by most consumers who sign
them.189 So far, forty seven national constitutions currently in
force include some sort of consumer right. The 2010 Constitution
of Kenya for instance is to the effect that citizens have the right
to:
1. Goods and services of reasonable quality;

2. Information about the product;
3. Protection of their health and safety in the use of the
product.
4. Compensation for loss or injury arising from defects in
goods and services.
189
Eigen, L.D., „A Solution to the Problem of Consumer Contracts that cannot
be Understood by Consumers Who Sign Them‟, [2009],
https://scriptamus.wordpress.com , accessed, 29th January, 2017.
174
The Kenyan rule also stipulates that citizens would have legal
recourse in the case of injury or product defects. This is contained
in Section 46 regarding Consumer Rights.190
In the Middle East, the government of Qatar shut down the

Toyota Showroom for violating consumer protection laws.
Qatar‟s Ministry of Economy and Commerce closed down
Doha‟s main Toyota/Lexus showroom for one month for alleged
commercial fraud, according to its official Twitter Feed.191
According to the Ministry, Toyota Qatar had been selling cars to
consumers as brand new, when in fact, some of the cars had been
in accidents before and been repaired and restored before being
resold. The same Ministry had earlier shut down the Land Rover
showroom in Al Sadd for violating provisions of the Customer
Protection Law No. 8 of 2008.
In January, 2017 it said Domasco Honda‟s main showroom at TV

Roundabout was shut for one month. Two weeks prior to that the
Chrysler, Dodge, Jeep, and Ram dealership on Al Matar Street,
and the Nissan dealership on Salwa Road were all closed for one
month for the same reason. Companies that do not make
consumers aware of prior repairs are reportedly violating this
Qatari Commercial Law that requires suppliers to provide
information on the type, nature and components of a product on
its label, and forbids them from using false or deceptive
marketing terms in an attempt to sell their product.
190
Elkins, Z., Ginsburg, T., & Melton, J., „Constitut: The World‟s
Constitutions to Read, Search, and Compare‟, University of Chicago Law
Journal, 27 Web Semantics, Vol. 10, 2014.
191
Khatri, S.S., „Qatar Shuts main Toyota Showroom, Two Dealerships for
Commercial Fraud‟[2015], https://dohanews.co/qatar-shuts-main-toyota-showroom-
two-dealerships-for-commercial-fraud/ , accessed, 13th December, 2016.
175
In the United States of America, the Federal Trade Commission

(FTC) Bureau of Consumer Protection stops unfair, deceptive,
and fraudulent business practices by collecting complaints and
conducting investigations, suing companies and people that break
the law, developing rules to maintain a fair market place, and
educating consumers and businesses about their rights and
responsibilities. The FTC works for consumers to prevent
fraudulent, deceptive, and unfair business practices and to provide
information to help spot, stop, and avoid them.192 Thus, in 2014,
automakers recalled nearly 64 million vehicles for safety
problems. That was more recalled cars and trucks than the
previous three years combined. This was done in liaison with the
National Highway Traffic Safety Administration, an agency of
the Executive Branch of the U.S. government and part of the
Department of Transportation.193
Consumer Protection in Nigeria.
In Nigeria, although the first legislation on consumer protection

was the Sale of Goods Act, 1893, a Statute of General
Application made by the British Colonial government, the
principal legislation regarding consumer protection presently is
the Consumer Protection Council Act194 which provides for the
establishment of the Consumer Protection Council as a regulatory
body, and for matters connected therewith. The Council is made
up of a Chairman, a Representative of each state in the Federal
192
Ramirez, E., „Statement from FTC Chairwoman Edith Ramirez on Appellate Ruling
in the Wyndham Hotels and Resorts Matter‟, [2015] https://www.ftc.gov/news-
events/press-releases/2015/08/statement-ftc-chairwoman-edith-ramirez-appellate-
ruling-wyndham/ , accessed, 14th December, 2016.
193
US Consumer Reports, 2015.
194
Cap.C25, Laws of the Federation of Nigeria, 2004.
176
Republic of Nigeria and persons representing the ministries of

Health, Commerce, Industry, Science and Technology, and
Petroleum Resources. The functions of the Council include but is
not limited to the following:
1. To provide speedy redress to consumers‟ complaints

through negotiation, mediation and conciliation.
2. To seek ways and means of eliminating from the market,
hazardous products and causing offenders to replace such
products with more appropriate alternatives.
3. To cause an offending company or individual to protect,
compensate, and provide relief and safeguards to injured
consumers or communities from adverse effects of
technologies that are inherently harmful.
4. To ensure consumer interests receive due consideration at
appropriate fora and provide redress for the exploitation
of consumers.
Against this background, a consumer is clearly seized of certain

rights which include the right to satisfaction of basic needs, the
right to receive safe products and services, information, choice,
redress, representation, and the right to a healthy environment.
Where a consumer is dissatisfied or feels shortchanged, he or she
is entitled to seek redress through the regulatory body.
The Consumer Protection Council was originally established by

Decree No. 66 of 1992 to provide holistic protection of the
consumer in line with the United Nations Guidelines for
Consumer Protection, 1985. As an agency of the Federal
Government of Nigeria, the Consumer Protection Council is
supervised by the Federal Ministry of Trade and Investment and
177
acts as the apex consumer protection agency of the Nigerian

government.
There is no doubt that these and earlier attempts at Consumer

Protection have mapped out albeit vaguely, the terrain of
consumer protection law in Nigeria.195 A cursory look at Section
12 shows that the CPC Act has made enough provisions for
sanctions against advertisers as well as others who contravene the
enactment protecting consumers.
However, this Act has faced major criticisms which include the
fact that consumer rights are being subsumed with the functions
of the Consumer Protection Council, leaving no clear definition
of what are consumer rights; the absence of a defined and
adequate provision and mechanism for redress; general weakness
of the enabling law; lack of strong enforcement machinery and
provisions for enforcement; lack of specific institutional
framework for the defence of consumer rights; inadequate
funding; overlapping in the role and functions of some agencies;
and, failure of the agencies to align with emerging trends in
technologies and global policies particularly international law.
Another agency in Nigeria charged with the responsibility of

protecting consumers is the National Agency for Food and Drug
Administration and Control (NAFDAC). NAFDAC was
originally established by Decree No. 15 of 1993 as amended by
Decree 19 of 1999 now Cap. N1 Laws of the Federation of
Nigeria, 2004 with the mandate to regulate and control the
importation, exportation, manufacturing, advertisement,
distribution, sale, and use of food, drugs, cosmetics, medical
devices, bottled water, and a wide variety of chemicals. It is
195
Apori, K.A., „Cutting a Swath around the Nigerian Consumer: The Nigerian
Consumer Protection Decree‟, EDSU Law Journal, Vol. 3, 1993.
178
important to note that NAFDAC has been very effective in the

past two decades in the area of consumer protection and quality
control and if its potentials and present tempo is sustained via
manpower development and infrastructural empowerment, it
would certainly achieve greater heights in protecting consumers
in Nigeria.
Equally significant are the National Insurance Commission Act

which established the National Insurance Commission; The
Pharmacist Council of Nigeria Act which established the
Pharmacist Council; The Weight and Measures Act, breach of
Section 49 of which attracts a fine of N500.00 for individuals or
one year imprisonment, while corporate bodies are liable to a fine
of N5000.00; The Utilities and Charges Commission Act which
established the Utilities and Charges Commission; The
Counterfeit and Fake Drugs and Unwholesome Processed Foods
(Miscellaneous Provisions) Act; The Price Control Act; The
Criminal Code Act; and The Penal Code which applies in the
Northern States, as well as the Sale of Goods Laws of the various
states.
Kanyip196 notes that protection has been accorded the consumer

in Nigeria under such laws. According to him, in a general sense
these laws establish the respective standards and criteria for
protecting the consumer, the breach of which gives rise to
criminal or administrative penalties. Unfortunately, while
consumer protection organizations have given impetus to efforts
at defining and promoting the interest of consumers in the United
States, Canada, United Kingdom, etc., such consumer oriented
bodies are yet to take deep root in Nigeria.
196
Kanyip, B.B., „Historical Analysis of Consumer Protection in Nigeria‟,
Abuja, Nigerian Institute of Advanced Legal Studies: Occasional Paper Series,
1977.
179
Consequently, despite the above structures set up by the Nigerian

government to ensure the protection of consumers, the Nigerian
consumers are clearly the most exploited in the world. Instances
will include the epileptic power supply situation in the country
despite the exorbitant bills charged by the Power Holding
Company of Nigeria (PHCN) from the citizens which in most
cases are designated „estimated bills‟; the consistent charging of
customers for dropped, failed, or unsatisfactory calls by the
various telecommunications companies in Nigeria under the clear
watch of the National Communications Commission (NCC) an
agency of the Federal Government established by the NCC Act,
2003, and which has so far done little or nothing to root out the
rot in the telecoms industry.
Specifically, Section 1(9) of the Nigerian Communications

Commission Act mandates the Commission to protect the rights
and interest of service providers and consumers within Nigeria
while Section 4(1)(b) of the Act further empowers the
Commission to protect and promote the interest of consumers
against unfair practices relating to matters which include tariffs
and charges for the availability and quality of communications
services, equipment, and facilities. Thus, the Commission as a
regulator has the responsibility of ensuring that customers receive
value for their money. This is in addition to supporting advocacy
on behalf of telecoms consumers to ensure that their interests are
generally protected.
Furthermore, the incessant rent increase by landlords in most

Nigerian cities in clear violation and disregard of the restrictions
in the Rent Control Laws of the various states, the consistent
habit of airline companies keeping many of their passengers
stranded at most Nigerian airports via prolonged flight delays and
outright cancellation of flights already paid for without any or
180
adequate notice and compensation, finding of dangerous items

and substances in beverages, dispensing of fake and expired drugs
in pharmacies, fraudulent adjustment of petrol pumps by fuel
stations and their attendants, and poor customer service especially
in the public sector notwithstanding the introduction of
SERVICOM as a public service watchdog by the Head of
Service, etc. are instances of consumer exploitation and abuse.
As a result of many years of such abuse and neglect, Nigerian

consumers no longer agitate about poor services in public
institutions or fallen standard of goods and services. As Aniagolu
J.S.C succinctly put it:
Nothing appears to be elementary in this country where it is often

the unhappy lot of customers to be inflicted with shoddy and
unmerchantable goods by some pretentious manufacturers,
entrepreneurs, shady middlemen, and unprincipled retailers whose
avowed interest seems only and always to be to maximize their
profits, leaving honesty a discounted and shattered commodity.197
Paradoxically, the laws are clearly in place, the agencies charged

with the responsibility of tackling these issues equally exist
already. The question then that begs for an answer is as to why
many Nigerian consumers are left helpless in instances where
they receive substandard or harmful goods and services. While
using all legitimate institutional means to confront the scourge of
consumer rights abuse in the Nigerian market place, one must be
conscious of the fact that an uninformed consumer population
cannot be effectively protected especially if they do not know that
they have rights, what these rights are, and how the rights could
be protected.
197
Ayojimi, M., “Is the Consumer King in Nigeria?”, Businessdayonline.com,
[2014], https://www.craaai.org/is-the-consumer-king-in-nigeria/2014/03,
accessed, 29th January, 2017.
181
To ameliorate the plight of consumers in Nigeria, the Consumer

Protection Council currently runs a periodic radio program tagged
„Consumer Speaks Radio Network‟. While this is commendable,
the CPC should also organize „town hall meetings‟ and „road
shows‟ to major markets in all the cities in the country to educate
both the buyers and the sellers on their duties and responsibilities.
It will also be helpful if they establish more offices nationwide to
make their services more accessible to the average Nigerian.
In cities like Abuja, phone lines have been made available so

consumers can call in to lay complaints against producers and
providers of goods and services. The Standards Organization of
Nigeria (SON), established via the SON Decree of 1971, now the
SON Act, 2015 which is another agency of the Federal
Government saddled with the responsibility of ensuring the
compliance of producers and manufacturers of goods and services
to minimum acceptable standards has implanted clear and
stringent guidelines to inform importers and assure Nigerian
consumers that imported products must comply with applicable
regulations.
In Lagos for example, the Standards Organization of Nigeria and

the Consumer Protection Council now have a market desk that is
fully functional at Alaba International market which provides
buyers the opportunity to authenticate the quality and genuineness
of products purchased from any shop within the market especially
the electronics section.
Thus, the slogan that „the customer is king and is always right‟ is
gradually gaining worldwide acceptance as consumer protection
laws are increasingly being enacted while customers and
consumers are becoming more aware of their rights when
purchasing goods and services. Indeed, in 2013 the Consumer
182
Protection Council through its Director-General Mrs. Dupe Atoki

made a call for speedy passage of a reviewed consumer protection
law to enable the government provide adequate cover for
consumers as well as improved budgetary provisions in a bid to
enhance the performance of the Council.198
According to the Director General of the CPC, the present

Consumer Protection Act has some gaps and so cannot effectively
protect Nigerian consumers and it was because of the gaps in the
Act that multinationals come to dump goods in the country with
no law to hold them responsible.
Beyond the federal legislation, the Lagos State government in

March, 2014 passed the State Consumer Protection Agency Bill
into Law. Critics have however expressed doubts as to the
efficacy of this legislation especially in view of the fact that the
existing federal Consumer Protection Agency appears to have
made no significant impact on the lives of Nigerians since its
inception over two decades ago, a situation that has given rise to
pressure groups such as the Consumer Advocacy Foundation of
Nigeria, and the Consumer Rights Project. In signing the law, the
then governor Babatunde Fashola (SAN) was reported by
Channels television news to have said:
'I hope everybody benefits because this law will

raise the service levels of providers, it raises
compliance levels, it improves the quality and
standards of goods that are put in the market
and the manufacturers and service providers
also know that there is at least a minimum
service level expectation that the market will
expect'.
198
Oladunjoye, P., “CPC Calls for Quick Passage of Consumer Protection
Laws”, [2013], https://www.independentnig.com, accessed, 14th December,
2016.
183
Regarding its operational modus, and in line with the law

establishing it, it is necessary to note that in Nigeria, the public
will not patronize products and services that are not listed with
the Consumer Protection Council. The Council is backed by law
to shut down the premises of product manufacturers and service
providers that fail to list their products and services. Where
companies are not listed or default in terms of product quality
compliance, even a listed company can be de-listed by the
Council.
In demonstration of its seriousness to tackle the abuse of the

disadvantaged position of the consumers, some of the consumer
protection agencies in Nigeria have in some instances risen to the
occasion by taking bold steps to confront some businesses that
made conscious efforts to take advantage of consumers over the
years. The following instances are noteworthy:
On the 30th of May, 2006 the Consumer Protection Council shut

down the Abuja regional office of MTN Nigeria, and threatened
to press for the withdrawal of its operational license if the
company continues to flout the operational guidelines in its
dealings with Nigerian subscribers to its network. This action was
taken by the CPC over MTN‟s Y’ello Times Promotions which
the agency said was unlawful and in contravention of rules and
regulations, having not been duly registered and subjected to the
scrutiny of the consumer rights agency.199
Reacting to the development, MTNs‟ corporate services

Executive, Amina Oyagbola said that:
199
Nweke, R., “MTN Confirms Sealing of Abuja Office”, [2006],
www.itrealms.com.ng/2006_05_01_archive.html?m=1 , accessed, 13th
December, 2016.
184
'We confirm that the Consumer Protection Council came

to MTN‟s Regional Office in Abuja with 25 Armed
Policemen to seal the said premises. No notice, court
Order, or other official documentation giving the CPC
the authority or right to seal the premises was presented
to anyone before, during, or after their actions. Further,
no one was informed of the reasons for their action at the
time they proceeded to seal the premises. MTN learnt of
the reasons for the actions of the CPC through press
publications after the sealing was effected.'
This is clearly unlawful and beyond the powers of the CPC under
its enabling law. While the CPC has the powers to seal up
premises of defaulting businesses, the fact still remains that they
must do so in line with the requirements of the law. Due process
ought to be followed in all such instances and a court Order
obtained and duly served on the defaulters at the time of such
sealing of their premises to avoid a breakdown of law and order.
The CPC‟s arbitrary sealing of the Abuja office of MTN and the
premises of its business partner operating the Owerri Connect
Store undoubtedly adversely affected the customer experience on
MTN‟s network and the provision of mobile services throughout
Northern and Eastern Nigeria.
MTN does have the civil right to a fair hearing and to be informed
of the legal premise upon which any official sanction is being
executed. This was clearly not done by the CPC and amounts to a
breach of due process. The action also resulted in reputational
damage to MTN and financial loss to the proprietor of the
Connect Store in Owerri who is a private citizen.
Similarly, the National Agency for Food and Drug

Administration and Control (NAFDAC) on the 20th day of May,
2015 shut down a Lagos based Mall known as Chocolate Royale
for selling counterfeit Wines and Spirits to the general public. The
Regulatory Officers of the agency had gone to visit three
185
branches of the Mall located in Ajah, Gbagada, and Magodo-

Isheri. According to the team leader of the Magodo–Isheri
operation, Mr. Andy Tamanuwa, a Chief Regulatory Officer, the
closing down of the Mall was a routine exercise aimed to make
sure that the Mall conformed to the approved regulatory
standards. He said:
'There were complaints received about the sale of

cloned Wines and Spirits against the company and
which were discovered to be true when we got here to
inspect the place. We found the products and
accordingly seized them. They will be evacuated from
the outlet for further investigations.'200
NAFDAC began intensifying effort to clean up the nation‟s

products via such operations after witnessing a wave of deaths
caused by poisoning by popular alcoholic drinks in the nation. At
the end of the multiple operations which lasted several hours,
imported fake, unregistered, and expired food products worth
approximately N1 Billion were evacuated in six Hilux vans and
buses which NAFDAC stormed the place with.
It is worthy of note that the Nigerian Electricity Regulatory

Commission (NERC) which was established in October, 2005 as
part of the reforms in the electricity sector under The Electric
Power Sector Reform Act of 2005 is a regulatory body charged
with ensuring that:
 The electricity market is efficient.

 Prices charged are fair.
200
Sahara Reporters, “NAFDAC Seals Off Chocolate Royale,
Seizes Expired Products From MD‟s Residence”, [2015],
https://saharareporters.com/2015/05/23 , accessed, 14th December,
2016.
186
 Access to electricity is maximized both in urban and rural

areas.
 Rights of the customers are protected.
 Electricity is adequate, reliable and safe.
 There is a level playing field for the customers, operators,
and intending investors.
In order to protect customers, the NERC has done the following

so far:
1. The Commission has established the following consumer

protection measures:
 Customer Complaints Handling Standards and
Procedures.
 Connections and Disconnections Procedures for
electricity services.
 Customer Service Standards for Distribution
Companies and Meter Reading.
 Cash Collection and Credit Management for electricity
supply.
2. The Commission has embarked on numerous public

enlightenment campaigns titled e-Power Consumer
Assembly to enlighten consumers on their rights and
obligations.
3. The Commission has established a Health and Safety

Standard Manual and has approved and established a Grid,
Distribution, and Metering Codes to ensure standards and
safety in the sector.
187
A review of some Nigerian decided cases however shows that the

courts have not done much to preserve the protection intended for
the consumers by the legislature through these statutes. The
position of the law is at best unclear particularly in negligence
cases. This explains why till date, there is no locus classicus on
consumer protection and negligence cases. The following cases
are however instructive and as such will be examined for a better
understanding of the subject:
In Nigerian Bottling Company v. Olarewaju201, the Plaintiff /

Respondent purchased two bottles of Coca Cola and after taking
some contents of the first drink, he noticed visible particles in it
and saw similar particles in the unopened drink. He fell ill and
consulted a doctor. In an action for damages against the
manufacturer of coca cola, he was awarded damages in the trial
court. But on appeal by the Defendant / Appellant company, the
judgment of the trial court was upturned on the ground that the
plaintiff could not establish a link between the coca cola he drank
and his ailment.
Similarly, in Nathaniel Ebelamu v. Guinness Nigeria Ltd.202, the

Plaintiff had an anniversary celebration and invited his guests for
a party in his house. Some of his invitees who drank the Harp
brand of beer produced by the Defendant developed stomach
pains and were subsequently diagnosed of food poisoning.
Laboratory analysis of the contents of the Harp bottle showed that
the beer was poisonous. The court held that no nexus had been
created between the drinks consumed by the Plaintiffs and the
unopened one that was used for the laboratory test. It was further
held that a manufacturer owed no duty to ensure that his product
201
(2007) All F.W.L.R. (Pt. 364) 360.
202
(1980) I.P.L.R. 538.
188
was perfect, beyond taking reasonable care to ensure that no

injury was done to the consumer.
In the same vein, in Boardman v. Guinness Nigeria Ltd203, the Plaintiff

drank an unwholesome liquid content of Harp brand of beer in a
dimly lit room. It was found to contain a considerable amount of
sediments. In an action for negligence against the Defendant for
the manufacture of adulterated beer, the Defendant gave evidence
showing a detailed account of its manufacturing process
indicating that its drink was produced under the strictest scientific
brewing and quality control process, such that the presence of any
contaminant would be ruled out. On the basis of this evidence, the
court discountenanced the laboratory report which revealed that
the beer contained certain bacteria and held that the plaintiff had
failed to show that the defendant was guilty of negligence.
With all due respect, this decision has thrown a clog in the wheel
of consumer protection in Nigeria. A better view would have been
to examine what happened in this particular case, because no
matter how foolproof a system might have been, human frailty
and mechanical fault may interfere in the process of
manufacturing and that can never be ruled out. Moreover, in such
cases the principles of strict liability and res ipsa loquitur ought
to have been the guiding principles.
Still in line with this reasoning, in Nigerian Bottling Company Ltd v.

204
Okwejiminor , the Plaintiff / Respondent drank a bottle of fanta
and thereafter found sediments in the bottle. The Court of Appeal
held that the admission by the Plaintiff / Respondent that he took
breakfast of bread and tea in the morning was fatal to his case and
203
(1980) N.C.L.R. 109.
204
(2008) N.I.P.J.D. 51.
189
this decision was upheld by the Supreme Court thereby

compounding the plight of consumers.
Curiously, in the much earlier case of Osemobor v. Niger Biscuits Co.

205
Ltd. and Nassar & Sons , a manufacturer was held liable for
injuries resulting from the presence of a decayed tooth in the
biscuit bought by the plaintiff in a supermarket. In arriving at the
decision, Kassin J, stated that a consumer of a biscuit would
reasonably not be expected to carry out an examination of the
product before consuming it. In the course of its judgment, the
court stated further that:
A manufacturer of products which he sells in such a form as

to show that he intends them to reach the ultimate consumer in
the form in which they left him with no reasonable possibility of
intermediate examination, and with the knowledge that the
absence of reasonable care in the preparation or putting up of
the product will result in an injury to the consumer's life or
property owes a duty to the consumer to take that reasonable care.
More recently however, in Emmanuel Fijabi Adebo & Fijabi Adebo

Holdings Limited v. NBC Plc and NAFDAC206, a Lagos High Court
sitting in the Igbosere area of Lagos Island ordered the National Agency
for Food and Drug Administration and Control (NAFDAC) to compel
the Nigerian Bottling Company (NBC) Plc to put a written warning on
Fanta and Sprite bottles stating that both soft drinks are poisonous when
consumed along with Vitamin C. The court also held that NAFDAC
failed Nigerians by declaring as fit for human consumption, products
discovered by tests in the United Kingdom as turning poisnous when
mixed with Ascorbic Acid, popularly known as Vitamin C.
205
(1973)N.C.L.R. 382.
206
Unreported Suit No. LD/13/2008,
https://www.lexology.com/library/detail.aspx?22171143-1f49-8a07-
71a3753ba080 , accessed, 15th August, 2017.
190
Conclusion.
Despite the fair attempts that have been made by these agencies,
the truth still remains that the Nigerian consumer is a long way
from being king in the real sense of the word. It has been
observed by some commentators that although the Consumer
Protection Council Act recognizes the rights of consumers, it does
not specifically provide for these rights as they are merely
implied and subsumed into the functions of the Council and the
state committees established by the Act. It is therefore safe to
conclude and reiterate that mere existence of the law in our statute
books is not enough. Specific protective and compensatory
measures are necessary to guard against indiscriminate
infringement on any of the consumer rights. It is believed that
doing so would strengthen the CPC Act in Nigeria.
Furthermore, the Consumer Protection Council needs to embark

on a more aggressive and sustained sensitization of consumers on
their rights while also pushing for the amendment of specific
sections of the CPC Act to give aggrieved consumers unfettered
access to courts to pursue their rights. In so doing, the Legal Aid
Council and the office of the Public Defender should be charged
specifically with the responsibility of taking up such cases as of
right in view of the fact that majority of the consumers of most
products in Nigeria belong to the large population of indigent
citizens who cannot on their own afford the services of a personal
lawyer.
Recommendations.
In view of the above state of facts, the following

recommendations are hereby put forward to strengthen the
191
obvious effort of the Nigerian government to safeguard the

average consumer of goods and services in the country:
 The legislature should amend the Consumer Protection

Council Act to make for specific protective and
compensatory provisions in instances of clear violation of
consumer rights in line with global best practices such as
illustrated by the Consumer Protection Act of England.
 Nigerian Courts should adopt a more proactive and

objective approach to the issue of proof in food poisoning
and other product failure cases as exemplified by the
decision in Osemobor v Niger Biscuits Co. Ltd and
Nassars and Sons by imposing strict liability on
manufacturers.
 The Nigerian courts should apply the principle of res ipsa

loquitur in clear cases of manufacturing defects since in
such cases the Plaintiffs may not always be able to
discharge the burden of establishing negligence and
linking same to his loss or injury.
 The Nigerian government should strengthen all consumer

protection agencies via both legislative action and
adequate funding to ensure proper product quality
policing.
 Service providers such as telecommunications companies

and Public utilities personnel should be placed on
compulsory reorientation on the need to prioritize
customer satisfaction in line with the rationale behind the
establishment of SERVICOM.
 The Nigerian Bar Association should encourage lawyers
192
to take up consumer advocacy and cases either privately,

or under formal structures such as the Legal Aid Council
and the Office of the Public Defender.
193
CHAPTER SEVEN
NIGERIAN COMPANY LAW
Introduction
Historically, trading business started in Nigeria towards the end
of the 19th century and grew into the early 20th century. This was
after the abolition of slave trade and upon the establishment of
British authority over the territory now known as Nigeria. The
steady growth of both domestic and international trade in
legitimate goods therefore progressed despite the intermittent
punctuations of commerce and peace by the first and second
World Wars. In fact, according to some scholars, the Second
World War brought out in bold relief the economic potentiality of
Nigeria and its economic importance, not only to Britain, but also
to the then Allied Powers to whose war efforts the agricultural
produce of the country became of vital importance.207
The first Companies Statute was the Companies Ordinance of

1912 followed by the Companies Ordinance of 1922. After the
Second World War, the Ten-Year Development Plan of 1945-
1955 was launched, in line with the experiences of the war
specifically to reorganize the handling and marketing of the
agricultural produce of the country and improve social welfare
and economic facilities, as well as develop commerce and
industry in Nigeria. This, led to the establishment of Public
Corporations and Boards which by extension and necessary
implication encouraged private enterprise through the provision
207
Orojo, J.O., Company Law and Practice in Nigeria, (3rd edn.), Lagos, Mbeyi
& Associates (Nig.) Ltd, 1992.
194
of loans by Government Loan Boards for both Industrial and

Commercial development.
These schemes naturally encouraged trade associations and in so

doing, inevitably led to the formation of companies in line with
the obviously rapid economic growth prevalent in the mid 20th
century Nigeria. To further encourage Nigerian private
participation in economic activities and business, the government
then passed the Nigerian Enterprises Promotion Decrees of 1972
and 1977 the purpose of which was to reserve for Nigerians those
areas of economic activities which they have the capital and
experience to run effectively while ensuring that in other areas,
they are given an opportunity to participate in running businesses
where they can.
Naturally, since the effect of the Decree of 1972 was not only to
prohibit aliens from starting certain businesses now reserved for
only Nigerians, but also to compel them to sell to Nigerians all
their pre-existing interests in any of such businesses as listed in
Schedule 1 of the Decree, and to transfer to Nigerians their
interests in companies in Schedule 2 in excess of 40 percent of the
equity, or 60 percent in companies in Schedule 3, and since these
businesses were already being run by registered companies, it
became situationally expedient for the Nigerian buyers who
would necessarily have to run them under different names to rush
to incorporate new companies. This fact, coupled with the
prevailing oil boom of the same period in Nigeria led to the
phenomenal rise in the number of companies incorporated in the
seventies.
The role of government as identified above is in line with the

economic objectives of the country as contemplated and provided
195
for in the Fundamental Objectives and Directive Principles of

State Policy otherwise known as the Chapter Two group of rights
in the 1999 Constitution of the Federal Republic of Nigeria as
amended. Specifically, Section 16(1)(d) of the said constitution
provides:
The state shall, within the context of the ideals and objectives for
which provision are made in this Constitution – without prejudice
to the right of any person to participate in areas of the economy
within the major sector of the economy, protect the right of every
citizen to engage in any economic activities outside the major
sectors of the economy.
This makes Nigeria essentially a free enterprise country, subject

only to such regulations as are necessary in the national interest.
Participation by Nigerians in business and the security of their
interests and position is thus a constitutional matter to be
protected as of right, while the interests of aliens are to be
regulated by legislation. To ensure that this right is preserved,
Subsection 3(a) of the same Section 16 of the 1999 constitution
states:
A body shall be set up by an Act of the National Assembly which

shall have power to review, from time to time, the ownership and
control of business enterprises operating in Nigeria and make
recommendations to the President on same …
Restriction on Aliens.
It is indisputable that with particular reference to aliens, several
statutory restrictions have been imposed by the legislature in
Nigeria for over half a century not just to protect the security and
economy of the nation, but to give Nigerians greater opportunity
and leverage to participate in various economic activities. The
principal statutes which emasculated the right, degree, and extent
196
to which aliens participated in business in Nigeria were the

Exchange Control Act, 1962, the Immigration Act, 1963, the
Nigerian Enterprises Promotion Decree, 1989, the Securities and
Exchange Commission Decree No. 71 of 1979208, the Industrial
Policy of Nigeria, 1989, and recently, the Nigeria Local Content
Act.209
By virtue of the express provision of Section 10(1)(a) of the

Exchange Control Act of 1962, no person shall transfer any
security or create or transfer any interest in a security to, or in
favour of a person resident outside Nigeria except with the
permission of the Minister. Similarly, any person who wishes to
transfer shares or any interest in shares to an alien must obtain
permission to do so. The alien therefore has to obtain the approval
of the Minister otherwise known as an „Approved Status‟ which
is in reality a recognition that the original investment came into
the country from abroad in the form of equity either as cash,
plants, equipment or machinery. The authority to give this
approval was later transferred to the Industrial Development
Coordination Committee.
Similarly, the Immigration Act, 1963210 provides in Section

8(1)(b) that no person other than a citizen of Nigeria shall on his
own account or in partnership with any other person, practice a
profession or establish or take over any company with limited
liability for any such purpose without the consent in writing of
the Minister of Internal Affairs. This is called a „Business
Permit‟. This is required both to acquire shares in an existing
company or to subscribe to the Memorandum and Articles of
208
Later re-enacted as SEC Decree No.29 of 1988.
209
The Nigerian Oil and Gas Industry Content Development Act, 2010.
210
Now repealed and replaced by the Immigration Act, 2015.
197
Association of a new company at the Incorporation stage.

Besides, for a company registered in Nigeria to employ the
services of aliens as employees, the approval of the Minister must
be sought and obtained in the form of approved „Expatriate
Quota‟.
The Nigerian Enterprises Promotion Decree, 1977 repealed and

replaced the earlier Decree of 1972. The aim of this legislation
was to enhance Nigeria‟s commitment to capitalism and the
promotion of indigenous private enterprise, on the basis of
resources generated initially by the agricultural economy between
the 1940s and 1960s, and then much more spectacularly and
significantly by oil revenues in the 1970s. This is a classic
example of what post-colonial Nigeria achieved by indigenizing
the ownership structure of its economy. While the Nigerian
Enterprises Promotion Decree of 1972 made it mandatory for
Nigerians to own majority shares in companies registered in
Nigeria, the 1977 version which was popularly referred to as the
indigenization Decree Nigerianized all foreign companies
operating in Nigeria.
The Nigerian Enterprises Promotion Decree of 1977 prescribed

indigenous shareholding dominance and required a portion of key
management positions in such companies to be occupied by
Nigerians. Unfortunately, the aftermath of this expropriatory
Decree was a mass exodus of foreign investors from Nigeria.
Further consequences were substantial capital flight and
diminution of foreign investment in Nigeria. This was the
prevailing situation until 1987 when the then military government
set legal machineries in motion to begin the process of wooing
foreign investors to return to Nigeria, through a guided
deregulation of the economy. This was done via the promulgation
198
of the Nigerian Enterprises Promotion (Issue of Non-Voting

Equity shares) Decree211 which allowed foreign investors to own
non-voting paid up shares in publicly quoted companies. The
achievement of this Decree was unfortunately insignificant, as
well as the Foreign Exchange (Monitoring and Miscellaneous
Provisions) Decree212
Foreign investors may now participate in Nigerian enterprises by

Foreign Direct Investment (FDI) or Foreign Portfolio Investment
(FPI) either wholly or in partnership with Nigerians in any sector
of the economy subject only to the matters on the negative list.
Besides, there was also the Nigerian Enterprises Promotion
Decree of 1989 which repealed the 1977 Decree and dissolved the
Nigerian Enterprises Promotion Board while transferring its
functions and powers to the Minister for Industries. By Section
1(2) of the 1989 Decree, notwithstanding the provisions of
Section 1(I), an alien may be the owner of any enterprise
specified in the schedule if the capitalization involved is not less
than N20 Million.
While an alien is defined by the Decree as a person or an

association whether corporate or unincorporated other than a
Nigerian citizen or Association, a Nigerian citizen or Association
is defined as including:
a. A person who is a citizen of Nigerian as provided by the

Constitution;
b. A person of Africa patrilineal descent, not being a Nigerian, who is
a national of a country which is a member of the Organization of
African Unity (O.A.U) and who continues to reside and carry on
business in Nigeria, if his country also permits citizens of Nigeria to
211
No. 34 of 1987.
212
No. 16 of 1995.
199
establish and operate business or enterprise in that country on the

basis of reciprocity; and
c. Any company registered under the Companies and Allied Matters
Act, 1990213, partnership, association, or body, the entire capital or
other financial interest of which is owned wholly or exclusively by
citizens of Nigeria.
It is instructive that whereas under the Nigerian Enterprises

Promotion Decree of 1977 enterprises were divided into three
schedules, requiring either total Nigerian equity ownership,214 or
at least 60 percent Nigerian equity ownership,215 or a 40 percent
Nigerian minority shareholding,216 the Nigerian Enterprises
Promotion Decree of 1989 establishes in Section 1(1) only one
schedule of 40 enterprises which must be owned exclusively by
Nigerians. However, aliens may, under Section 1(2) own any of
the enterprises specified in the schedule to the 1989 Decree if the
capitalization involved is not less than N20,000,000.00 (Twenty
Million Naira).
The enterprises listed in the Schedule to the 1989 Decree and
exclusively reserved for Nigerians are substantially the same as in
Schedule I of the 1977 Decree and are as follows:
 Advertising and Public Relations business.

 All aspects of pool betting business and lotteries.
 Assembly of radios, radiograms, record changers,
television sets, tape recorders and other electric domestic
appliances not combined with manufacture of
components.
 Blending and bottling of alcoholic drinks.
213
Now Cap. C20, LFN 2004.
214
Section 4(1)(a), Schedule I.
215
Section 5, Schedule II.
216
Section 6, Schedule III.
200
 Blocks and ordinary tile manufacture for building and

construction works.
 Bread and cake making.
 Candle manufacture.
 Casino and gaming centers.
 Cinemas and other places of entertainment.
 Commercial transportation (wet and dry cargo, and fuel).
 Commission agents.
 Departmental stores and supermarkets.
 Distribution agencies excluding motor vehicles, machines
and equipment, and spare parts.
 Electrical repair shops other than repair shops associated
with distribution of electrical goods.
 Estate agency.
 Film distribution (including cinema films).
 Hairdressing.
 Ice cream making when not associated with the
manufacture of other dairy products.
 Indenting and confirming.
 Laundry and dry-cleaning.
 Manufacturer‟s representatives.
 Manufacture of suitcases, brief cases, handbags, purses,
wallets, portfolios, and shopping bags.
 Municipal bus services and taxis.
 Newspaper publishing and printing.
 Office cleaning.
 Passenger bus service of any kind.
 Poultry farming.
 Printing of stationery (when not associated with printing
of books).
 Protective agencies.
 Radio and Television Broadcasting.
201
 Retail trade (except by or within departmental stores and

supermarkets).
 Singlet manufacture.
 Stevedoring and shorehandling.
 Tire retreading.
 Travel agencies.
 Wholesale distribution of local manufactures and other
locally produced goods.
 Establishments specializing in the repair of watches,
clocks, and jewellery for the general public.
 Garment manufacture.
 Grain mill products including rice milling.
 Manufacture of jewellery and related articles including
imitation jewellery.
The Investment and Securities Act, 2007.

The recommendations of the Financial System Review
Committee of 1976 led to the establishment of the Securities and
Exchange Commission via Decree No. 71 of 1979. The
Commission took off effectively on January 1, 1980. Nine years
after its establishment, the enabling law217 was re-enacted as SEC
Decree No. 29 of 1988. Section 7 of the Decree of 1988 provides
that:
No securities of any enterprises in which aliens participate

whether constituted as a public or private limited, or
unlimited liability company or partnership … shall be
issued, sold, or transferred without the prior approval of
the commission…
217
Decree No. 71 of 1979.
202
The implication also is that foreign companies are prohibited

from carrying on any business in Nigeria218 unless first
incorporated here as a legal entity or exempted from
incorporation under Section 56 of the Companies and Allied
Matters Act (CAMA).
To further enhance the commission‟s pursuit of its objective of

investor protection, a review of the capital market was carried out
in 1996 and based on the recommendations of the panel, a new
Act known as the Investment and Securities Act219 was passed
into law in 1999. The Act repealed the SEC Act of 1988. The new
Act was expected to promote a more efficient and virile capital
market, pivotal to meeting the nation‟s economic and
developmental aspirations. The Investment and Securities Act
(ISA) was further reviewed, amended, and subsequently passed
into law in 2007. The Securities and Exchange Commission
(SEC) currently derives its powers from the ISA of 2007.
The Local Content Act, 2010.

The Local Content Bill was passed into law by the Nigerian
Legislature on the 22nd of April, 2010. The Act unlike its
processors has its special focus on the Oil and Gas sector. The
statute therefore sets out specific work scopes that must be
performed in Nigeria and guarantees fair access to foreign
companies seeking to do business in Nigeria. The act seeks to
increase indigenous participation in the Oil and Gas industry by
prescribing minimum thresholds for the use of local services and
218
See generally, Sections 54-60 of the CAMA, 2004.
219
No. 45 of 1999 (Now Repealed by the Investments and Securities Act,
2007).
203
materials and to promote the employment of Nigerian staff in the

industry.
It provides privileges for Indigenous companies by making sure

there is first consideration for the training and employment of
Nigerians and it sets out the criteria to be used by the operator and
the contractor in assessing how first consideration is to be given
to Nigerians in the process of evaluating bids for goods and
services required for projects. The Act directly affects operating
companies, contractors, sub-contractors, and service providers in
the oil and gas industries. In addition, the Act also affects
professional services engagements including legal and financial
service in the oil and gas sectors of Nigeria.
Previous efforts to give effect to the local content policy include

the establishment of various research, development, training,
education, and support funds provisions in the Petroleum Act220
on mandatory employment and training of Nigerians by
petroleum operators, provisions on technology transfer, local
content utilization, recruitment and training of Nigerian personnel
contained in various contractual arrangements with International
Oil Companies (IOCs), and the establishment of a Nigerian
Contents Division (NCD) of the Nigerian National Petroleum
Corporation(NNPC) to monitor and give effect to government‟s
Nigerian content policy.
With particular reference to foreigners, the law is that foreign

nationals may undertake any type of business and own 100
percent equity and undertake any type of business in Nigeria
220
Cap.350 L.F.N., 1990; Now, Cap. P10 L.F.N., 2004; Sections 26-29,
Petroleum (Drilling and Production) Regulation 1969, 1988, 1996, 2006, and
several other amendments thereto.
204
except those in the negative list, that is, production of arms,

narcotics, and related substances, which are prohibited to
Nigerians and foreign investors alike. In the spirit of
liberalization, foreign nationals not resident in Nigeria do not
require permits before establishing business or investing in
Nigeria. However, foreign nationals resident in the country need a
resident permit before forming a company while business permit
is required for the business to commence.
Residence permits are obtained from the Nigerian Immigration

Service while business permits are obtained from the Federal
Ministry of Internal Affairs. However, foreign companies
intending to do business in Nigeria may apply for exemption from
registration especially those undertaking special projects.
Companies seeking exemption are required to forward their
applications to the Secretary to the Government of the Federation
of Nigeria.
Types of Business Organizations

There are several types of business entities and each has unique
characteristics peculiar to it. The following are the most common:
Individual Business, Partnerships, Co-operative Societies,
Statutory Corporations, Quasi-Corporations, Incorporated
Trustees, and Registered Companies.
Individual Business
This is a business run by an individual for his or her own benefit
and as such is the simplest form of business organization. In
business parlance, it is referred to usually as a sole proprietorship
and is indeed a type of business entity that is owned by a natural
person in which there is no legal distinction between the owner of
205
the business and the business itself. Sole proprietorships are the
most common form of business structure and even though they
enjoy advantages such as greater flexibility of management, fewer
legal controls, and less taxes, the major challenge is that since all
assets as well as liabilities of the business belong to the owner,
the risk is naturally higher since the liability of the proprietor is
unlimited. A sole proprietor may use a trade or business name.
This is however not the same as incorporation of a business or
company. In reality, registration of a business name for a sole
proprietor is generally uncomplicated.
Partnerships
A partnership is usually composed of two or more persons who
agree to contribute money, labour, or skills to set up a business.
Each of them then shares in the profits, losses, and management
of the business. Just like the individual business, each partner is
personally, and equally liable for the liabilities or debts incurred
by the business. While the formal terms of the partnership are
usually contained in a written partnership agreement between or
among the partners, the law regulating the relationship between
the partners inter se, and between them and outsiders is to be
found in the various Partnership laws of the states and
supplemented by the Common Law.
The partnership agreement should document how future business

decisions will be made, including how the partners will divide
profits, settle disputes, change ownership by way of bringing in
new partners or buying out current partners, and how to dissolve
the partnership. In some of these cases, an individual or a
partnership carries on business under a business name. Such a
name may be required to be registered under Part B of the
206
Companies and Allied Matters Act, 2004.221 This type of

partnership is usually referred to as a General Partnership.
Another variant of the partnership business is the limited

partnership. This is further subsided into general and limited
partners. While the general partners own and operate the business,
and assume liability for the partnership, the limited partners serve
as investors only and so have no control over the company, and
are not subject to the same liabilities as the general partners.
A third form of partnership is the Joint Venture. This usually

looks like a general partnership but is mostly done for only a
limited period of time or for a single project. Partners in a joint
venture can be recognized as an ongoing partnership if they
continue the venture, but they must indicate an intention to do so.
Cooperative Societies.
A cooperative society is an autonomous association of people
united voluntarily to meet their own common economic, social,
and cultural needs and aspirations through a jointly owned and
democratically controlled business.222 It is an association of
people that pool resources together to engage in business or
economic activities for the purpose of improving the welfare of
its members. It is a very powerful channel of investment offering
immense opportunities to its members, and is perhaps the least
stressful and risky way to save, invest, and improve personal
welfare. There are statutory provisions for the formation and
registration of cooperative societies. However, the Director of
221
Cap. C20 L.F.N., 2004.
222
International Cooperative Alliance(ICA), „Cooperative Identity, Values, &
Principles‟, [2016], https://ica.coop/en/whats-coo-op/co-operative-identity-
values-principles , accessed, 4th October, 2017.
207
Cooperatives has the authority to refuse to register a cooperative

society where such an Applicant society‟s Bye-laws, for example,
do not comply with the provisions of the Nigerian Cooperative
Societies Act, No.12 of 1997 (as amended).223
The primary implication of the registration of a cooperative

society is that such a society assumes corporate personality with
the right to sue or be sued in its cooperate name. A cooperative
society, upon registration, also assumes perpetual succession with
a common seal to enter into contracts or agreements in its own
name. A further benefit of the registration of a cooperative society
is that, it has the authority to own movable and immovable
property of any description in its corporate name.
By the provisions of Section 19(1), Paragraph 22 of the 3rd

Schedule to the Personal Income Tax Act224 (PITA), as amended,
the income of a registered Cooperative Society is exempted from
the provisions of the statute. It is however debatable whether the
individual members of a cooperative society can claim individual
exemption from the re-distributed profits that they earn from the
already exempted cooperative society‟s profits. It is noteworthy
however that the Nigerian Cooperative Societies Act requires
that, at least one-fourth of a registered Cooperative Society‟s net
profits must be paid into a Reserve Fund, except where the
Director of Cooperatives grants a written exemption from this
mandatory statutory provision.
Statutory Corporations.
Statutory or Public Corporations are public enterprises brought
into existence by a special Act of the National or State legislature.
223
Re-enacted as the Nigerian Cooperative Societies Act, 2004.
224
Cap. A2, L.F.N., 2004.
208
Such Act(s) define its powers and functions, rules, and

regulations governing its employees and its relationship with
government departments. These corporations are primarily
established to enable government participate in the economic
activities within the country. The focus of these statutory
corporations range from social services to purely commercial
ventures. While statutory corporations enjoy clearly autonomous
powers in respect of expansion and major administrative
decisions, however approval of the government may be required
regarding major policy changes.
Although several statutory corporations are essentially for social

services such as the Agricultural Credit Corporation, Loan and
Finance Corporations, etc., it should be noted that many statutory
corporations work on profit objective as a result of which their
activities are basically commercial in nature. Indeed experience
has shown that in instances where some of these corporations
were found not to be making profit, the government has had to
sell them off to private investors by way of privatization. With
particular reference to viable corporations however, their capital
is usually wholly owned and subscribed by the Government.
Quasi-Corporations
A quasi- corporation is generally an entity that exercises some of
the functions of a corporation, but has not been granted separate
legal personality by statute. Such organizations, though not
corporations in the real sense are recognized by statutes or usage
as persons or aggregate corporations with precise duties which
may be enforced, and privileges which may be maintained at law.
It is thus, a type of corporation in the private sector that is backed
by a branch of government that has a public mandate to provide a
given service.
209
Instances include the Boards of Governors of schools which are

set up by a statute but without incorporation. Although they have
no distinct legal personality, they are in some circumstances
granted status analogous to that of legal persons.
Incorporated Trustees
An Incorporated Trustee is a corporation, usually a trust
company, which is named as the trustee of a private trust or other
fiduciary account. This includes non-governmental organizations,
clubs, churches, mosques, etc. they are basically organizations
that are not profit oriented but specifically set-up for the public or
a particular segment of the public, and usually exempted from tax
payment.
Registration of this class of organizations is covered by Part C of

the Companies and Allied Matters Act, which provides a simple
method of incorporation that can be used by any community of
persons bound together by customs, religion, kinship, or
nationality or by any body or association of persons established
for any religious, educational, literary, scientific, social, or
charitable purpose.
Unlike in a private business name where „Proprietor‟ features,

and in Limited Liability Companies where „Shareholders‟ feature,
„Trustees‟ is the integral part of this class of registration.
Furthermore, suffixes such as „Ministry‟, „Inc.‟ etc., feature in
this class of registration.
210
Registered Companies.
A registered company is a company which has officially
registered its business.225 It refers to any company which has been
officially set up and registered with the Registrar of Companies.
In Nigeria, the Corporate Affairs Commission was established
through the promulgation of the Companies and Allied Matters
Act, 1990.226 The Commission is the only agency of government
charged with the responsibility of registration of companies,
business names, and incorporated trustees. The registered
companies are by far the most important units of business
organizations. They have special features which include but are
not limited to the following: legal personality, perpetual
succession, strict legal control, etc. There are basically four types
of companies recognized for business ventures in Nigeria. They
are:
1. Private Limited Company (Ltd)

2. Public Limited Company (Plc)
3. Companies Limited by Guarantee.
4. Unlimited Companies.
The minimum membership for each of these companies is two

and the maximum for private companies is fifty members while
there is no maximum membership unit for public companies.
Furthermore, a minimum share capital of Ten Thousand Naira is
prescribed for private companies and Five Hundred Thousand
Naira for public companies with a minimum subscription of 25%
of the shares in each case.
225
Official Collins English Dictionary.
226
Now Cap. C20, L.F.N., 2004.
211
Registration Procedure.
As stated earlier, the Registration of all companies is handled by
the Corporate Affairs Commission (CAC) in line with the
provisions of the enabling law. The procedure is that the
promoters of the company sought to be registered will first submit
three proposed names to the commission which then runs a search
on its database to ensure that the name to be selected ultimately
has not been used already for the registration of another company
anywhere in Nigeria. Once the search is conducted and any of the
proposed names is approved, the Promoters will then ascertain the
particulars of the proposed company as a guide towards
preparation of the incorporation documents.
The particulars in this case will usually focus on issues of

practical importance such as the type of company sought to be
registered, the structure of the proposed company, the nature of
business or objects it intends to engage in, the source of funding
of the proposed company and the general organization of the
company as well as the proposed management style. It is based on
all these particulars that the incorporation documents will then be
prepared.
It is important to note that in view of the fact that this entire

process usually takes time, the Commission, in line with the
express provisions of the Companies and Allied Matters Act may,
on the written application, and on payment of the prescribed fee
reserve a name pending registration of a company.227 Such a
reservation shall be for such short period as the Commission shall
think fit, not exceeding 60 days and during the period of
reservation, no other company shall be registered under the
reserved name or under any other name which in the opinion of
227
Section 32, CAMA, 2004.
212
the Commission bears too close a resemblance to the reserved

name.
Incorporation Documents.
By virtue of the provisions of Section 35 of the Companies and
Allied Matters Act, for a company to be registered, the promoters
of such a proposed company shall deliver the following
documents to the Commission:
a. The Memorandum of Association and Articles of

Association complying with the law.
b. The notice of the address of the registered office of the
company and the head office if different from the
registered office; provided that a postal box address or a
private mail bag address shall not be accepted by the
Commission as the registered office.
c. A statement in the prescribed form containing the list and
particulars together with the consent of the persons who
are to be the first directors of the company.
d. A statement of the authorized share capital signed by at
least one director; and
e. Any other document required by the Commission to
satisfy the requirements of any law relating to the
formation of a company.
This is in addition to a statutory declaration in the prescribed

form by a legal practitioner that those requirements of the Act for
the registration of a company have been complied with and shall
be produced to the Commission, and it may accept such
declaration as sufficient evidence of compliance. Provided that
where the Commission refuses a declaration, it shall within 30
213
days of the date of receipt of the declaration send to the declarant

a notice of its refusal giving the grounds of such refusal.
Where however the Commission has no reason to refuse the

incorporation documents and the accompanying declaration, they
are then filed with the Commission subject to the payment of the
appropriate fees regarding filing and registration.
Thereupon, the Commission shall in line with the provision of

Section 36 of the CAMA register the company and its
Memorandum and Articles of Association in line with the
provisions of Section 20 of the CAMA regarding capacity of
individuals to form a company. To be specific, Section 20
provides that an individual shall not join in the formation of a
company under the Act if he is: below the age of 18 years; of
unsound mind by the pronouncement of a court; an undischarged
bankrupt; or is disqualified under Section 254 of the CAMA
regarding restraint of fraudulent persons; or, a corporate body in
liquidation.
It is important to note however that a person shall not be

disqualified on grounds of age as stated above if two other
persons not disqualified by same reason have subscribed to the
same Memorandum. Furthermore an alien or foreign company
may join in forming a company in Nigeria subject to the
provisions of any enactment regulating the right and capacity of
aliens to undertake or participate in trade or business in the
country.
Upon registration of the Memorandum and Articles, the

Commission shall certify under its seal that the company has been
duly incorporated stating also that the company is either private
214
or public and that the liability is either limited by shares,

guarantee, or unlimited. The Certificate of Incorporation shall be
prima facie evidence that all the requirements of the law in
respect of registration and of matters precedent and incidental to
it have been complied with and that the Association is a company
authorized to be registered under the CAMA.228
It must also be noted that by virtue of Section 30 of the CAMA,

no company shall be registered under the Act by a name which is
so similar to an existing company anywhere in Nigeria that it is
calculated to deceive, mislead, violate any existing trade mark or
business name registered in Nigeria without the consent of the
owner of such trade mark or business name, or which includes
certain words that are expressly prohibited under the section.
Such words include but are not limited to the following: Chamber
of Commerce, Federal, National, Regional, State, Municipal,
Chartered, Co-operative, Building Society, Group, Holding, etc.
While these provision govern the process of registration and the

powers of the Corporate Affairs Commission regarding the
Incorporation of companies, as a result of which the Commission
has a discretion to refuse incorporation of a company if it
determines that under the provision of Section 36(1) a proposed
company should not be incorporated, in practice, where a court
finds that the objects of a company are lawful and there is
compliance with the requirements of the Companies Act and any
other law pertaining to the incorporation of a company, the
Commission may be ordered by the court to incorporate the
company. This is usually done by an order of mandamus directed
at the Commission to register the said company and is in addition
to the statutory provision of Section 36(2) of the CAMA which
228
Section 36(6) CAMA, 2004.
215
equally provides a means to challenge the Commission‟s refusal

to register a proposed company.
In Lasisi v. Registrar of Companies229, the Registrar refused to

incorporate a company for two reasons, viz:
(1) That aliens were unlawfully associated with the proposed
company; and
(2) That the Objects of the proposed company were ultra
vires the business activities allowed the company on the Business
Permit.
The Supreme Court after a careful examination and consideration

of the issues disagreed with the view of the Registrar and held
that;(a) the company as proposed was a Nigerian association
whose subscribers are Nigerian citizens; (b) The Objects of the
company which the Registrar thought were offensive to the
Business Permit granted under the Immigration Act do not in any
way offend the law. Based on the above reasons, the Supreme
Court ordered that an order of mandamus shall issue commanding
the Registrar to register the Memorandum and Articles of
Association of British Leyland International (Nigeria) Limited.
Similarly in Kehinde v. Registrar of Companies230, the Registrar

refused to register a proposed company because the Articles of
Association which on the face of it gives Nigerian shareholders
70 percent of the shareholding of the company and 30 percent to
Honda Motor Company Limited of Tokyo, Japan however created
weighted shares in favour of the Japanese thereby giving them a
great deal of advantage in the management of the company. By
the terms of the said weighted shares, when it comes to a „special
229
(1976) 7 S.C. 73; (1976) 1 F.N.R.101 S.C.
230
(1979) 5 F.R.C.R. 101.
216
matter‟ such as the Appointment and Conditions of Service of a

Managing Director and an Assistant Managing Director, the
Nigerian Directors were to have one vote each, while the
Japanese Directors were to have three votes per Director. This in
the Registrar‟s view was a clever device to circumvent the
requirements of the Nigerian Enterprises Promotion Decree.
The application before the court was therefore for an order of

mandamus directed to the Registrar of Companies commanding
him to register the Memorandum and Articles of association of
Honda (Nigeria) Limited as submitted to him by the applicants.
The court observed that it was not in dispute that the Registrar of
Companies, being a public officer has a duty to register the
Memorandum and the Articles „if any‟ when delivered to him and
that it is only the Memorandum that must be registered by the
Registrar of Companies when its delivered to him.
In granting the order, the court concluded that the fundamental

document of incorporation is the Memorandum since it defines
and delimits the operations and powers of the company while the
Articles only regulate the relations between members as well as
between them and the company. Consequently, since the
Registrar found no fault with the Memorandum, his only ground
for refusal being what is contained in the Articles, whatever one
may think of the clauses in the Articles, they only affect members
of the company inter se and between them and the company, and
are neither illegal nor unlawful. The objection to some causes in
the Articles of Association was therefore certainly not a valid
reason for refusal to register the proposed company.
217
It is however noteworthy that the argument that the intent of the

Nigerian Enterprises Promotion Decree231 was to ensure that the
prescribed percentage of Nigeria equity ownership should be
matched by Nigerian management control which assumption was
not originally supported by the terms of the Decree appears to
have formed the basis for the present Section 116 of the
Companies and Allied Matters Act. Indeed, Subsection (1)(b)
specifically addresses this situation by providing that „where at
the commencement of this Act, any share of a company carries
more than one vote, or does not carry any vote at a general
meeting of the company, such a share shall be deemed, as from
the appointed day, to carry one vote only‟. This legislative action
must have been informed by the decision in Kehinde‟s case and
similar authorities.
Historical Development of Company Law in Nigeria.

Prior to 1963, the Nigerian Legal System was fashioned after the
English case and statutory laws, and so the Nigerian Company
law, like all other laws, was originally inherited in the aftermath
of the late 19th century European colonization of Africa. Nigeria
was colonized by Great Britain, and it followed that English
statutory and case laws were imported into Nigeria. Indeed,
according to Orojo232:
“Modern statutory company law is foreign to the customary and

indigenous system of laws in Nigeria and its history is part of the
received English law which has become incorporated into the
Nigerian legal system.”
231
1989, which repealed the earlier NEPD of 1977.
232
Supra note 207.
218
First, there was the Joint Stock Companies Act of 1856 that
introduced the Limited Liability Company and the Deed of
settlement systems as practiced in the United Kingdom.233 What
the British did was to enact several company ordinances between
1912 and 1960 when Nigeria regained its independence from
colonial rule. In 1912, the Companies Ordinance that was only
applicable to Lagos state was enacted. The 1912 Companies
Ordinance was largely based on the English Companies
(Consolidation) Act of 1908, and this 1912 Ordinance was
extended to the rest of the country in 1917 after the amalgamation
of the Northern and Southern protectorates of Nigeria in 1914.
The objectives were to:
(1) Provide for the formation of limited companies within the

colony and protectorates; and
(2) Foster the principles of cooperative trading and effort in
the country.
Another Companies Ordinance, which was based on the United

Kingdom Companies Ordinance of 1922 was enacted in 1929,
repealing the 1912 Ordinance. This continued in force until 1968
when, after independence, the Companies Decree234 of 1968 was
promulgated by the incumbent Military regime. This 1968
Companies Decree was fashioned after the British Companies Act
of 1948, and it was wholly based on the recommendations of the
Jenkins Committee on Company Law. In 1977, the military
regime of General Olusegun Obasanjo had embarked on
indigenization promotion, pursuant to which Nigerian ownership
233
Akinola, B., „A Critical Appraisal of the Doctrine of Corporate Personality
Under the Nigerian Company Law, NLII Workshop Paper No. 002, 2008.
234
Re-designated as Companies Act, 1968, S.1., 1980, No.13.
219
in businesses was promoted, and this led to the promulgation of

the Nigerian Enterprises Promotion Decree (NEPD) of 1977.235
Both the 1968 Companies Act and the NEPD, 1977 contained
provisions that specified enlarged accountability and duties of
corporate Directors and officers. In particular, Part X of the 1968
legislation contained regulations that limited the scope of actions
that could be taken by the corporate managers. At the end of the
military rule in 1979, the Companies Act of 1968 became
redundant and unsuitable for the Nigerian business climate,
principally because of the foreign flavour contained in the 1968
Companies Decree. The serious defects in the 1968 Decree,
especially as it concerns corporate contracts, third parties, and
minority shareholders‟ rights were echoed by Ahunwan thus:
“The 1968 Act did nothing other than re-enact the British
Companies Act, 1948. Consequently, the Act was faulty because it
was not enacted within the context of the Nigerian environment. It
was therefore unable to match the country‟s level of development
and its aspirations for greater economic growth. In Nigeria, because
the corporate concept was novel, combined with the unsophisticated
nature of the shareholders, there has always been the need to give
ample protection to these shareholders. This is to encourage the
growth of the corporation and also the national economy. It is also
to encourage the inflow of foreign capital which in modern times is
indispensable to economic development. Although other variables
affect business and the attraction of foreign shareholders, such as
political stability and enforcement of law and order, the protection
afforded to shareholders is also a major factor.”236
235
Now known as the Nigerian Enterprises Promotion Act, Cap. N117,
L.F.N., 2004.
236
Ahunwan, B.U., “Conceptualizing Company Laws: A comparison of the
Nigerian and Canadian Shareholders‟ Remedies”, an Unpublished Thesis
submitted to the Faculty of Graduate Studies and Research, University of
Alberta, Edmonton, Alberta, in partial fulfillment of the requirements for the
award of the Degree of Master of Laws (LL.M), 1998.
220
Consequently, in 1987, the National Workshop on Reform of

Nigeria Company Law237 was set up, under the leadership of
Honourable Justice Olakunle Orojo (Rtd.), to fashion a workable
legislation for the Nigerian business community. The result was
the Companies and Allied Matters Act of 1990 (CAMA), which
came into effect in 1990. The Workshop highlighted, among other
things, the ineffective Minority Protection provisions in the 1968
Companies Act.
In effect, the CAMA‟s provisions emphasized greater protection

for shareholders by the provision of wider shareholders‟
remedies. Even though structurally, the Act remains the British
Memorandum and Articles model, it however adopted the
Canadian approach to shareholders‟ remedies by making
provision for the derivative action, a liberal oppression and unfair
prejudice remedies, and other remedies.238
237
The Nigerian Law Reform Commission, Working Papers on the Reform of
Nigerian Company Law (Vol. 1: Review and Recommendations) (Lagos
NLRC, 1989).
238
Ahunwan, Supra note 236 at 4-5.
221
CHAPTER EIGHT
THE MEMORANDUM OF ASSOCIATION
Introduction.
This document along with the Articles of Association have
traditionally formed the constitution of the company. According
to Orojo239, the Memorandum defines and delimits the operations
and powers of the company while the Articles only regulate the
relation between members inter se, as well as between them and
the company. In effect, the Memorandum is the fundamental
document of incorporation of a company. It is a legal document
prepared in the formation and registration process of a limited
liability company to define its relationship with shareholders. It is
regarded as the most important of all the incorporation documents
and as such must be drafted with care.
This document which has to be filed with the Registrar of

companies during the process of incorporation of a company
usually contains the fundamental conditions upon which the
company is allowed to operate and principally governs the
relationship between the company and the external world. The
filing of the Memorandum of Association is a cardinal
requirement for incorporation of a company not only in Nigeria,
but in the United Kingdom240,Ireland, India, Tanzania, and
several other Common Law jurisdictions of the commonwealth.
239
Nigerian Company Law and Practice, Supra.
240
USLegal, Inc., „Memorandum of Association Law & Legal Definition‟,
https://definitions.uslegal.com , accessed, 5th October, 2017.
222
While it is still important to file a Memorandum of Association to

incorporate a new company, in reality the Memorandum forms
part of the company‟s Constitution. Historically, a company‟s
Memorandum of Association contained an Objects clause, which
limited the capacity of companies to act. In order to circumvent
this obvious restriction, when the first Limited companies were
incorporated, the Objects clause had to be widely drafted, usually
with an omnibus clause designed so as not to restrict the Board of
Directors in their day to day transactions.
In the United Kingdom however, the Memorandum of

Association no longer restricts the activities of a company. Since
1st of October 2009 to be specific, if a company‟s constitution
contains any restrictions on the objects at all, those restrictions
will form part of the Articles of Association. This is because, by
virtue of the Companies Act 1989 of the United Kingdom and
subsequent legislations, the term „General Commercial Company‟
was introduced which means that companies can now undertake
„any lawful or legal trade or business‟ and it is suggested that the
Nigerian legislature should take a leaf from this liberal and
proactive position and bring our Companies and Allied Matters
Act in line with this paradigm shift by the United Kingdom.
The Memorandum of Association of a company therefore being

its fundamental constitution and charter thus defines its status and
powers as well as regulates same. It equally enables shareholders
and outsiders who transact business with the company to know
what business(es) it is permitted by law to undertake and the limit
of such business(es). It also states the Authorized Capital of the
company and what the company‟s relationship is with outsiders
generally. In effect, the Memorandum is clearly superior to and as
such controls the Articles of Association of a company.
223
Section 27 of the Companies and Allied Matters Act clearly

enumerates the items that the Memorandum of every company
shall state. These in effect are the requirements with respect to the
Memorandum of a company. The provisions of the said section
are so instructive that a clear understanding of the issue(s)
requires that it is reproduced verbatim. It states:
Section 27 (1) The Memorandum of every company shall state:

(a) The name of the Company.
(b) That the registered office of the company shall be situated
in Nigeria.
(c) The nature of the business or businesses which the
company is authorized to carry on, or, if the company is
not formed for the purpose of carrying on business, the
nature of the Objects for which it is established.
(d) The restriction, if any, on the powers of the company.
(e) That the company is a private or public company, as the
case may be.
(f) That the liability of its members is limited by share or by
guarantee, or is unlimited, as the case may be.
(2) If the company has a share capital –

(a) The Memorandum shall also state the amount of
authorized share capital, not being less than N10,000.00 in
the case of a private company and N500,000.00 in the
case of a public company, with which the company
proposes to be registered, and the division thereof into
shares of a fixed amount;
(b) The subscribers of the Memorandum shall take among
them a total number of shares of a value of not less than
25 percent of the authorized share capital; and
224
(c) Each subscriber shall write opposite to his name the

number of shares he takes.
(3) A subscriber of the Memorandum who holds the whole or

any part of the shares subscribed by him in trust for any
other person shall disclose in the Memorandum that fact
and the name of the beneficiary.
(4) The Memorandum of a company limited by guarantee

shall also state that –
(a) The income and property of the company shall be applied
solely towards the promotion of its Objects, and that no
portion thereof shall be paid or transferred directly or
indirectly to the members of the company, except as
permitted by or under this Act; and
(b) Each member undertakes to contribute to the assets of the
company in the event of its being wound up while he is a
member or within one year after he ceases to be a
member, for payment of the debts and liabilities of the
company, and of the cost of winding up, such amount as
may be required not exceeding a specified amount and the
total of which shall not be less than N10,000.00
(5) The memorandum shall be signed by each subscriber in

the presence of at least one witness who shall attest to the
signature.
(6) The memorandum shall be stamped as a Deed.
225
The Name of the Company.

The Companies and Allied Matters Act gives a clear guide to the
form the name of a proposed company shall take and the
Promoters of a company seeking registration are expected to
comply with this guide as provided for by Section 29 of the
CAMA. For the avoidance of doubt, what the said section
provides is a framework without prejudice to the freedom of the
Promoters to provide their preferred names which should scale
through and then fit into this guide. Thus, in line with the law,
and depending on the type of company proposed, the name shall
end with the words „Limited‟, „Public Limited Company‟,
„Limited by Guarantee‟, or „Unlimited‟ respectively as the case
may be. The said words may also be abbreviated to read „Ltd‟,
„Plc‟, „Ltd/Gte‟, or „Ultd‟ respectively in line with the provisions
of Subsection (5) of Section 29.
Furthermore, Section 30(1)(a) of the Companies and Allied

Matters Act states that no company shall be registered under the
Act by a name which is so identical with that by which a
company in existence is already registered, or so nearly resembles
that name as to be calculated to deceive, except where the
company in existence is in the course of being dissolved and
signifies its consent in such manner as the Commission requires
or in the opinion of the Commission is capable of misleading as
to the nature or extent of its activities, or is undesirable, offensive,
or otherwise contrary to public policy.241 The same section
prohibits the registration of a company by a name which in the
opinion of the Commission would violate any existing trade mark
or business name registered in Nigeria unless the consent of the
owner of the trade mark or business name has been obtained.242
241
Subsection (1)©.
242
Subsection (1)(d).
226
Regarding Section (30)(1)(a) of the CAMA, the case of Lagos

Chamber of Commerce (Inc) v. Registrar of Companies243 offered
opportunity to the courts to interpret the law. In that case, the
Lagos Chamber of Commerce as Appellants sought an injunction
restraining the Registrar of Companies from registering the
association of Merchants and Industrialists, the second
Respondent in the appeal under the new name of African
Chamber of Commerce. The Registrar submitted that it was his
duty to determine whether the word „African‟ so nearly resembles
the word „Lagos‟ as to be calculated to deceive, which he
submitted was not the case. Indeed, the Registrar contended that
the words „Chambers of Commerce‟ constitute a generic
designation for particular associations or bodies of persons and
therefore cannot be exclusively claimed by one association or
body of persons, neither can they fairly claim monopoly of the
use of such words.
The learned trial Judge accepted the contentions put forward by

the Registrar at the trial stage and refused to grant the injunction
prayed for. The Court of Appeal in upholding the decision of the
trial court held that it would not be right to deprive the
respondents of the use of a descriptive name like „Chamber of
Commerce‟ merely because mistakes may arise through lack of
knowledge or carelessness on the part of persons making
enquiries from abroad.
The Registered Office of the Company.

In line with Section 27(1)(b) of the Companies and Allied Matters
Act, the Memorandum of Association must state clearly that the
registered office of the company shall be situated in Nigeria. The
243
(1952-55) 14 W.A.C.P. 197.
227
registered office is the official address of an incorporated

company, association or any other legal entity. Generally, it will
form part of the public record and is required in most countries
where the registered company or legal entity is incorporated. Thus,
Section 35(2)(b) of the Companies and Allied Matters Act
provides regarding incorporation documents that one of the
prerequisites for the registration of a company is that there shall be
delivered to the Commission a notice of the address of the
registered office of the company and the head office if different
from the registered office; provided that a postal box address or a
private bag address shall not be accepted by the Commission as
the registered office.
It is pertinent to reiterate that with particular reference to the

registered office, a physical office address is required for all
incorporation processes to enable the companies receive official
correspondence and formal notices from government departments,
investors, banks, shareholders, and the general public. In some
countries, the address with which a company is registered must be
where its head office is located. This is however not the case in
Nigeria as the head office may be different from the registered
office. With particular reference to legal proceedings and service
of processes, or other documents, Section 78 of the CAMA
provides that „a court process shall be served on a company in the manner
provided by the Rules of Court and any other document may be served on a
company by leaving it at, or sending it by post to, the registered office or head
office of the company‟.
Where a registered company decides to change its registered or

head office address, it has to comply with the requirement of the
law by filing a notice of change of registered address and paying
the necessary fee for that purpose.
228
For the purposes of change in registered office address, the

requirements for the filing of notice of change include the
following:
 Resolution for change of registered office address signed by a

director and secretary or two directors.
 Duly completed form for notice of change of registered
address.
 Updated annual returns filing.
 Updated Section 553, CAMA filing where applicable.
 Payment of applicable fees.
It must be noted that the notice of change in registered address

must be filed with the Commission within 14 days of the change;
and the new office address must be an address in Nigeria that is
physical and traceable.
The Companies and Allied Matters Act provides that certain

statutory books be left at the registered office of the company.
The following are the most notable of these books:
1. The Register of Members: By the express provision of Section

84(1) of the Companies and Allied Matters Act, the register of
members of a registered company shall be kept at the registered
office of the company. This requirement is the standard practice.
Exceptionally however, the register may be kept at another office
such as in instances where the work of making up the register is
done at another office of the company or where the company
arranges with some other person to undertake the making up of
the register on behalf of the company, in which case the register
may be kept at the office of that other person.244 In these
244
Subsections (1)(a) & (b)
229
exceptional situations, every company shall send notice to the

Commission of the place where the register is kept and of any
change of that place failing which it shall be liable to pay a fine.
2. The Index of Members: Section 85(3) of the CAMA provides

that the index of members of every company having more than 50
members shall, at all times, be kept at the same place as the
register of members. Strict compliance is required by this
provision except in instances where the register of members is in
such a form as to constitute in itself an index.
3. Instruments creating Charges: The law is that every company

registered under the CAMA is required to keep copies of
instruments creating charges. Consequently, Section 190 of the
CAMA expressly provides that every company shall cause a copy
of every instrument creating a charge requiring registration to be
kept at the registered office of the company. The section however
makes a proviso to the effect that in the case of a series of
uniform debentures, a copy of one debenture of the series shall be
sufficient.
4. Company‟s Register of Charges: Where a registered company

has created any charges, then by the provisions of Section 191 of
the CAMA, such a limited company shall keep at its registered
office a register of such charges and enter therein all charges
specifically affecting property of the company and all floating
charges on the undertaking or any property of the company giving
details thereof.
5. Minutes book: Section 242(1) of the CAMA requires that the

book containing the minutes of proceedings of any general
meeting of a company held on or after the commencement of the
230
Act be kept at the registered office of the company and be open to

inspection by members without a charge for a minimum of six
hours each day subject to reasonable restrictions as may be
imposed by the Articles of Association or by members in general
meeting.
6. Register of Directors‟ Shareholding: While Section 275(1) of

the CAMA provides that every company shall keep a register
showing as respect each director of the company the details of his
shareholding in the company or any of its subsidiary or holding
companies either directly or held in trust for him, Subsection(5) of
the same section states that the said register SHALL, subject to
the provisions of the section be kept at the company‟s registered
or head office and shall be open to inspection during business
hours subject to reasonable restrictions by the Articles or
members in general meeting.
7. Register of Directors and Secretaries: By the provisions of

Section 292(1) of the CAMA, every company shall keep at its
registered office, a register of its Directors and Secretaries. The
register shall contain particulars such as the name, address,
nationality, occupation, date of birth, and where applicable,
particulars of any other directorship held by him in other
companies. The register shall be open to inspection by members
without a charge and by non-members on payment of 50k or such
less sum as the company may prescribe for each inspection.245
8. Accounting Records: Section 332(1) of the CAMA provides

that the accounting records of a company SHALL be kept at its
registered office or such other place in Nigeria as the directors
245
Section 292(6).
231
think fit, and shall at all times be open to inspection by the

officers of the company.
The combined effect of all the above provisions is that the
registered office of the company is of great significance and so
the need to insert and provide for same at both the incorporation
and post incorporation stages cannot be over-emphasized, thus the
proviso to Section 35(2)(b) that a postal box address or a private
mail bag address shall not be accepted by the Commission as the
registered office.
The Business or Object of the Company.

The Objects clause is a provision in a company‟s Memorandum
of Association stating the purpose and range of activities for
which the company is registered and carried on. Generally, in
most Common Law countries including Nigeria, the Objects
clause usually circumscribes the capacity, or power of a company
to act. The legal position therefore is that any contract entered
into beyond the power or Objects of the company is ultra vires
and would be deemed void ab initio.
In the United Kingdom however, there have been reforms starting

from the advert of the Companies Act, 1989 and the Companies
Act, 2006. By virtue of these legislations, the legal problems
concerning Objects clauses are now largely historical artifacts as
new companies no longer have to register Objects under the
law246 and even if they do, the ultra vires doctrine has been
abolished against third parties under Section 39. The implication
is that the doctrine of ultra vires has now been rendered obsolete
in principle and is only relevant in an action against a director for
breach of duty under Section 171 for failure to observe the limits
246
Section 31, Companies Act, 2006.
232
of their constitutional power. To that extent therefore, the doctrine

remains fully functional for internal purposes, and defaulting
directors are liable to pay compensation and may even be
removed.
In Nigeria, the Objects clause as provided for by Section 27(1)(c)

of the Companies and Allied Matters Act shall state the nature of
the business or businesses which the company is authorized to
carry on, or if the company is not formed for the purpose of
carrying on business, the nature of the Objects for which it is
established. The Objects clause will normally describe what
ventures the company is permitted to engage in.
In practice, there is usually a statement of specific Objects

couched in an omnibus or general purpose clause to permit the
business or company undertake other business activities. Either
way, the Objects clause is meant to give both the shareholders,
creditors, and the general public a clear idea of the purpose of the
business and the type of ventures their investment will be put
into. This should ordinarily help the investors in making an
informed decision as to whether to associate with the company or
not.
Where the objects are clear therefore, a registered company

cannot lawfully carry on business outside or beyond the objects
contained in the Memorandum of Association. Any business so
carried out by the company which is not within its Objects
becomes ultra vires and to that extent invalid. This contention has
found statutory backing in Section 39(1) of the CAMA which
states categorically that a company shall not carry on any
business not authorized by its Memorandum and shall not exceed
the powers conferred upon it by its Memorandum or the CAMA.
233
It is apposite that the doctrine of ultra vires now has dwindling

and at best minimal relevance in our corpus juris in the face of
global trends and the practical realities in the arena of corporate
practice thereby raising serious concerns as to the rationale
behind the continued retention of the doctrine under the Nigerian
law in this day and age. This position may not be unconnected
with the legislative acceptance of the existence of the general
purpose clause in the Memorandum of Association of most
companies which gives companies virtually unlimited powers;
and, the attitude of our courts which towards the turn of the
century began to recognize the unfairness of the strict application
of the ultra vires doctrine as previously contemplated by statutes
and case law.
In any case, the trend of cases clearly establish that where one of
the parties had already substantially performed, the defence of
ultra vires would only become available where the contract was
still executory. Furthermore, the purposes and powers clauses
were interpreted more flexibly to authorize other transactions
reasonably incidental to the main Objects or business of the
company.
The practical implication of all this coupled with the fact that the
United Kingdom from whose legal system our laws were
originally drawn and inherited has by legislative action expunged
the doctrine from their company law and practice is that the
doctrine of ultra vires now has limited relevance in the realm of
corporate governance in Nigeria.
234
Restrictions on the Powers of the Company.

Ordinarily, by virtue of the provisions of Section 38(1) of the
CAMA, every company shall, for the furtherance of its authorized
business or Objects, have all the powers of a natural person of full
capacity. This power is however subject to the proviso that
creates limitations to the extent that the company‟s Memorandum
or any enactment may otherwise provide. This is in line with the
purport of Section 27(1)(d) of the CAMA regarding limitation or
restriction if any, on the powers of the company. In taking
advantage of this provision therefore, the company must
expressly state this in its Memorandum of Association.
Types of Companies.
For the purpose of our law regarding registered companies,
Section 27(1)(e) provides that a company may be either a Private
or Public company. A Private company is one which is stated in
its Memorandum of Association to be a private company. It must
by its Articles of Association restrict the transfer of its shares and
its total membership must not exceed fifty. This maximum
number of members does not however include persons who are
bona fide in the employment of the company.
Where two or more persons hold one or more shares in a

company jointly, they shall for the purpose of Subsection(3) of
Section 22 regarding the total number of members be treated as a
single member. It is noteworthy that a private company cannot
unless expressly authorized by law invite the public to subscribe
for any shares or debentures of the company, or to deposit money
for fixed periods or payable at call, whether or not bearing
interest.
235
Conversely, a Public company is defined by Section 24 of the

CAMA as any company other than a private company and its
Memorandum shall state that it is a public company. There is no
restriction on the number of members of a public company, and
the minimum number of members is seven. Besides, while the
minimum share capital of a private company is N10,000.00 (Ten
Thousand Naira) only, a public company requires a minimum
share capital of N500,000.00 (Five Hundred Thousand Naira)
only to take off.
Unlike a private company which can commence business

immediately after incorporation is done, a public company must
wait until it has been issued with a certificate by the Registrar.
Finally, the name of a public company usually ends with the
words „Public Limited Company‟ or „Plc‟ while that of a private
company ends with the word „Limited‟ or „Ltd‟.
Liability of Members
By Section 27(1)(f) of the CAMA, the Memorandum of every
company shall state that the liability of its members is limited by
Shares or by Guarantee, or is Unlimited, as the case may be. This
is irrespective of the status of the company as either private or
public.
Company Limited by Shares: This refers to a company in which

the liability of its members is limited by the Memorandum of
Association to the amount, if any, unpaid on the shares
respectively held by them.247 It is the most common type of
company which is usually employed for business purposes. The
shares create very valuable security and the limitation of liability
247
Section 21(1)(a), CAMA, 2004.
236
enables each of the shareholders to determine with precision the

exact limit of his exposure, liability, and indebtedness should the
company run into losses. The shares are the units into which the
holding is denominated and so represent the involvement and
commitment of the interest of the holders. The Memorandum
usually states the division of the shares into fixed amounts in
terms of value.
Exceptionally however, the liability of Directors or Officers may

be extended beyond the amount or value of the shares they hold.
This may occur for instance in the situation contemplated by
Section 93 of the CAMA which states that if a company carries
on business without having at least two members and does so for
more than six (6) months, every director or officer of the
company during the time that it so carries on business with only
one or no member shall be liable jointly and severally with the
company for the debts of the company contracted during that
period.
Company Limited by Guarantee: A company is said to be

limited by guarantee where such a company has the liability of its
members limited by its Memorandum of Association to such
amount as the members may respectively thereby undertake to
contribute to the assets of the company in the event of its being
wound up248 or liquidated.
A company is to be registered not as one limited by shares but as

a company limited by guarantee where such a company is to be
formed for promoting commerce, art, science, religion, sports,
culture, education, research, charity, or other similar objects, and
the income and property of the company are to be applied solely
248
Section 21 (1)(b), of the CAMA, 2004.
237
towards the promotion of its objects to the extent that no portion

thereof is to be paid or transferred directly or indirectly to the
members of the company except as permitted by the CAMA.249
Such companies are to be registered without a share capital, and
shall not be incorporated with the objects of doing business. If it
does so, all officers and members thereof who are cognizant of
the fact that it is so carrying on business shall be jointly and
severally liable for the payment and discharge of all debts and
liabilities incurred in the course of such business in addition to a
fine.250
Unlimited Liability Company - An Unlimited Company is one

not having any limit on the liability of its members.251 Due to the
inherent risk in the membership of such company consequent
upon the unlimited liability status, this type of company is not
very common and is mostly registered by professionals who by
the nature of their vocation usually assume personal liability for
their obligations. By the provisions of Section 25 of the CAMA,
as from the commencement of the Act, an unlimited company
shall be registered with a share capital, and where an existing
unlimited company is not registered with a share capital, it shall,
not later than the appointed day, alter its memorandum so that it
becomes an unlimited company having a share capital not below
the minimum share capital permitted in line with the provision
regarding authorized minimum share capital.252
249
Section 26(1), CAMA, 2004.
250
251
Section 21(1)(c), CAMA, 2004.
252
238
The Authorized Share Capital.

Every Memorandum of Association shall have a capital clause
stating the amount of share capital with which the company
proposes to be registered and the division of it into shares of a
fixed amount. This is however in the case of a company having a
proposed capital with which it intends to do business and shares.
The share capital must not be less than N10,000.00 in the case of
a private company and N500,000.00 in the case of a public
company and the division of same into shares of a fixed amount.
In each case, the requirement is that the subscribers of the
Memorandum shall take among them a total number of the shares
of a value not less than 25 percent of the entire authorized share
capital. In so doing, the allotment shall be set out in the
Memorandum by each subscriber writing opposite his name the
number of shares he intends to take up.253 The subscribers in
reality do not need to necessarily pay for all the shares upfront
provided they undertake to pay up if and when the total value is
required in line with the provisions of the CAMA.
Usually, the Memorandum of Association of a company limited
by shares must state the authorized or nominal share capital, the
different kinds of shares, and the nominal values of each share.
The capital clause need not state anything else and it is usually
better that it should not do so. Unless a large working capital is
required for the initial take off of the company, the nominal
capital is usually kept to the minimum in order to avoid payment
of high stamp duties. Most new companies therefore prefer to use
a moderate nominal capital at the point of incorporation and
ultimately increase it later as the business of the company
progresses.
253
239
Association and Subscription Clause.

This clause provides that those who have agreed to subscribe to
the Memorandum must signify their willingness to associate and
form a company. A minimum of two persons are required to sign
the Memorandum of a private company while seven persons is
the minimum for a public company. Section 27(5) of the CAMA
provides that the Memorandum shall be signed by each subscriber
in the presence of at least one witness who shall attest to the
signature. Each subscriber must write opposite his name the
number of shares he shall take and no subscriber of the
Memorandum shall take less than one share.
With particular reference to the endorsement in the
Memorandum, one subscriber cannot be a witness to the signature
of another. Full description, address, occupation, etc of the
subscribers and witnesses must be written. It is not necessary that
all signatories should have any personal beneficial interest in the
shares subscribed for by them. They may hold shares in trust for
another or even a minor and in some cases may be nominees of
another shareholder and their subscribing names may be a mere
formality. The subscribers must however be competent to enter
into contracts in line with the requirement of Section 20 of the
CAMA.
Thus, a minor or a partnership firm cannot be a subscriber to the
Memorandum of Association of a company. Nevertheless, a
registered company may be a subscriber of another company. It is
noteworthy however that once a company has been registered, no
subscriber can withdraw his name on any ground whatsoever
even if he/she was induced to sign the Memorandum by
misrepresentation except in line with the provisions of Sections
44 and 45 of the CAMA.
240
Compliance with Stock Exchange Regulations.

There are instances in which the shares of a company are to be
quoted on the Nigerian Stock Exchange (NSE). This is usually
applicable to public limited liability companies. In such
situations, it is expected that the Memorandum of Association of
such a company at the point of incorporation must comply with
the listing requirements of the Nigerian Stock Exchange. The said
requirements for listing equity securities on the Stock Exchange
are set out in the NSE Green Book available in their offices and
website. The listing rules, including any modification thereto
shall be interpreted, administered and enforced by the Exchange;
and decisions of the Exchange in respect thereof shall be binding
upon every issuer that is listed on the Nigerian Stock Exchange.
The principal function of the Stock Exchange is to provide a fair,
orderly, and efficient market for the trading of securities. In order
to achieve this, every issuer that is listed on the Exchange is
required to provide the Exchange with timely information to
enable it efficiently perform its function of maintaining an orderly
market, to enable it maintain necessary records, and to allow it the
opportunity to comment as to certain matters when the facts
emerge or so soon thereafter. Consequently, the information
disclosed by an issuer must be produced to the highest standards
and shall be accurate, exact, and unambiguous. Its content must
not be misleading and it shall not exclude or omit anything that
may influence the substance or meaning of the information
presented.
Distribution of the Memorandum and Articles of Association.

Section 42(1) of the CAMA provides that a company shall at the
request of a member, send to him a copy of the Memorandum and
241
of the Articles of association, if any, and a copy of any enactment

which alters the Memorandum, subject to the payment, in the case
of a copy of the Memorandum and of the Articles, of N20 or such
less sum as the company may prescribe, and in the case of a copy
of the enactment amending the Memorandum, of such sum not
exceeding the published price thereof as the company may
require.
By Subsection (2) of the said section if a company defaults in
complying with the provision of Section 42 (1), both the company
and every officer of the company who is in default shall be liable
for each offence to a fine not exceeding N25. It is however
regrettable that despite the economic realities of the country
today, these very important provisions of the CAMA still contain
some of these obviously ridiculous sums as default fines. The
hope is that the legislature will review them in no distant time.
Alteration of the Memorandum.

Ordinarily, a registered company should not alter any of the
conditions required by Section 27 of the CAMA to be stated in
the Memorandum or by any other specific provision of the Act.
Exceptionally however, a company may alter any of these
conditions provided it does so in the case and in the manner and
to the extent for which express provision is made in the Act.254
The said exceptions are provided for by Sections 45, 46, and 47 of
the CAMA. These exceptional situations cover a wide range of
subheads and the following are the most prominent among them:
Name Clause: Alteration of the name of a company can be

affected by different methods. It could be by Special resolution,
254
242
by getting the approval of the Commission, or by the directive or

instruction of the Commission. The law regarding the change of
name of a company is laid down under Section 31 of the CAMA.
The section provides that the name of a company may be changed
in any of the following circumstances:
First, if a company through inadvertence or otherwise, on its first
registration or on its registration by a new name, is registered
under a name identical with that by which a company in existence
is previously registered, or so nearly resembling it as to be likely
to deceive, the first mentioned company may, with the approval
of the commission, change its name. And if the Commission so
directs within six months of its being registered under that name,
the company concerned shall change its name within a period of
six weeks from the date of the direction or such longer period as
the Commission may allow.255
Second, the name of a company may be changed at any time by
passing a Special resolution at a general meeting of the company
and with the written approval of the Commission. However, no
such approval is required if the change of name involves addition
or deletion of the word “limited" and substituting it with the
words “public limited company" or vice versa upon the
conversion of a private company into a public company or the
reverse.256
Third, the CAMA provides that nothing in the Act shall preclude
the Commission from requiring a company to change its name if
it is discovered that such a name conflicts with an existing trade
mark or business name registered in Nigeria prior to the
255
256
243
registration of the company and the consent of the owner of the

trade mark or business name was not obtained.257
After the alteration of the name of the company, the Commission
shall write the new name in the register in place of the old
name.258 Thereupon, a certificate bearing the new name is issued
and only then can the new name of the company be recognized
for the purposes of business. It must be noted however that with
the change of the name of the company, the powers and
responsibilities as well as the rights and obligations of the
company are not affected and so do not change. Nor does the
change of name affect the legal obligations and affairs of the
company although upon a change of name, legal proceedings that
were ongoing cannot be continued in the old name. Besides, the
change of name does not affect the company‟s existence. Any
such alteration shall be published by the Commission in the
Gazette and a certificate of publication thereof shall be evidence
of such alteration.
Registered Office Clause: A company may change the situation

of its registered office for the smooth running of its business and
the realization of its Objects. Although the CAMA does not
specifically provide for the alteration of the registered office
clause of the Memorandum of Association of a registered
company, resort is usually had to the provisions of Section 47 of
the Act which provides for general powers to alter the provisions
of the Memorandum of any registered company. The said
provision states in part that 'any provision in the company‟s
Memorandum which might lawfully have been in the Articles of
257
258
244
Association instead of in the Memorandum may be altered by the

company by Special resolution.
The Business or Object Clause: Ordinarily, it is very difficult to

alter the Objects clause of a registered company. This is because
the law has laid down strict limitations on such alteration. Section
46 of the CAMA defines the limitations and any alteration must
necessarily be in line with the provisions of this section. By
Section 46(1) of the Act, a company may, at a meeting of which
notice in writing has been given to all its members and debenture
holders, by Special resolution alter the provisions of its
Memorandum of Association with respect to the business or
Objects of the company.
However, not later than 28 days after the date of passing of such
resolution, the holders of not less than 15 percent of the
company‟s issued share capital, its members, or company
debenture holders may apply to the court for the alteration to be
canceled provided the applicants did not consent to or vote in
favour of the alteration during such a meeting. The court is such a
situation may make an order confirming the alteration either
wholly or in part and on such terms and conditions as it thinks fit.
Where a company passes a resolution altering its Objects or
business clause and an application is made to the court for its
cancellation, a certified true copy of the order of the court either
refusing or confirming the resolution shall be delivered to the
Commission with 15 days from the date of such order. Where no
such application is made to the court within the statutory 28 days,
the company shall within 15 days thereafter deliver a copy of the
resolution as passed to the Commission which shall if satisfied,
cause a copy of the Memorandum as altered to be delivered to it;
245
or if not satisfied, give notice in writing to the company of its

decision, subject however to a right of appeal by any aggrieved
person within 21 days of the receipt by the company of the notice
of rejection. For the purposes of this section, the word “member”
includes any person financially interested in the company.259
The Capital Clause: The alteration of the Share Capital Clause

of the Memorandum of Association can take various forms. The
procedure is regulated by the provisions of Sections 100-110 of
the Companies and Allied Matters Act. By Section 100 of the
Act, a company having a share capital may in general meeting
and not otherwise alter the conditions of its Memorandum to the
following extent, that is to say, it may:
(a) Consolidate and divide all or any part of its share capital into
shares of larger amount than its existing shares;
(b) Convert all or any of its paid-up shares into stock, and re-
convert that stock into paid-up shares of any denomination;
© Subdivide its share or any of them into shares of smaller
amount than is fixed by the Memorandum, so however that in the
subdivision, the proportion between the paid and the amount, if
any, unpaid on each reduced share shall be the same as it was in
the case of the share from which the reduced share is derived.
(d) Cancel shares which, at the date of the passing of the

resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share capital
by the amount of the shares so canceled.
259
246
Cancellation of shares made in pursuance of this section shall not

be deemed to be a reduction of share capital within the meaning
of this Act.260 Where a company alters it share capital in line with
the provisions of Section 100 of the Act as described above, it
shall within one month after so doing, give notice of it to the
Commission specifying, as the case may be, the shares
consolidated, divided, converted, subdivided, cancelled or re-
converted.261
A company having a share capital whether or not the shares have
been converted into stock, may in a general meeting and not
otherwise, increase its share capital by new shares of such amount
as it thinks expedient262, and give to the Commission within 15
days of passing such resolution notice of the increase. Such notice
shall include any particulars prescribed with respect to the classes
of shares affected and the conditions subject to which the new
shares have been or are to be issued, accompanied by a printed
copy of the resolution authorizing the increase.263 Such an
increase in share capital shall not take effect unless within 6
months of giving notice thereof to the commission, not less than
25 percent of the share capital including the increase has been
issued.264
Similarly, by virtue of Section 106 of the CAMA, a company
having a share capital may, if so authorized by its Articles, by
Special resolution reduce its share capital by extinguishing or
reducing the liability on any of its shares in respect of share
capital not paid up; canceling any of its paid up share capital
which is lost or unrepresented by available assets, by canceling
260
Subsection (2).
261
262
263
264
247
any fraction of its paid-up share capital which is in excess of the

company‟s wants and shall thereupon, alter its Memorandum by
reducing the amount of its share capital clause and of its shares
accordingly, subject to confirmation by the court.265
Upon such an application for an order of confirmation, the court
may make such order confirming the reduction on such terms and
conditions as it thinks fit provided every creditor or holder of any
paid up share capital shall be entitled to object to the reduction of
capital at the meeting where such resolution is passed except his
consent was obtained, his debt or claim discharged, or the share
capital does not by the proposed reduction fall below the
authorized minimum share capital. In such a situation, being
satisfied, the court may direct among other things that the
company shall add to its name as its last words “and reduced”, as
well as publish the reasons for the reduction, the causes thereof
with a view to giving proper information to the public.266
The Commission on production to it of the order of the court
confirming the reduction and a copy of the minutes of the meeting
at which the resolution was made shall register the order and
minutes. The minutes when registered shall be deemed to be
substituted for the corresponding part of the company‟s
Memorandum, and valid as well as alterable as if it had been
originally contained in it.267 The substitution of such minutes for
part of the company‟s Memorandum shall be deemed an
alteration of the Memorandum, and the liability of members upon
the reduction of the share capital shall be reduced to the extent
and not exceeding the fraction or percentage of the reduction.
265
Subsections (1) & (2).
266
267
248
It should be noted that the alteration of the Memorandum of

Association is an important exercise through which the company
brings about the required flexibility which is pertinent to its
existence and survival as an entity. It is a precondition before the
company can initiate any drastic change in its shape or structure
as it is clear that any act of the company has to be within the
limits set by the Memorandum of Association.
Consequently, such an innocuous act like the alteration of the
Memorandum requires the prior mandate of the members in
general meeting as well as the approval of government
authorities, thus the need for a Special resolution and
confirmation by the court to the satisfaction of the Commission.
Such approval has to be accommodated within the Memorandum
of Association before the company can actually bring about the
desired change.
It has to be remembered however that aside from the sanction of
the court, the members in general meeting, and the Commission,
there is an array of other statutory limitations involved in the
alteration of the Memorandum of Association of a registered
company. This has been particularly true in the case of alteration
of the Objects clause. Due to the nature of intricacies involved in
the alteration of the purpose or Objects of the company, a host of
statutory hurdles have been instituted by the CAMA to prevent
wanton changes in the objectives of the company.
Given the intricacies, complications, and limitations in the
alteration of the Memorandum of Association, Section 46
specifically provides several of such safety values by enlarging
the scope and meaning of the word member to include any person
financially interested in the company while providing for
sanctions against both the company and every officer found to be
249
in default. The adequacy or otherwise of such sanctions in view

of current realities is however a subject of further debate.
250
CHAPTER NINE
THE ARTICLES OF ASSOCIATION
Introduction.
The Articles of Association is basically a code of regulations for
the internal management and regulation of a registered company.
Its main focus is the internal administration of the company
regarding the relationship of the members inter se, and between
the members on one hand and the company on the other. The
Articles of Association which is usually submitted alongside the
Memorandum of Association at the point of incorporation usually
addresses such details as the appointment, removal, and powers of
directors, general meetings of the company, the voting rights of
the members, the nature and weight if any of the shares as well as
categories of shares, transfer procedure of such shares,
declaration and nature of profits by way of dividends or bonuses
etc.
Previously, the position was that the filing of the Articles of
Association was optional and in the absence of any, resort would
normally be had to the standard relevant tables provided in the
schedules to the law. However, the wordings of Section 33 of the
CAMA, 2004 shows a clear departure from the earlier practice as
the said section makes the filing of Articles of Association
mandatory to the incorporation process. To be clear, Section 33
states that there SHALL be registered with the Memorandum of
Association, Articles of Association signed by the subscribers to
the Memorandum of Association, and prescribing regulations for
the company. The Articles according to the Act shall bear the
same stamp duty as if they were contained in a Deed.
251
Regarding the form and contents of the Articles Association,

Section 34(1) of the CAMA provides that the form and contents
of the Articles of Association of a public company having a share
capital, a private company having a share capital, a company
limited by guarantee and an unlimited company shall be as in
Parts I, II, III, and IV respectively of Table A in the First
Schedule to the Act with such additions, omissions, or alterations
as may be required in the circumstances. The practical
implication of the above provision is that the specimen Articles in
the said schedules are mere guides subject to which the contents
of the Articles will be at the discretion of a company.
In the case of a company limited by guarantee, Section 34(2)
provides that the Articles of Association shall state the number of
members with which the company proposes to be registered for
the purpose of enabling the Commission to determine the fees
payable on registration.
With particular reference to the format in which it shall be
prepared, Sub-section (3) of Section 34 of the CAMA provides
that the Articles of Association shall be printed, divided into
paragraphs numbered consecutively, and signed by each
subscriber of the Memorandum of Association in the presence of
at least one witness who shall attest to the signature.
In corporate governance, the Articles of Association along with
the Memorandum of Association form the company‟s
constitution. It defines the responsibilities of the directors, the
manner in which the business of the company are to be
undertaken, and the means by which the shareholders exert
control over the Board of Directors. Since the company is a legal
personality, there is need for some rules and regulations to be
formulated to guide the internal affairs and conduct of its business
as well as coordinate the relationship between the members and
252
the company itself. It is thus a documented version of the duties

and responsibilities of the members of a registered company.
Contents of the Articles of Association.

As stated earlier, the Articles of Association can cover a wide
range of subjects even though the situation may differ slightly in
different countries depending on the position as contained in the
relevant legislation. In Nigeria, the following are basically
covered by the articles of association:
*Appointment of directors and their conditions of service.
*Directors‟ meetings and general meetings as well as quorum
thereof.
*Proxies.
*Management decisions and their rating.
*Resignation and removal of directors.
*Transferability of shares and the procedure especially in public
companies.
*Indemnity.
*Special voting rights and existence of weighted shares.
*The seal, custody thereof and authority to use same.
*Dividend policy and the offer of bonuses in lieu of dividends.
*Appointment, removal and remuneration of secretaries.
*Commission and Brokerage.
*Confidentiality of patents, know-how, founders‟ agreements,
etc.
253
*Accounts and Audit.

*Right of first refusal, purchase rights, and counter bids by
founders.
*Notices and procedure for delivery of same.
A careful perusal of the foregoing will show that the Articles of
Association being a document that specifies the regulations for a
company‟s operations in effect actually defines the company‟s
purpose, and lays down how tasks are to be accomplished within
the organization, including the process for appointing directors
and how financial records will be handled. The Articles often
identify the manner in which a company will issue stocks or
shares, pay dividends and audit financial records and the process
and power of voting. This set of rules can thus be considered a
user‟s manual for the company since it practically outlines the
methodology for accomplishing the day-to-day tasks that must be
completed. Where the company seeks or hopes to be listed on the
Nigerian Stock Exchange, special provisions are made in the
Nigerian Stock Exchange listing requirements. This listing
process being a matter of administration is usually captured in the
Articles of Association.
Just like the Memorandum, every member of the company is
entitled to a copy of the Articles of Association and the company
SHALL on being so required by any member, send to him a copy
of the Articles subject to the payment of the applicable fee, as
prescribed by the Act or such less sum as the company may
prescribe.268 Any other individual not being a member of the
company may equally inspect the Articles at the Commission‟s
offices and obtain copies upon the payment of the prescribed fees
268
254
being a public document by virtue of its registration at the

Corporate Affairs Commission.
Regarding the effects of the Articles of Association, Section 41(1)
of the CAMA provides that „subject to the provisions of this Act,
the Memorandum and Articles when registered, shall have the
effect of a contract under seal between the company and its
members and officers, and between the members and officers
themselves whereby they agree to observe and perform the
provisions of the Memorandum and Articles, as altered from time
to time in so far as they relate to the company, members, or
officers as such‟. Consequently, all monies payable by any
member to the company under the Memorandum or Articles shall
be a debt due from him to the company and shall be in the nature
of a specialty debt.269
Where the Memorandum or Articles empower any person to
appoint or remove any director or other officer of the company,
such power shall be enforceable by that person notwithstanding
that he is not a member or officer of the company. Furthermore,
in an action by any member or officer to enforce any obligation
owed under the Memorandum or Articles to him and any other
member or officer, such member or officer may, if any other
member or officer is affected by the alleged breach of such
obligation, with his consent sue in a representative capacity on
behalf of himself and all other members or officers who may be
affected other than any who are defendants and the provisions of
Part XI of the Act shall apply.270
It is indisputable that shareholders are obligated, without any
formal statement on their behalf, to abide by the Articles of
269
Subsection (2).
270
Subsections (3) &(4).
255
Association as they are issued originally or lawfully amended

subsequently. However, shareholders will not, either according to
the Articles of Association as originally drafted or by its
subsequent amendments, become obligated to increase their
holdings in the company and shall not be subjected to redemption
of their shares beyond their voluntary exposure. The implication
is that shareholders are not responsible for the company‟s
obligations exceeding their holding in the company unless they
take on such liability in a legally binding manner. This position is
sacrosanct and cannot be changed or discontinued by any
resolution of a shareholders‟ meeting.
In recent times the modern trend in the drafting of the Articles of
Association is that electronic file communication and e-mailing is
permitted between the company and its shareholders as against
the previous practice of sending and submitting written
documents. The authorization to do this extends to any kind of
communication between the company and the shareholders
including but not limited to invitations to shareholders‟ meetings,
distribution of dividends, and other notifications which the Board
of Directors usually send to shareholders. Such electronic
communication is equal to correspondence written on paper.
The procedure is that the Articles of Association will expressly
provide that the Board of Directors shall set rules stipulating the
kind of electronic communication and the standards of the
software to be used for this purpose. The rules shall then be
accessible to shareholders since they are ordinarily entitled to
copies of the Articles of Association. Shareholders who wish to
communicate electronically with the company shall send to the
company a confirmation of their acceptance of the proposal in
accordance with the rules set by the Board of Directors.
256
The Articles of Association in reality therefore sets out the rules

for running the company in addition to being a contract between
the company and its shareholders and so is broadly the equivalent
of a partnership agreement. Because the Articles of Association
contains the detailed rights of the shareholders, it is essential that
they contain the right provisions for the particular type of
company. Typically, a company may be run with the Articles
with which it is registered, or they may be amended from time to
time, usually by special resolution regarding some aspects of the
original Articles, or by adopting entirely new Articles.
Most companies are incorporated using standard form Articles of
Association belonging to the solicitor or agent undertaking the
incorporation process. Such documents are based on the
government approved standard format in the relevant parts of
Table A in the First Schedule to the Act, with or without
amendments but are inevitably a compromise. They work
perfectly well for private companies. But in public companies or
private companies involving more than two people, it is usually
preferable to ensure that their agreement is contained in
appropriate Articles. This is because experience has shown that
not having the right provisions in the Articles could have serious
consequences at some future stage particularly if there is a dispute
between the directors and/or the shareholders of the company.
Drafting of the Articles of Association is usually very tasking if
one must get it right. Most Nigerian companies have ordinary
shares of 50kobo each at inception though the value appreciates
as the business progresses. However, there can be many reasons
for creating different classes of shares including, but not limited
to tax reasons, such as when special shares are created for
employees, or members of the shareholders‟ families. But with
257
particular reference to share allotments, different arrangements

suit different companies. The following are noteworthy:
1. Giving the directors maximum freedom over share allotments,
so that they can allot shares they wish to anyone they want; or
2. Pre-emption provisions which provide for new shares to be
offered to existing shareholders first; or
3. Requiring the written consent of all existing shareholders
before new shares can be issued.
On the transfer of shares, most Articles of Association usually
give the Board of Directors an absolute discretion to refuse to
register any share transfer in the case of a private company, or to
set guidelines for transfer and registration of new members during
a public offer in the case of a public company whose shares have
been listed for the public to acquire via a public offer, or other
means of placement.
Other common options are:
1. Pre-emption provisions on any transfer so that shares have to
be offered to existing shareholders before they can be sold to
anybody else; or
2. That all shareholders must consent to any transfer.
3. Special transfer provisions for instance, that shares can be
passed to members of a late shareholder‟s family; or
4. That some classes of shares are treated differently from others.
Articles usually make clear and express provisions on general
meetings. General meetings are meetings of the shareholders
where the most important decisions are made. Most decision are
made by passing an Ordinary resolution which requires just a
258
simple majority of those present who are qualified to vote.

However, some decisions such as to alter the Articles of
Association require a Special resolution, which has to be passed
by a three-quarters majority of those who vote.
At a general meeting, if a Poll is demanded, each shareholder
shall have the number of votes conferred by the shares they hold
usually in a proportion of one vote per share. A frequently
amended provision is that regarding the fixing of the quorum as
something other than two, which is the standard provision. The
need to do this cannot be overemphasized as it is very important
as a means of protecting shareholders from an important meeting
being conducted without them.
The Articles of Association also provides for Board meetings.
Board meetings comprise of the directors of the company. The
directors in most cases are chosen from among the shareholders,
but need not necessarily be shareholders in all cases. The Board
has control of the day to day running of the company, including
all commercial decisions. At a Board meeting, every director has
one vote regardless of the number of shares held, unless the
Articles of Association provide to the contrary. Typical
amendments to the provision regarding Board meetings will
usually be to fix a quorum other than two; to remove the
Chairman‟s casting vote; and to remove the restrictions on a
director who has an interest in a transaction from voting and
counting in the quorum for the meeting.
A very important provision in the Articles of Association of a
company is that concerning the appointment, resignation and
removal of directors. The standard provision is that the general
meeting usually appoints the directors. Thereafter, if subsequent
appointments are to be made, the Board or the General meeting
can appoint additional directors. With particular reference to the
259
removal of directors, the position of most standard Articles of

Association is that any director can be removed by an ordinary
resolution of the members in general meeting. Where however a
director becomes bankrupt or is otherwise disqualified from
acting, the Articles of association usually provides for automatic
cessation of office of such director. Typical amendments to this
provision of the Articles of association will usually be:
1. To provide that no person may be appointed a director without
the written consent of all the shareholders; and/or
2. To include „enhanced voting rights‟ so that a director who is
also a shareholder cannot in practice be removed by ordinary
resolution.
Alteration of the Articles of Association.

The Articles of Association of a registered company may be
altered by the members in line with the provisions of the Act. To
be precise, Section 48(1) of the CAMA provides that subject to
the provisions of the Act, and the conditions or other provisions
contained in its memorandum, a company may by Special
resolution alter or add to its Articles. Any alteration or addition so
made in the Articles shall, subject to the provisions of the Act be
as valid as if it was originally contained therein and so be subject
to alteration by Special resolution in like manner.271
The alteration of the Articles of Association by the company must
be done in such a way that the alteration does not go contrary to
the provisions of the Memorandum of Association. Usually, a
Board meeting is held in which it is resolved to convene a
General Meeting and approve a circular /Notice to send to all
271
Subsection (2).
260
shareholders. The notice sets out the reasons that the Articles
need to be changed and should summarize the main provisions /
changes to be made. A general meeting is then held where the
Special resolution will be passed.
Thereafter, a printed copy of the Articles as amended and a copy
of the resolution shall be delivered to the Corporate Affairs
Commission within 15 days of passing the resolution. In
accepting the amendment, the Commission usually insists on the
production by the company of evidence of payment of annual
returns. The Commission cannot refuse to register an alteration
submitted to it out of time, but the penalty provided under Section
237(5) of the CAMA for default may be applied. The court has no
jurisdiction to enlarge the time specified in Section 237(1) of the
Act.
In the Matter of Saltgitter (West Africa) Limited and In the Matter of the
Companies Decree 51 of 1968272, the Applicant company had passed a
resolution altering its Articles of Association. Due to delays in the
printer's office, the resolution was not submitted within the time
limit of 15 days prescribed by law. The Applicant submitted the
resolution to the Registrar out of time and the said Registrar
returned it insisting that the Applicant should obtain an order of
court for an extension of time within which to submit the
resolution for recording. The Applicant through its counsel
applied for an order granting the extension of time.
After a careful examination of the relevant provisions of the
CAMA, the Federal High Court held that the fact that the
company has forwarded the Special resolution out of time cannot
be an excuse for the Registrar failing to discharge his obligation
by neglecting to file and record the Special resolution. It
272
(1973-74) F.R.C.R. 215; (1975)N.C.L.R. 149.
261
concluded that the appropriate order to make in the circumstances

would be to direct the Applicant company to return the Special
resolution forthwith to the Registrar of Companies to enable him
take necessary action thereon as required by law and to pay the
penalty due in respect thereof under Section 136(6)273 of the
Companies Decree of 1968 and it so ordered.
It is pertinent to note a few restrictions on the company‟s ability
to change its Articles having conceded that a company‟s Articles
of Association are not cast in stone and a need for change can
arise once in a while for a number of reasons. The following are
worthy of mention:
1. Any change in the Article of Association of a company must
not only be lawful, but must be in the genuine best interest of the
whole company, and not just designed to meet the needs of some
members. While this does not mean that every member must
agree to a change in the Articles, such change cannot be used by a
majority as a tool to discriminate against the minority or deprive
minority shareholders of their statutory rights as members of the
company without any reasonable prospect of advantage to the
company as a whole.
2. Changes that are meant to be retrospectively effective need to
be carefully considered to ensure they are both legal and fair.
Thus, the law generally does not allow the company to insert
retrospective provisions that require members to increase their
shareholding or provide further funds to the company without the
members‟ specific agreement in writing.
3. The company cannot alter its Articles of Association to remove
the ability to make further changes to the Articles in the future.
However, there may be conditions attached to making alterations
273
Now, Section 237(5) of the CAMA, 2004.
262
such as contractual arrangement like a shareholders‟ agreement

which may effectively restrict the ways in which the Articles can
be amended.
4. There are more restrictions and procedural requirements for
public limited companies particularly when they are listed, for
instance, some shareholders such as financial institutions may
have peculiar requirement that will need to be addressed such as
pre-emption rights. Whenever possible it is appropriate to ensure
any proposed changes to the Articles of Association take account
of such requirements before entering into the actual
administrative process of amending the Articles.
The new Articles are deemed to take effect once the Special
resolution has been passed and a copy delivered to the
Commission alongside the printed copy of the revised edition of
the Articles of Association. While the administrative procedure
for amending the Articles of Association of a registered company
need not be complex, it does take time and effort on the part of
the company. Input from shareholders is required and frequently
seeking approval for an amendment to the Articles will make the
management appear inefficient and unprofessional. Accordingly,
it is preferable to conduct regular review of the company‟s
constitution so that any necessary changes can be proposed in
advance of, and passed via a single Special resolution at the
Annual General Meeting (AGM).
Contractual Effect of the Articles of Association.

It has been posited that the Article of Association of a registered
company constitutes a contract between the members inter se, and
between the members and the company. Thus, a member has the
right to enforce the observance of the terms of the Articles of
263
Association by virtue of the contractual effect it has. In the case

of Obikoya v. Peter Ezenwa, and Malik Mattar274, the Plaintiff/Applicant
and the Defendants/Respondents were the permanent directors of
a limited liability company by virtue of Article of Association
which read thus: 'The first directors of the company shall be Peter
Ezenwa, Malik Mattar, and Oluwole Obikoya, and shall be
known as the permanent directors. Each of the permanent
directors shall hold office until he dies or resigns‟. The Articles
further provided that „a permanent director shall not vote for the
removal from office of another permanent director.‟
The Defendants/Respondents contended that the company by
Special resolution at a general meeting amended a great part of its
Articles of Association, and that the effect of some of these
amendments was to reduce the number of permanent directors to
two, leaving only the Defendants/Respondents, while removing
the Plaintiff/Applicant. In rejecting the contention of the
Defendants/Respondents, the court took the position that what
should have happened was for the company to have first amended
its Articles to create the power to remove such a director after
which it can then rely on the amendment to remove him, in the
absence of which the purported removal of the Plaintiff /
Applicant was ultra vires.
In arriving at this position, the Nigerian court relied on the
decision in the English case of Imperial Hydropathic Hotel Co.
Blackpool v. Hampson275 in which in a matter having the same facts,
the court held inter alia:
'…It is an entire fallacy to say that because there is power to alter
the regulations, you can by a resolution which might alter the
274
(1968) 2 All N.L.R. 133.
275
(1883)23 Ch.D.,1.
264
regulations, do that which is contrary to the regulations as they

stand in a particular and individual case…'
In line with this decision therefore, the Nigerian court held that
when the three members of the company who are also the three
permanent directors agreed by virtue of the Articles of
Association not to vote for the removal of each other from office,
they were agreeing among themselves as members, in which
capacity they exercised their voting rights, not to so vote. To that
extent, a contract did exist binding them and as such, the
Applicant is well within his rights in moving the court under the
rules to hold that the action of the Defendants/Respondents in
keeping the Plaintiff/Applicant away from performing his duties
as such whether by virtue of an ultra vires act or not is in breach
of the Articles of Association of the company.
An obligation to act in accordance with the contract created in the
Articles is enforceable against a party to the contract when the
circumstances stated therein arises. This is because the Articles of
Association do in fact constitute a contract between a company
and its members in respect of their ordinary rights as members,
and a contract between the members inter se in respect of their
rights as shareholders.
In Hughes, King (Nigeria) Ltd v. Ronald George Harris276, the Defendant
was appointed by the Plaintiff company as „Staff Director‟ under
Article 75 of the Plaintiff Company's Articles of Association. The
said Article 75 provides inter alia that if a staff director‟s
appointment was terminated, he must transfer all the shares
standing in his name to such persons or person as the Permanent
Directors or Permanent Director shall appoint. The appointment
of the Defendant was terminated and the Plaintiff sought a decree
of specific performance to compel the Defendant to transfer all
276
(1972) 2 I.I.L.R., 63.
265
shares held by him in accordance with Article 75(c) of the

Company‟s Articles of Association.
The Lagos State High Court found that the Defendant had been
appointed a staff director under Article 75 of the Company‟s
Articles of association and that a contract in the Articles had been
established on the basis of which the Defendant was bound to
transfer his shares to the nominee designated by the Permanent
Directors. The court then concluded that where a person takes up
shares in a company under certain conditions and stipulations laid
down in the Articles of Association, he is bound by them and that
the Defendant having taken the shares in question under and by
virtue of such conditions, he was under a contractual obligation to
act in accordance with the provisions of the Articles when the
circumstance therein arose. He was therefore under a contractual
duty upon his lawful dismissal to transfer all the shares standing
to his name in accordance with the Articles and could be
compelled to do so.
In arriving at this decision, the court relied on the decision of the
English court of Chancery in Wood v. Odessa Waterworks Co.277,
where Stirling J. stated that the Articles of Association constitute
a contract not merely between the shareholders and the company,
but between each individual shareholder and every other. The
learned jurist in his judgment referred to Page 127 Paragraph 267
of the Halsbury‟s Laws of England which states in part:
'The Articles constitute a contract between the company and a
member in respect of his rights and liabilities as a shareholder,
and the company may sue a member, and a member may sue a
company to enforce and restrain breaches of the regulations
contained in the Articles dealing with such matters. The purpose of
the Articles is to define the position of the shareholder as a
shareholder, not to bind him in his capacity as an individual'.
277
(1889) 42 Ch.D. 636.
266
In Ashibogun v. Afprint Nigeria Limited278, the Articles of Association

of the company provided that the appointment and removal of the
secretary was vested in the Board of Directors. The Managing
Director removed the secretary and the Board of Director
subsequently ratified that act of the Managing Director in so
doing. The Plaintiff instituted an action that his removal violated
the provisions of the Articles of Association. In response, the
Defendant Company contended that the secretary was an outsider
who could not seek to enforce the provision of the Articles since
he was not a shareholder.
After a careful examination of the issues and circumstances of the
case, the court decided that the Plaintiff having been appointed a
secretary in a manner stipulated under the Articles of Association
as shown on the letter appointing him secretary, it stands to
reason that he can only be dismissed by the manner provided in
the Articles as such manner has impliedly become a term of his
contract of appointment. The effect of the provision therefore is
that it has become an implied condition of employment that the
Plaintiff can only be removed as secretary by the Board of
Directors.
Whatever doubts one may have about the propriety or otherwise
of this position, the reasoning of the court herein has been further
strengthened by the provision of Section 41(1) of the CAMA
which by legislative action clearly makes officers of a company
parties to the contract in the Articles of Association. In line with
this express provision therefore, a secretary can now enforce the
provisions of the Articles of Association of a company registered
under the CAMA as of right pertaining to his removal and other
matters.
278
(1985) N.C.L.R. 400.
267
It must be noted however that the Articles of Association do not

create a contract between the company and its employees and as
such, an employee cannot have a cause of action against the
company based on a company‟s alleged non-compliance with its
Articles of Association. This position was adopted by the court in
the case of Wachukwu v. Cooperative Bank of Eastern Nigeria Ltd279.
The facts were that the Plaintiff filed an action against the
Defendant Company to recover damages for wrongful dismissal.
The Plaintiff was actually employed as the General Manager of
the Defendant banking company under conditions of service
which provided that the General Manager might not be dismissed,
nor his appointment terminated by the Board of Directors,
without the prior approval of the general meeting. The Plaintiff
was summarily dismissed by a resolution of an Extra-ordinary
General Meeting of the company. He alleged that the Extra-
ordinary General Meeting was illegal, and that the resolution was
as such null and void since the meeting was not summoned in
accordance with the Articles of Association of the Defendant
Company.
The court, relying on such authorities as Melhado v. Porte Alegre
280
Railway Co. , and Kelner v. Baxter281 took the position that the
bank‟s Articles of Association upon which the Plaintiff relied
were not a contract between the Plaintiff and the bank, as both
were not parties to the said Articles. This being so, the Plaintiff
cannot have a cause of action based on an alleged non-
compliance with them by the company so as to render the
resolution of the Extra-ordinary General Meeting of the Bank
dismissing the Plaintiff null and void.
279
(1974) N.C.L.R., 387; (1975) 5 U.I.L.R., 373; (1974) 1 A.L.R., Comm. 9.
280
(1873-74) L.R. 9 C.P., 503.
281
(1866) L.R. 2 C.P., 174.
268
It should be noted nevertheless that the present position of the law

is that a member has the capacity to enforce the rights of an
outsider if such a right is contained in the Articles, provided of
course that he brings the action as a member. This position is
predicated on the elementary principle of law that parties to a
contract involving a third party or outsider may normally enforce
the rights of the stranger to the contract even though the outsider
in that capacity has no authority or contractual capacity to do so.
This is the Nigerian position and appears to be the basis for the
statutory provision of Section 41 of the CAMA which provides
for the existence of a contract between the company and its
members and officers, and between the members and officers
themselves to observe and perform all the provisions of the
Memorandum and Articles. This provision can also be stretched
to enable a person, who may not be a member or an officer, but
who has a power under the Memorandum or Articles to appoint
or remove any director or other officer, to enforce such a right.
269
CHAPTER TEN
CONSEQUENCES OF INCORPORATION
Introduction.
By Consequences of Incorporation in law we mean the legal
implications of the fact of registering a company. This in reality
therefore refers to the practical effect of incorporation of a
company. According to Section 37 of the CAMA, as from the
date of incorporation mentioned in the Certificate of
Incorporation, the subscribers of the Memorandum together with
such other persons as may, from time to time become members of
the company shall be a body corporate by the name contained in
the Memorandum, capable forthwith of exercising all the powers
and functions of an incorporated company including the power to
hold land, and having perpetual succession and a common seal,
but with such liability on the part of the members to contribute to
the assets of the company in the event of its being wound up as is
mentioned in the Act. The following are the most common
consequences of incorporation:
LEGAL PERSONALITY: The position of the law is that upon

incorporation, the veil of incorporation separates the members of
the company from the actions of the company itself. Thus, the
corporation becomes a legal entity in its own right and has an
existence independent of the members. The implication is that
once the company is registered, it becomes capable of holding
legal rights and obligations within the established legal system
such as entering into contracts, suing, and being sued. Legal
personality is therefore a pre-requisite to legal capacity which in
270
turn refers to the ability of any legal person to enter into, amend,
transfer or howsoever deal with legal rights and obligations.
In International law, legal personality is a precondition for an

international corporation to be able to sign international contracts
in its own name and validly too.282 Legal persons are in reality of
two kinds: natural or physical persons, and juristic or artificial
persons or entities such as corporate bodies which are treated in
law as if they are natural persons also for all intents and purposes.
The distinction however is that while human or natural persons
acquire their legal personality at birth, juristic persons do so upon
incorporation in accordance with the rules as laid down by the
Corporate Affairs Commission in line with the provisions of the
Companies and Allied Matters Act, 2004. As such artificial or
juristic personality presupposes the characteristic of a non-living
entity being regarded in law to have the status of personhood.
A company upon incorporation being a legal or juristic person

must necessarily have a legal name in addition to certain basic
rights, protections, privileges, responsibilities and liabilities in
law, similar to those of a natural person. This makes the concept
of juristic person a fundamental legal fiction as it is essential to
laws affecting a company‟s existence. It allows one or more
natural persons to act as a single corporate entity for legal
purposes while allowing that corporate entity to be considered
separately from its individual members under the law. Just as they
are allowed basic rights ordinarily available to natural persons,
legal personalities equally have obligations which include but are
282
Kornhauser, L. A., and MacLeod, W.B., „Contracts Between Legal Persons‟,
National Bureau of Economic Research, Working Paper 16049, Cambridge,
[2010], http://www.nber.org/papers/w16049 , accessed, 7th October, 2017.
271
not limited to the duty to pay their debts, respect their legal and
contractual obligations as well as payment of taxes.
The concept of legal personality is not absolute. Thus, in

appropriate circumstances, it may be necessary for the court to lift
the corporate veil and proceed against the individuals who act as
the driving minds and forces behind the legal cloak involved in
the company‟s actions and decisions. In such circumstances, the
laws may appropriately treat the duties and rights of the
corporation as the rights and duties of the officers or directors
who made certain decisions that amount to an infraction on the
law or which exceeds the powers of the company as expressed in
its Objects or purpose clause of the Memorandum of Association
despite the abstract theory of its separate existence.
Nigeria has accepted this fiction of corporate personality both in

theory and practice and the legislature has effectively secured this
reality through the express provisions of the Companies and
Allied Matters Act as well as by judicial decisions by our courts
and so it is no longer in dispute that a registered corporation is a
statutory creature. This fiction has been introduced for the
convenience of the company law practice to enable a registered
corporation make contracts validly, hold property legally, sue
defaulting parties and be sued when in default, effectively
manage its own affairs independent of the private and personal
affairs of its shareholders and proprietors, and to preserve and/or
determine the exact liability of its members if any in the event of
a risk or loss incurred by the company in the course of its
business or activities.
272
In Onuekwusi v. Registered Trustees of Christ Methodist Church283, the

Nigerian Supreme Court had opportunity to restate the position of
the law regarding the effect of incorporation or registration of a
company and the apex court held that the effect of incorporation
or registration of a company, firm, etc., is to confer on it legal
status as a person separate and distinct from its members with
personality of its own and as such more than a mere association
of individuals. The court concluded that a company becomes an
artificial legal entity once the formal procedure of registration or
incorporation has been complied with.
On how to prove the legal status of a company as an incorporated

entity and whether the addition of „Ltd‟ or „Plc‟ etc. to the name
of a party before the court denotes that such a company is indeed
a legal personality, the Supreme Court in Baroda v. Iyalabani Ltd284
held that it is not sufficient for a Plaintiff being a corporation or a
Defendant for that matter to establish its juristic personality by
merely stating its name with the addition of the appendages „Ltd‟
or „Plc‟. That status which it is claiming for itself has to be
proved except it is admitted by the opposing party by tendering
its Certificate of Incorporation or such other evidence as would
prove its juristic personality.
The locus classicus on the doctrine of corporate personality is the

old English case of Salomon v. Salomon & Co Ltd285 in which the
House of Lords had opportunity to expound the law and set the
standard which has till date remained the cornerstone of company
law. The principle therein is so instructive to the understanding of
the subject that it is pertinent to state the facts and decision in
283
(2011) 2-3 M.J.S.C. Pt.1.
284
(2002) 40 W.R.N., 13.
285
(1896) A.C., 22.
273
detail. The effect of the unanimous ruling of the highest court in

England in this case was to uphold firmly the doctrine of
corporate personality as set out in the Companies Act of 1862 so
that creditors of an insolvent company could not sue the
company‟s shareholders to pay up outstanding debts of the
company.
Mr. Aron Salomon made leather boots and shoes in a large

Whitechapel High Street establishment. His sons wanted to
become business partners, so he turned the business into a limited
company. The company purchased Salomon‟s business for
£39,000 which was an excessive price for its value. His wife and
five eldest children became subscribers and two of the eldest sons
also directors, but as nominees for Salomon, making it a one-man
business. Mr. Salomon took 20,001 of the company‟s 20,007
shares while the wife and five children took one share each. Mr.
Salomon also gave the company a £10,000 loan by way of
debentures secured by a floating charge over the assets of the
company. On the security of his debentures, Mr. Salomon
received an advance of £5,000 from one Edmund Broderip.
Soon after Mr. Salomon incorporated his business, there was a

decline in boot sales, exacerbated by a series of strikes which led
the government, Mr. Salomon‟s main customer, to split its
contracts among more firms to avoid the risk of its few suppliers
being crippled by strikes. Salomon‟s business failed, defaulting
on its interest payments on the debentures held by Salomon and
Broderip. Mr. Broderip then sued to enforce his security and the
company was put into liquidation. By the time he was paid
£5,000, the company‟s assets remaining was just £1,055, of
which Salomon claimed under his retained debentures. This
would then leave nothing for the other unsecured creditors of the
274
company whose total exposure was £7,773. At this point, the

company‟s liquidator contended that the floating charge should
not be honoured, and that Salomon should be made responsible
for the company‟s debts whereupon Salomon sued.
At the trial, the liquidator on behalf of the company counter-

claimed by asking for the amounts paid to Salomon to be paid
back by him to the company and his debentures cancelled. He
argued that Salomon had breached his fiduciary duty for selling
his business for an excessive price. He also argued that the
formation of the company in the first place was a fraud against its
unsecured creditors. The High Court per Vaugham Williams, J
held that the company had a right of indemnity against Mr.
Salomon. It held further that the signatories to the Memorandum
were mere dummies, and that the company was just Mr. Salomon
in another form, an alias, or at most his agent. Therefore it was
entitled to indemnity from the principal. The liquidator amended
the counter-claim and an award was made for indemnity.
The Court of Appeal confirmed the High Court decision of

Vaugham Williams, J against Mr. Salomon, though on the
grounds that Mr. Salomon had abused the privileges of
incorporation and limited liability which parliament had intended
only to confer on „independent bona fide shareholders, who had a
mind and will of their own and were not mere puppets‟. It
concluded that the company was a trustee for Mr. Salomon, and
as such he was bound to indemnify the company‟s creditors. The
Justices of the Court of Appeal variously described the company
as a myth and fiction and said that the incorporation of the
business by Mr. Salomon had been a mere scheme to enable him
to carry on his business as before, but with limited liability.
275
Upon further appeal to the highest court of England, the House of

Lords unanimously overturned the decisions of the High Court
and Court of Appeal rejecting the arguments regarding agency
and fraud. In so doing, they held that there was nothing in the Act
about whether the subscribers or shareholders should be
independent of the majority shareholders and so the company was
duly constituted in law and it was not the function of Judges to
read into the statute limitations they themselves considered
expedient.
The House of Lords then concluded that the statute enacts nothing
as to the extent or degree of interest which may be held by each
of the seven shareholders or as to the proportion of interest or
influence possessed by one or the majority over others. It is either
the limited company was a legal entity or it was not. If it was, the
business belonged to it and not to Mr. Salomon, who is often
referred to as the owner. If it was not, there was no person and no
thing to be an agent at all to, and it is impossible to say at the
same time that there is a company, and there is not. Indeed, Lord
Macnaghten asked: „what was wrong with Mr. Salomon taking
advantage of the provisions set out in the statute, as he was
perfectly and legitimately entitled to do?‟.
It should be noted however that in the decades since Salomon‟s

case, various exceptional circumstances have been delineated,
both by legislatures and the judiciary when courts can
legitimately disregard a company‟s separate legal personality,
such as where fraud or other crime has been committed. There is
therefore much debate as to whether the same decision would be
reached if the same facts were considered in the modern legal
environment given later decisions of the House of Lords and the
Privy Council that require a purposive approach to interpreting
276
legislation and especially in view of such doctrines as „lifting the

veil‟ and ultra vires.
The doctrine that a company is a legal entity, existing separate

and distinct from its shareholders is a legal theory established
upon an expedient fiction. This fiction, like all other fictions of
law has been introduced for the convenience of the company in
making contracts, in holding property, in suing and being sued,
and to be able to manage its affairs effectively as demonstrated by
the case of Salomon v. Salomon and Co Ltd. It makes no
difference to this rule that one member owns almost all or
substantially all of its shares. This decision of the English House
of Lords has been followed with approval in several Nigerian
cases despite the reservations expressed subsequently against the
reasoning and conclusion therein.
In Dunlop Nigeria Industries Limited v. Forward Nigeria Enterprises

286
Limited and Farore , the Plaintiff employed the first Defendant
Company as a custom clearing agent. The second Defendant was
the Managing Director of the 1stDefendant Company and owned
90% of its shares. When the Defendant Company failed to pay
Plaintiff‟s custom duties with money advanced to it by the
Plaintiff for that purpose, the Plaintiff brought an action against
both the company and its Managing Director to recover the
money paid to it. Plaintiff argued that since the payment had been
made to the Managing Director who acted on behalf of the first
Defendant Company, and since he controlled the company
through his position and majority shareholding, he should be
personally liable. The claim was therefore pursued on the ground
of joint and several liability of the Defendants.
286
(1976) 1 A.L.R. Comm., 243.
277
In dismissing the argument of the Plaintiff counsel, the court held

that the claim appears to ignore or misconceive the very essential
principle of the independent corporate existence of a limited
liability company as propounded by the House of Lords in the
case of Salomon v. Salomon & Co Ltd. where Lord Macnaghten
observed that such a corporation is at law a different person
altogether from the subscribers to the Memorandum. It does not
matter if the company‟s shares are owned substantially by one of
the shareholders with only a very small fraction held by one or a
few others.
The Act by which a limited liability company is incorporated is

not concerned with the quantum of interest of its members. Some
of them may even hold such a nominal or minute interest that it
may qualify them to be described as dummies. Nevertheless, such
a company maintains its independent existence as a person
distinct from any of its members irrespective of the number of
shares held. The implication also is that the debts of the members
incurred in their personal capacity are not the debts of the
company.
Thus, in Banque De L‟ Afrique Occidentale v. Habu, Iliasu and Savage, in

Re Northern Nigeria Marketing Board (Garnishee)287, the Defendant
formed a company to carry on the business of buying groundnut
as a buying agent after doing the business for a while in his
personal capacity. The Plaintiff bank obtained a judgment against
the Defendant in his personal capacity for a debt owed to it and in
its capacity as a Judgment Creditor of the Defendant, it Garnished
debts owed to the corporate body incorporated by the Defendant.
287
(1964) N.N.L.R., 30.
278
The court after a careful examination of the evidence, especially

the fact that there was evidence that the Judgment Debtor was a
licensed buying agent and that the board did business with him
after which the company came into existence and continued the
same business as a limited liability company came to the
conclusion that: it may well be that the judgment debtor formed
the company specifically for the purpose of preventing his
creditors in general, or the Judgment Creditor in particular, from
getting their hands on the proceeds of his groundnut buying
activities. It may well be that the whole transaction is designed to
help him avoid paying his debts. That does not make it illegal.
In arriving at this decision, the Nigerian court relied on the words

of Lord Halsbury L.C in the celebrated case of Salomon v.
Salomon & Co. Ltd wherein he said:
„I am simply here dealing with the provision of the statute, and it

seems to me to be essential to the artificial creation that the law
should recognize only that artificial existence quite apart from the
motives or conduct of the individual corporators… But short of
such proof of specific illegality in the process of incorporation, it
seems to me impossible to dispute that once the company is legally
incorporated, it must be treated like any other independent person
with rights and liabilities appropriate to itself, and that the motives
of those who take part in the promotion of the company are
absolutely irrelevant in discussing what those rights and liabilities
are.‟
It is therefore noteworthy that the shareholders of a company are

not the individual owners of its property, and have no power as
individuals to dispose of the company‟s property.
279
In Phillips v. Abou-Diwan288, the Plaintiff a Nigerian citizen, entered

into an agreement to purchase from two alien owners of Iron
Products Industries Ltd all the assets and liabilities, stock in trade
and all the materials including the goodwill of Iron Products
Industries Ltd. The aliens, who had agreed to the sale in order to
comply with the requirement of the Nigerian Enterprises
Promotion Decrees 1972, executed the agreement to sell the
company in their personal capacity. They were the Directors of
the company and held all the shares in the company.
Plaintiff brought an action against the Defendants for a

declaration that they were the sole owners of the company by
virtue of the agreement to sell, an action for specific performance
of the said agreement of sale, and an injunction to restrain the
Defendants from further management and operation of the
company. The company itself was however not made a party to
the action. The court took the position that the agreement cannot
be a transfer of shares of the company because apart from the fact
that the Defendants were not acting for or on behalf of the
company, the method of transferring shares as described in the
Articles of Association were not followed.
Besides, the agreement was not made under seal, and is at best a
mere evidence of an agreement. As such, the vendors could not
sell the assets of the company they purported to have sold
especially because there was no evidence that in doing so they
were acting for and on behalf of the company nor evidence of any
resolution authorizing them to sell the assets of the company. The
court then concluded that the assets of the company did not
belong to the Defendants as individuals, but to them as
288
(1976) 2 F.R.C.R., 24.
280
shareholders and so they as individuals could not sell what did

not belong to them.
The corporate attributes of a company as a legal entity or person

upon incorporation in line with the provision of the CAMA
makes it an entity at law, capable of enjoying rights, exercising
powers, and incurring duties and responsibilities. This is not to
say however that the company may in all instances be fully
treated as having all human attributes and characteristics.
However, the courts have extended the analogy with natural
persons to the extent that a company may have a reputation, may
deceive other individuals or corporate persons, and may lease
property. Regarding the limitations, a company is incapable of
exercising itself in the duties of piety and true religion, nor can it
be deemed a rogue, vagabond, or a citizen.
In Alumaco Manufacturing Company Nigeria Limited v. Oshodi/Isolo Local

Government289, the Defendant Local Government had sued the
Plaintiff company in a customary court over payment of tenement
rates. The Plaintiff in the present suit moved that the action be
dismissed on the grounds that the customary court had no
jurisdiction over persons who are not citizens of Nigeria in view
of the fact that the company as an artificial person was not a
Nigerian citizen. In granting the motion, the court held that a
company is not a citizen of Nigeria and cannot be sued before a
customary court.
In arriving at the decision, the court noted that the jurisdiction

which the customary courts exercised is personal in nature and
ought never to be stretched to cover the cases of registered
companies. It concluded that citizens of Nigeria as provided in
289
Unreported Suit No. M/10/83- Lagos High Court.
281
Section 23 of the Constitution of the Federal Republic of Nigeria,

1979290 contemplates only human persons and not companies or
such other bodies as may be deemed legal persons.
The recognition of a company as a person and the analogy with a

human person must in each case be construed based on the
context. Thus, it is clear that depending on the context, a
company can commit some crimes, it may be a parent over its
subsidiaries, it can have a nationality, and in extreme situations
has been found to be capable of having feelings and being
aggrieved. A company has also been held to be capable of
residing in a residential accommodation. Thus, while the rules are
not exactly clear, it is obvious that the personal characteristics of
a company must be specifically determined from the provisions of
the relevant legislations under which the company is established.
A registered company being a juristic person can acquire, own

and hold property in its own name. Such property does not have
to be vested in its individual members or shareholders. Thus,
upon incorporation, the ownership of all real and personal
property of an unincorporated association is automatically
transferred from the members and the trustees if any, to the newly
incorporated association subject however to any trusts that may
affect the property. In so doing, it may be necessary to register
these changes in line with the relevant law for instance, land
previously held by the Promoters and which forms part of the
assets or capital of the company must be registered in the name of
the company at the Lands Registry.
Another very important consequence of incorporation is that by

the time the company is duly registered, it can sue and be sued in
290
Now Sections 25, 26, & 27 of the 1999 CFRN.
282
its own name and separate capacity without necessarily dragging

its members into the lawsuits. This follows as a direct
consequence of the fact that as a separate legal entity, the
company can enter into contracts, incur liabilities or make profits
all in its own name. On who can institute an action on behalf of a
company the Court of Appeal, Lagos Division held in the case of
IMB v. Makham291 that whilst it is generally the practice that it is the
Managing Director of a Limited Liability Company, the alter ego
of the company who instructs as to the bringing of proceedings to
protect the properties of the company, the majority of the
shareholders can in appropriate situations issue such instructions
to their solicitors.
In a public or large company, it is usually the Board of Director

that issues such instructors. In the case of Haston Ltd v. A.C.B Plc292,
the action was brought by the Chairman of the company and the
issue arose as to the proper plaintiff in an action for a wrong done
to a company and whether the action in the instant case instituted
in a company‟s name was competent. The Supreme Court held
that the action was competent. In so doing, the apex court relied
on the locus classicus of Foss v. Harbottle293 where it was held by
the English court that the proper plaintiff in an action for a wrong
done to a company is the company itself.
PERPETUAL SUCCESSION: Upon incorporation, the

company becomes a body corporate with perpetual succession.
The implication is that it can continue to exist indefinitely. It also
means that the death of one or more members does not affect the
existence of the company in any way since the company is a
291
(2001) 34 W.R.N. 47 at 48.
292
(2002) 39 W.R.N., 1 at 2.
293
(1843) 2 Hare, 461.
283
separate legal person. Perpetual succession is therefore one of the

legal distinctions between a private business and a company. In
company law, therefore, perpetual succession is the continuation
of a corporation‟s or other registered organization‟s existence
despite the death, bankruptcy, insanity, change in membership, or
exit from the business of any of the owners or members, or any
transfer of stock.
The implication of the forgoing is that members may come and

go, but the company goes on forever. It is therefore one of the
fundamentals of a company‟s existence. Perpetual succession in
reality therefore means that the company‟s life is not determined
by the longevity of its members, shareholders, promoters,
directors, employees, or anyone else. Thus, if a shareholder dies,
or hypothetically all the shareholders die, only their shares in the
company will be transferred to new people. In the same vein, if a
director resigns or dies, he will only be replaced.
COMMON SEAL: An incorporated company must have a

common seal. Sometimes referred to as the company seal, the
common seal is an official seal used by the company. Company
seals were predominantly used by companies in Common Law
jurisdictions, although in modern times, most countries have done
away with the use of seals. However, a company may wish to still
seal its documents as a means of protection against forgery.
Traditionally, the company seal was of some legal significance

because the affixing of the seal signified that the document was
the act and deed of the company, whereas when a document was
merely signed by a director, then that was deemed to be an act
carried out on behalf of the company by its agents, which was
subject to applicable restrictions and limitations under the
284
ordinary law of agency. Despite this seemingly obsolete status,

corporate seals are generally still used for two purposes today:
1. Documents which need to be executed as deeds, as opposed to

simple contracts may be executed under the company‟s common
seal.
2. Certain corporate documents are often issued under the
company‟s common seal. Each usage of the company seal is
documented in the statutory registry of the company. Instances of
such corporate documents requiring a seal include share and
debenture certificates.
Corporate Criminal Liability.

Corporate Criminal Liability focuses on the extent to which a
corporation as a legal person can be criminally responsible for the
acts and omissions of the natural persons it employs. It is
sometimes regarded as an aspect of criminal vicarious liability, as
distinct from the situations in which the wordings of a statutory
offence specifically attaches liability to the corporation as the
principal or joint principal with a human agent. The imposition of
criminal liability is therefore one means of regulating
corporations.
Generally, criminal sanctions include imprisonment, fines, or

both. Since the registered company is an abstraction without a
physical existence, it therefore follows that it can only act through
the instrumentality of its human agents who in reality are the
directing minds and arms otherwise referred to as the organs of
the corporation. This situation sometimes leads to some
uncertainty as to the exact extent and circumstances in which the
company will be criminally responsible for the acts of its staff and
285
/ or directors. Unfortunately however, a company cannot be sent

to prison, and if a fine is to be paid, this diminishes both the
money available to pay the wages and salaries of all the
employees as well as depletes the profits available to pay
dividends to the shareholders.294
In practice, the difficulty of proving mens rea otherwise known as

„a guilty mind‟ is avoided in some offences by imposition of
absolute strict liability, or vicarious liability which does not
require proof that the accused knew or could reasonably have
known that its act was wrong, and which does not recognize any
excuse of honest and reasonable mistake. However, most
jurisdictions require some element of fault, either by way of an
intention to commit the offence or recklessness resulting in the
offence, or some knowledge of the relevant circumstances. Thus,
companies are held liable when the acts and omissions, and the
knowledge of the employees can be attributed to the corporation.
Under the Nigerian law, the directors are the alter ego of the
company and as such, its directing minds.
Consequently, new insights have been gained largely through the

onslaught of legislative activity, something that has become
necessary as legislators try to regulate very closely the socio–
economic activities of corporations. Thus, such conduct as
pollution, tax evasion, production of harmful or fake drugs, false
subsidy claims, and offences against other regulatory laws attract
direct corporate criminal liability. The emerging scenario is one
in which the legislature seeks to mulct the offending corporation,
and at the same time disposed to subjecting such corporation to
more severe punishment than fine. In most instances, the law
294
Wells, C., Corporations and Criminal Responsibility, (2nd edition) Oxford:
Oxford University Press, 2001.
286
imposes criminal liability, on both the individual corporate officer

and the corporate body itself.
Corporate Criminal Liability dates back to the pre-independence

era when most laws in Nigeria were predominantly of English
origin. As stated earlier, such liability became very pronounced
with the introduction of strict liability offences. These are
offences for which the mental state is not required for the
commission of such offences and penalty, usually a fine was such
that it could be imposed upon a corporation.
In National Rivers Authority v. Alfred McAlphine Homes East295, the court

stated that the pollution legislation was a strict liability offence
and further held that the only way of enforcing such laws, where
the pollution will often be caused by persons of low position in
the corporation‟s hierarchy, was by imposing vicarious liability
on the company. It would then seem from this decision that there
can be no strict liability on a company except through omissions
or commission by its employees.296
In R v. Birmingham and Gloucester Railway Company Ltd297, a

corporation was convicted for failing to fulfill a statutory duty
imposed upon it. A few years later, in R v. The Great North of
England Railway Company Ltd298, the court held that the distinction
between non-feasance and mis-feasance was unnecessary. The
position in Great Britain today is that, corporations could be held
criminally liable under strict liability offences. However, there are
some exception in such instances as murder, rape, bigamy, etc. in
295
(1944) C.L.R., 760.
296
Clarkson, C.M.W., „Kicking Corporate Bodies and Damning Their Souls‟,
Modern Law Review (Vol.59), 1996.
297
(1842) 3 Q.B., 231, 114 E.R., 492.
298
(1846) 9 Q.B., 315, 115 E.R., 1294.
287
which corporations are assumed to be incapable of committing

the crimes stated above and therefore may also not be capable of
receiving the attached penalties.
The trend under Nigerian law which is a reflection of the

developments in England is towards holding and employer or
corporation criminally liable for the acts of its employees even
where the company did not know it had taken place. This is in
view of the fact that most crimes created by statute are usually
strict in nature and so do not require the proof of mens rea in the
form of intention, recklessness, knowledge, or even negligence.
All that is needed is proof of the actus reus or „wrongful act‟.
In R v. African Press299, an article was written by and under the

responsibility of the editor of the printing press. The court held
that both the defendant company and the editor were jointly liable
since the article was written by and under the responsibility of the
editor. The liability of a corporation for the criminal acts of the
employee however depends on how the courts choose to construe
the statute in question and in particular, whether the offence is
regarded as one of strict liability or one requiring full mens rea.300
Thus, in Police v. Adamu Yahaya301, the court held that once a
vehicle is being used to carry smuggled goods, the mens rea of
the owner is immaterial because the statute regulating custom and
excise is a strict liability one.
In Nigeria, several statutes have been specifically enacted in

addition to the Nigerian Criminal Code302, and Penal Code
299
(1957) W.R.N.L.R., 1.
300
Michael, T.M., Criminal Law Textbook, (17th edition), 1993-1994.
301
(1942) 16 N.L.R., 98.
302
Cap. C39, L.F.N., 2004.
288
(Northern States) Federal Provisions Act303 both of which already

have provisions regarding corporate criminal liability. Such
statutes include the Food and Drug Act304, Standards
Organization of Nigeria Act305, Weight and Measures Act306,
Companies and Allied Matters Act307, Consumer Protection
Council Decree308, Federal Environmental Protection Agency
Act309, Failed Banks (Recovery of Debts) and Financial
Malpractice in Banks Decree310, Environmental Sanitation
Edict.311 These statutes were enacted to promote the socio-
economic wellbeing of Nigerian citizens and to regulate the
conduct of corporations with attendant sanctions in cases of
violation of the provisions of the laws.
Reflecting on this Kanyip312 notes that protection has been

accorded the consumer in Nigeria under such laws as the
Consumer Protection Council Decree, 1992, the Trade
Malpractices (Miscellaneous Offences) Decree No. 67 of 1992,
the Food and Drug Act313, the National Agency for Food and
Drug Administration and Control Decree of 1993 (now Act)314,
etc. According to him, in a general sense, these laws establish the
respective standards and criteria for protecting citizens, the breach
of which gives rise to criminal or administrative penalties.
Justification for corporate criminal liability therefore appears to
303
Cap. P3, L.F.N., 2004.
304
Cap. F32, Vol.7., L.F.N., 2004.
305
Cap. S9, Vol.4., L.F.N., 2004; Now SON Act, 2015.
306
Cap. W3, Vol.5., L.F.N., 2004.
307
Cap.C20, Vol.3., L.F.N., 2004.
308
Now Act, Cap. C25, Vol.4 L.F.N., 2004.
309
Cap. F10, Vol.6 L.F.N., 2004.
310
Cap. F2, Vol.4., L.F.N., 2004.
311
Edict 1994, Edo State.
312
Supra note 196.
313
Formerly, Decree of 1976 as amended by Decree No. 21 of 1999.
314
Supra.
289
be premised on the obvious reality that several corporate activities

produce crimes, hurt and kill people, misappropriate funds,
pollute minds and the environment, deceive, defraud and despoil
to an extent unrivaled by conventional crimes.
Regarding the forms they take, these crimes range from corporate
fraud; commercial pollution of the air, land, and water; and
crimes relating to trade descriptions, food, hygiene, pensions,
health, safety, and security among others, all with their adverse
effects on shareholders, individuals, government, and the public.
With particular reference to Nigeria, it is now established that
there is concrete conceptual and legal basis for corporate criminal
liability given the notorious inability of regulatory agencies to
rein in the excesses of commercial and industrial corporate
organizations, thus the need for corporate criminal liability
administration.
Flowing from this trite fact therefore, the Economic and Financial
Crimes Commission (EFCC)315 has since its inception charged
several corporate organizations to court along with the individuals
who are the directing minds of such corporate bodies. Some of
these shadow companies are incorporated by fraudulent citizens
and used as fronts to defraud banks, the federal government and
its agencies, individuals, and in most cases used as a cover for
money laundering.
Thus, on Monday July 4th, 2016, the Economic and Financial

Crimes Commission (EFCC) arranged Jide Omokore, the
Chairman of Atlantic Energy Drilling Concept Limited and
Andrew Yakubu, a former Group Managing Director of the
Nigeria National Petroleum Corporation, on money laundering
315
Established under the EFCC Establishment Act, 2004.
290
charges. In so doing, the EFCC listed other individuals and firms

charged alongside the Messrs Omokore and Yakubu as Victor
Briggs, Abiye Membere, David Mbanefo, Atlantic Energy Brass
Development Limited and Atlantic Energy Drilling Concepts
Limited.316
316
Premium Times „EFCC arraigns Jide Omokore, former NNPC GMD,
Yakubu‟ [2017], https://www.premiumtimesng.com/news/top-news/206386 ,
accessed, 8th October, 2017.
291
CHAPTER ELEVEN
PROMOTERS AND PRE-INCORPORATION CONTRACTS
Promoters
The formation of a company is usually conceived by a person or
group of persons who in furtherance of this idea will normally
begin to take necessary steps to incorporate the company. In so
doing, they may need to source for funds, find directors, acquire
properties and assets, prepare the prospectus or incorporation
documents, retain a lawyer if need be, and generally bear the
burden of paying for the printing and all other expenses incidental
to bringing the company into existence. These individuals are
regarded in law as Promoters of the company.
Section 61 of the CAMA provides that:
Any person who undertakes to take part in forming a company with

reference to a given project and to set it going and who takes the
necessary steps to accomplish that purpose, or who, with regard to a
proposed or newly formed company, undertakes a part in raising
capital for it, shall prima facie be deemed a Promoter of the
company:
Provided that a person acting in a professional capacity for persons

engaged in procuring the formation of the company shall not
thereby be deemed to be a Promoter.
The above section of the law appears to have been informed by

the decision of the English court in Twycross v. Grant317 where
Cockburn C.J. said that:
“...a Promoter is one who undertakes to form a company with

reference to a given project and set it going and who takes the
necessary steps to accomplish that purpose. They framed the
317
(1877) 2 CPD 469 at 541.
292
scheme; they not only provisionally formed the company but also
were to the end, its creators. They found the directors and qualified
them. They prepared the prospectus, they paid for the printing and
advertise the undertaking before the world...”
In line with this, the Nigerian court per Kazeem J, in Adeniji v.

Starcola Ltd318described a Promoter as any person who undertakes
to take part in forming a company or who with regard to a
proposed or newly formed company undertakes a part in raising
capital for it. Such a person is prima facie a Promoter of the
company provided he is not acting in his professional capacity.
It is noteworthy that a Promoter is also someone who instructs a

Solicitor to prepare a Memorandum and Articles of Association
and register a company for him. In Spicer (Keith) Ltd v. Mansell319,
the English court held that a person who purchased a property
expressly as trustee for an intended company would by so doing
be deemed a Promoter. Indeed, a person may become a Promoter
of a company even after registration of such a company. This
happens in instances where such an individual assisted in
procuring capital for the company to offset promotion expenses
when the company was newly incorporated. It should be noted
also that an existing company may be a Promoter for another new
company.
However, a Solicitor who prepared the documentation and

registered a company for his client for a fee is not a Promoter
within the meaning of this provision. In Re: Great Wheal Poolgooth
Ltd320, the court said inter alia that a Solicitor who drafts the
Memorandum and Articles of Association in line with the
Promoters‟ instructions and the Accountant who values the assets
318
(1972) 1 SC 202.
319
(1970) 1 W.L.R., 333.
320
(1883) 53 LJ Ch. 42.
293
of a business to be purchased are only giving expert or

professional assistance to the Promoters and will be paid for their
services. To that extent, they are not Promoters. If however the
Solicitor and Accountant did more by way of helping his client to
obtain directors for the company, they would be regarded as
Promoters. The implication therefore is that the law looks at the
facts of each case in determining whether or not a person is a
Promoter.
In the case of Gluckstein v. Barnes321, the Court of Appeal in

England held that a person who purchased property for his own
use and later decided to form a company to acquire the property
became a Promoter only from the time when he took steps to
form the company. Nonetheless, a Promoter cannot be regarded
as an agent or trustee of a company but as one who occupies a
fiduciary relationship with the company. This was the position
adopted by the Nigerian court in Garba v. Sheba International322.
What is clear and indisputable though is that a person becomes a
Promoter from the very moment he begins to take part in forming
a company or in setting it going.
Thus, like a human being, a company does not drop from the sky.
It is brought into existence through the activities and efforts of
persons called Promoters, who take all the steps necessary for the
establishment of the company.323 These transactional acts of the
Promoters are governed by principles of Agency law along with
Company law statutes and case law.324 Companies, like human
beings, must be conceived before they are born. The conception
321
(1900) A.C., 240.
322
(2002) 1N.W.L.R. (Pt. 748) 372 at 401.
323
Agomo, C.K., “The Status of Pre-Incorporation Contracts”, in Akanki, E.O.
(ed.) Essays on Company Law, Lagos, University of Lagos Press, 1992, 77.
324
Orojo, J.O., Company Law and Practice in Nigeria, (3rd edn.) Lagos: Mbeyi
and Associates, 1992, 99.
294
and the gestation period of companies are managed by a category

of persons technically known in Company law as Promoters.
Before its birth, that is, between conception and its registration,
these Promoters enter into contracts on behalf of the yet to be
born company.
This sets the background for the legal and philosophical issues
arising from Pre-incorporation contracts, which can be
contentious. This is due to the infiltration of purely technical
agency principles which mandate that for a Principal to ratify an
Agent‟s acts undertaken on the Principal‟s behalf, the Principal, at
the time the act was performed, must have been in existence
either as a natural or juristic person.325 As Fuashi stated, Common
Law is reticent to accept the takeover of pre-incorporation
contracts by the company because of the operation of the rules
governing ratification.326
In the United States of America, Section 2(a) of the Investment

Company Act of 1940, defines a Promoter thus:
A Promoter of a company or a proposed company means a person

who, acting alone or in concert with other persons, is initiating or
directing, or has within a year initiated or directed the organization
of such company.
Thus, a corporate Promoter otherwise referred to as a „Projector‟

is a person who solicits people to invest money into a corporation,
usually when it is being formed. It is instructive that while an
325
Fridman, G.H.L., The Law of Agency, London: Butterworths & Co
Publishers Ltd, 1983, 166.
326
Fuashi, N.T., “Pre-Incorporation Contracts and the Impossibility of
Ratification Under Common Law – The Salutary Jettison of a Stifling Principle
by the Civil Inspired Uniform Act Relating to Commercial Companies and
Economic Interest Groups Enacted by OHADA in UNIVERSITE DE
DSCHANG, ANNALES DE LA FACULTE DES SCIENCES JURIDIQUES
ET POLITIQUES, (Presses Universitaires d‟Afrique ed. Tome 6), 2002, 69.
295
investment banker, an underwriter, or a stock promoter may

wholly or in part perform the role of a Promoter, Promoters
generally owe a duty of utmost good faith, so as to not mislead
any potential investors, and disclose all material facts about the
company‟s business. He is therefore a person who does the
preliminary work incidental to the formation of a company.327
Pre-Incorporation Contracts.
A Pre-Incorporation Contract is an agreement entered into by the

Promoters of a company prior to the incorporation of the
company itself. Since it is usually made when the company has
not been formed yet, the position of the law used to be that such
contracts cannot bind the company. They are usually made
between the Promoters inter se, and in other instances between
the Promoters and third parties. Thus, at Common Law, where a
contract is entered into on behalf of a company not yet formed,
the company can neither be bound by it, sue on it, nor ratify or
adopt such a contract. On the authority of the English case of
328
Kelner v. Baxter however, a Promoter might be personally liable
for any breach of the agreement if his signature to the document
indicated his intention to be personally bound.
Pre-incorporation contracts usually deal with such issues as the

location of the company, the procedure and details of
incorporation, the allocation of its shares and securities, voting
rights and control, the designation of the directors and officers,
and even the procedure for making the pre-incorporation contract
binding on the company after its formation. Despite this general
327
Erlanger v. New Sombrero Phosphate Co. (1878) 3 App. Cas. 1218.
328
Supra.
296
Common Law position, the company may enter into a fresh post-
incorporation contract on the same terms as the pre-incorporation
contract. Where this is done voluntarily, and in the absence of any
fraud, such a new contract makes the earlier pre-incorporation
contract the obligation of the company and as such enforceable at
law.329
The Common Law position therefore is to the effect that a

company has no legal existence before it is incorporated and as
such, is incapable of entering into a contract either by itself or
through a purported agent. This position made contracts entered
into by Promoters of a company on behalf of such a company
before its incorporation not binding on it. Indeed, neither the
person who purports to make a contract on behalf of a proposed
company, nor the company itself after its formation have any
contractual rights under a pre-incorporation contract. As such, a
company cannot ratify or adopt an agreement entered into before
its incorporation.330
A person who purports to make a contract on behalf of a proposed

company may however do so in a way which renders him
personally liable. This Common Law position no doubt led to
severe injustices in Nigeria in view of the undue hardship in some
cases on the part of the Promoters of some of these companies.
This ugly situation was eventually resolved by legislative action
by the provision of Section 72 of the Companies and Allied
Matters Decree of 1990.331
329
Edokpolo & Company Ltd. v. Sem-Edo Wire Industries Ltd. (1984) 7 S.C.,
119.
330
Enahoro and Co. Ltd and Enahoro v. Bank of West Africa Ltd. (1971)
N.C.L.R. 180.
331
Now Section 72 of the CAMA, 2004.
297
In the case of Kelner v. Baxter332, certain individuals were

purportedly acting on behalf of the Gravesend Royal Alexandra
Hotel Co. Ltd. which was in the process of being formed. The
individuals entered into a contract for the purchase of wine from
Kelner. The wine was delivered to the company after its
formation, but before Kelner could be paid the company went into
liquidation. The court held that the company was not liable but
the individuals were personally liable as they had entered into the
contracts before the company came into existence. Lord Willes, J
opined that: „ratification can only be by a person in existence either
333
actually or in contemplation of law‟.
In Phonogram v. Lane334, before incorporating a company called

Fragile Management Ltd, Lane contracted with the Plaintiff for a
loan of 12,000 British Pounds to finance a Pop group called
Cheap, Mean, & Nasty. The Plaintiff wrote to Lane in which
reference was made to him undertaking to pay. He nevertheless
was required to sign and return a copy for and on behalf of
Fragile Management Ltd. The company was never formed and the
group never performed. The court held that the defendant was
personally liable to repay the money advanced.
In England, the above problems were overcome when a

legislation was enacted in the form of Section 35(1) and (2) of the
Companies Act, 1965. Prior to ratification by the company, the
person or persons who purported to act in the name of the yet to
be incorporated company as Promoters shall, unless there is an
agreement to the contrary, be personally bound by the contract or
other transaction and entitled to the benefit. The implication is
that third parties can make the Promoters who acted when the
332
Supra.
333
Ibid, 184.
334
(1982) Q.B. 938.
298
company was still at its pre-incorporation stage to be personally

liable should the company decide not to ratify the contract after
its incorporation. For ratification to take place in this case, there
must be an express agreement between the company and the
Promoters.
More recently, Section 36(c) of the UK Companies Act 1985335,

provides that a contract or deed that purports to be made by or on
behalf of a UK company when the company has not been formed
has effect, subject to any agreement to the contrary, as one made
by and with the person purporting to act for the company or as its
agent. That individual is personally liable on the contract or deed
accordingly.
Thus, in Royal Mail Estates Ltd v. Maples Teesdale336, the contract in

question related to the sale and purchase of property in London.
The contract included a clause which stated that “...the benefit of
this contract is personal to the Buyer...”. The Defendant firm of
Solicitors signed the contract “for, and on behalf of the Buyer”.
However, unknown to them and the Seller, the Buyer was not yet
incorporated. The Seller later sought to enforce the contract
against the Defendant firm. The Defendant firm however applied
to have the claim struck out. Its argument was that the clause
“...the benefit of this contract is personal to the Buyer...” in the
contract had effect as an agreement to the contrary for Section
36(c) purposes.
The court rejected the Defendant‟s interpretation, and held that it

was necessary to be able to show that the parties had meant to
exclude the effect of Section 36(c). It was not enough that the
contract included a clause which, if given its widest
335
Now, Section 51 of the Companies Act, 2006.
336
(2015) E.W.H.C., 1890 (Ch.)
299
interpretation, was inconsistent with treating the contract as

having been made with the person signing. This case highlights
the importance of checking that a party to a contract is in
existence before signature of the contract, and in particular the
potential liability that the agent may incur if it is not.
The position is also the same if the company in question is an

overseas company. The Overseas Companies (Execution of
Documents and Registration of Charges) Regulations, 2009
extend what is now Section 51 to a contract or deed made by or
on behalf of an overseas company when the company has not yet
been incorporated.
In Nigeria, the uncertainties surrounding the liability or otherwise

of the Promoters regarding pre-incorporation contracts was finally
laid to rest upon the promulgation of the Companies and Allied
Matters Decree337 of 1990. Section 72 of the Decree states as
follows with particular reference to Pre-incorporation contracts:
(1) Any contract or other transaction purporting to be entered

into by the company or by any person on behalf of the
company prior to its formation may be ratified by the
company after its formation and thereupon the company
shall become bound by and entitled to the benefit thereof
as if it has (sic) been in existence at the date of such
contract or other transaction and had been a party thereto.
(2) Prior to the ratification by the company, the person who
purported to act in the name or on behalf of the company
shall, in the absence of express agreement to the contrary,
be personally bound by the contract or other transaction
and entitled to the benefit thereof.
337
Now Act, Cap. C20, L.F.N. 2004.
300
This statutory innovation is consistent with commercial reality in

view of the fact that it has completely hurtled the difficulties in
legal theory disallowing a ratification of a contract made on its
behalf before a company‟s incorporation. Viewed closely
however, a careful reading of the two subsections will reveal that
Section 72 does not alter the Common Law position but rather
preserves as well as clarifies it. However, some jurists are of the
view that this provision of the law has rendered the Common Law
position irrelevant.
It is noteworthy to stress that ordinarily, ratification implies an

existing person for whom, or on whose behalf the contract might
have been made at the time the agreement was reached. Thus, the
strict Common Law position that there cannot be ratification of a
contract which could not have been binding on the ratifier due to
his lack of legal personality. To get around this prohibition
regarding ratification however, the Common Law permitted a
company to assume the rights and obligations of a pre-
incorporation contract by the doctrine of novation, which
presupposes the making of a new contract after incorporation on
the same terms as the pre-incorporation contract.338 The cases
however show that this has often been a difficult burden, as the
courts seem to have required very clear proof of a new
contract339, thus the legislative intervention in 1965.
In Dario v. Giovanni Sartori & Company Limited340, the Lagos State

High Court was confronted with the question as to whether a
company could ratify pre-incorporation Promoters‟ contracts or is
338
Howard v. Patent Ivory Manufacturing Company (1888) 38 Ch. 156;
Edokpolo & Company Ltd v. Sam –Edo Wire Industries Ltd, (Supra.)
339
Bagot Pneumatic Tyre Co. v. Clipper Pneumatic Trye Co. (1902) 1 Ch.
146.
340
(1960) L.D. 471.
301
bound therefrom after incorporation. The short point of the

decision was whether a contract entered into by a Promoter of a
company before its incorporation is enforceable. The summary of
the facts were that in December 1956, one G. Sartori approached
the Plaintiff for a Loan of money for the Defendant company. At
the time, the company unknown to the Plaintiff was not in
existence. He gave a cheque for 800 Pounds in the name of the
company to G. Sartori who ultimately cashed the cheque on the
9th of January, 1957.
In delivering its judgment, the court per Sowemimo, J stated the

position of the Law thus:
A Company is not bound by contracts purporting to be entered into

on its behalf by its Promoters or other persons before its
incorporation. The company cannot, after incorporation, ratify or
adopt any such contract because there is in such cases no agency
and the contract is that of the parties making it.
In so doing, he relied on Paragraph 824 Page 425 of Volume 6,

Halsbury‟s Laws of England, (3rd Edition). The court then
concluded that as at the time the cheque was cashed, the
Defendant company was not in existence and as such could not be
said to have taken the benefit of the contract. In the
circumstances, the Plaintiff‟s claim had to necessarily fail while
his remedy which he could enforce was against the Promoter
G.Sartori himself. This decision followed the principle in Kelner v.
Baxter341 where three Promoters purchased wine from Kelner as
agents of the company. The company was formed but went into
bankruptcy prior to payment for the wine. In the lawsuit for the
cost of its winery, Lord Earle held inter alia that:
If the company had been in existence, the defendant would have

agreed as agents, but since the company was not in existence, the
341
Supra.
302
documents in which the agreement was set out would be inoperative

unless it was a contract between the plaintiffs and the defendant. If
there is no existing principal, such a contract binds the person
professing to be agents.
Against the same background, the injustice and unwarranted

technicality of enabling a company to deny contractual liability
upon incorporation when the directing minds who promoted and
are clearly associated with the company are the same, and all
parties intended and understood that the contract was made on
behalf of the company to be formed were so great that the
statutory innovations could not have been more timely. The
theoretical basis of the power of ratification granted companies
under Section 72(1) is the agency rule which allows a principal to
ratify the unauthorized acts of his agent. In such instances, the
ratification relates back and is deemed equivalent to a prior
authority. The present provision of the CAMA has thus
eliminated the difficulty of applying the agency rule to a non-
existent corporate principal.
It is however worrisome that the Supreme Court had in the past

decided to apply the Companies and Allied Matters Act
retrospectively with particular reference to the issue of pre-
incorporation contracts. Thus, in what might be likened to a locus
classicus, the Supreme Court in 1997 held per Ogundare JSC et al
in SGF v. SGB (Nig.) Ltd342that:
“... in the application of Section 72(1) of the CAMA to the 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.”
Curiously, this position appears to have been abandoned as the

same Supreme Court more recently departed from this earlier
342
(1997) 2 N.W.L.R. (Pt.497).
303
decision and charted a new course in Goldmark Nigeria Ltd & Ors v.
Ibafon Company Ltd & Ors343 where the apex court in answering the
question as to whether or not a company can take benefit of or
ratify a pre-incorporation contract held per Adekeye, JSC thus:
A company cannot take benefit of a pre-incorporation contract,

neither can it ratify a pre-incorporation contract. Ratification under
Section 72 of the Companies and Allied Matters Decree 1990 came
into force in 1990, it is not applicable to this transaction. There is no
corresponding provision for ratification of pre-incorporation
contracts in the Land (Perpetual Succession) Act Cap. 98, 1958
Laws of the Federation of Nigeria which was the applicable law as
at June, 1976 when the cause of action arose. The applicable law on
the issue of ratification of pre-incorporation contract under the
circumstance is the law at the time the company was incorporated.
Given the present position of the Nigerian Law regarding pre-

incorporation contracts as stated in Section 72 of the CAMA,
what is important therefore is that the old Common Law position
is no longer valid and more importantly, the focus is now on the
intention or understanding that the company: (a) will be
incorporated; and (b) will be bound by the agreement thereafter.
This positive paradigm shift is based on the trite law that the goal
of company law is to encourage entrepreneurship and enterprise
efficiency, create flexibility, and simplicity in the formation and
maintenance of companies, and to provide for the creation, role,
and use of companies in a manner that enhances economic
welfare of the citizenry. Whether corporate rules governing the
status of pre-incorporation contracts in Nigeria serve the above
goals remain to be decided.344
343
(2012) L.P.E.L.R.-SC, 421/2001.
344
Obayemi, K.O. & Alaka, S.O., “Twenty-Five Years after Section 72of the
CAMA Amendments to Pre-Incorporation Contracts Law in Nigeria”, Journal
of Law, Policy, and Globalization, Vol. 31, 2014.
304
What is indisputable however is that the old rigid rule in Kelner v.

Baxter which governed English law and by extension most
Common Law countries following this rule to the effect that: no
pre-incorporation contract was binding on a company upon
incorporation, nor could the company adopt such contracts; that
for the company to be bound by pre-incorporation contracts, a
new contract had to be made between the newly incorporated
company and the other contracting party, is no longer consistent
with modern realities having been found to be both unsatisfactory
and replete with serious difficulties for promoters, companies,
and the public at large.
It was therefore the fact that Kelner v. Baxter and its progeny of
cases on this subject had become highly technical and
inconvenient leading to a desire that they be abrogated that
provided the initial impetus for most of these commonwealth
countries to commence statutory amendments. Thus, while South
Africa attempted statutory amendments in this regard as far back
as 1926345, Nigeria eventually effected its own statutory
amendment in 1990 by the introduction of Section 72 of the
CAMA.
While these legislative efforts are significant, it is equally

pertinent that the courts assist us relying on the maxim ut res magis
valeat quam pereat, a latin phrase that mandates courts to try to
construe a law in such a way as to make sense, rather than
voiding it, and that the law should be given effect rather than be
destroyed.
In Nigeria, the status of pre-incorporation contracts is stated in

Section 72(1) and (2) of the CAMA as shown in the said sections
345
Maleka, F.C., “Pre-Incorporation Contracts: The Reform of Section 35 of
the Companies Act, 2007”, South African Law Journal, (Vol.2) 365.
305
of the law earlier reproduced. A careful perusal of the said

Subsection (1) of the law will reveal the following salient facts:
1. It gives the new company the discretion to decide whether to

ratify and accept a pre-incorporation contract;
2. It also obliterates the distinction in Kelner v. Baxter and

Newbourne v. Sensolid Ltd346, as to how a promoter signs a pre-
incorporation contract, same being irrelevant;
3. It applies to all contracts and transactions executed prior to

formation of the company; and
4. The benefits and liabilities on the pre-incorporation contract

fall on the new company after ratification.
In addition, Subsection (2) of Section 72 also clearly shows that:
1. It seeks to protect the bona fide third party who was not aware
of the Promoters‟ lack of authority, by providing remedy for the
injured third party, who may recoup under the contract from the
Promoter(s) if, after incorporation, the company does not ratify
the contract;
2. The injured party can also recoup under the contract from the
Promoter if the company eventually does not come into existence;
and
3. It also requires the consent of the third party to any later post-
incorporation agreement or resolution by the new company, not to
ratify which also seeks to absolve the agent from liability.347
346
(1954) 1 Q.B. 45: Per Lord Goddard – “…then the contract which the
unformed company signed would also be not in existence, meaning that the
Promoter cannot also bring the suit.”
347
See Agomo, Supra.
306
The summary therefore is that by virtue of the present legal

position under Section 72 of the CAMA, a company upon
incorporation may ratify a pre-incorporation contract, and before
such ratification, a Promoter who had entered into such a contract
shall be personally bound except where an express agreement to
the contrary exists, in which case he would not be so bound.
Second, and conversely, the benefits accruing from such a
contract inures to the Promoter, unless the corporation decides to
ratify the contract. In line with this reasoning, Agomo348 in
interpreting Section 72(1) of the CAMA had this to say:
Sub-section(1) like Section 13(1) of Ghana‟s Companies Code 1963

has abolished the rule in Kelner v. Baxter. Ratification is now
possible unlike the position at Common Law. But ratification is not
automatic and it is not compulsory. It is entirely at the discretion of
the company. Upon ratification however, the company becomes
subject to the liabilities and is entitled to the benefits, from the
contract. This means that it can enforce its right by legal action and
vice versa.
It must be noted that prior to the advent of the CAMA, the 1968
Companies Decree did not specifically make any provisions
regarding pre-incorporation contracts, except in its Article 80 of
Table A Schedule 1, which contains provisions regarding
companies which adopted Table A thereto. The 1990 CAMA
however faced issues arising from pre-incorporation contracts
especially where the company is never incorporated and the third
party wishes to enforce the contract on which he has expended
time, energy, effort, and money against a corporation349, or the
company is incorporated but the directors do not wish to be
encumbered with the pre-incorporation contracts allegedly
348
Ibid.
349
Oglivie, H.M., Company Law – Contract – Liability of Persons Purporting
to Contract as Agent for Unformed Company: Phonogram v. Lane, (1983),
University of British Columbia Law Review, 1983, 321; See also, Stephen v.
Build Co. Nigeria Limited (1968) 1 All N.L.R., 183.
307
entered into on its behalf by the Promoters. Further, in this regard,

cases have been identified in which the company may even
resolve to accept liability on the pre-incorporation contract, but is
unable to perform due to lack of funds or being in liquidation
process.
Regarding the effectiveness of the rule in ut res magis valeat quam

pereat, it is not in doubt that the legislature in line with this maxim
expects that it is better for a thing to have effect than to be made
void. The interpreter of an enactment must therefore construe it in
such a way as to implement, rather than defeat the legislative
purpose, for as Dr. Lushington put it in The Beta350:
“...If very serious consequences to the beneficial and reasonable

operation of the Act necessarily follow from one construction, I
apprehend that unless the words imperatively require it, it is the duty
of the court to prefer such a construction that ut res magis valeat
quam pereat.”
According to Blackstone351, the rule requires inconsistencies

within an Act to be reconciled. In so doing, one part of the statute
must be so construed by another, that the whole may, if possible,
stand: ut res magis valeat quam pereat. It also means that, if the
obvious intention of the enactment gives rise to difficulties in
implementation, the court must do its best to find ways of
resolving these. An important application of the rule is that an Act
is taken to give the courts such jurisdiction and powers as are
necessary for its implementation, even though not expressly
conferred.352
350
(1865) 3 MOO PCC NS 23, 25.
351
Blackstone, W., Commentaries on the Laws of England (2nd edn.) Oxford,
Clarendon Press, 1765, 64.
352
Buckley v. Law Society (No.2) (1984) 1 W.L.R., 1101.
308
CHAPTER TWELVE
PARTNERSHIPS
Introduction
A partnership has been defined as a voluntary association of two

or more persons who jointly own or carryon a business with the
sole aim of making profit.353 A careful examination of the above
definition will reveal three essential elements that characterize a
partnership, to wit: it is a business; there must be a common
interest or proposed benefit; and, the partnership must be profit
oriented.
The implication is that the relationship is designed for profit

purposes. It is however not an incorporated company. As such,
the Companies and Allied Matters Act describes a partnership
arrangement as a “firm”, and indeed goes on to define it as:
“an incorporated body of two or more individuals, or one or more

individuals and one or more corporations, or two or more
corporations, who or which have entered into partnership with one
354
another with a view to carrying on business for profit.”
It is therefore a form of business organization in which two or

more individuals or organizations pool together their resources,
skills, etc. and share profits and losses in accordance with the
terms of the partnership agreement. In the absence of such a
formal agreement however, a partnership is presumed to exist
where the participants in an enterprise agree to share the risks and
353
Per Rhodes Vivour J.S.C. in Alade v. Alic (Nig) Ltd. (2010)19 N.W.L.R.
(Pt.126) 111 at 143.
354
Section 588(1) of CAMA, Cap. C20 Laws of the Federation of Nigeria,
2004.
309
rewards proportionately. It is however necessary in each situation

to state the nature of the business clearly since a partner is
deemed to be an agent of the firm and that of his partners only
when he acts for the purpose of the partnership business.355
In recognition of the fact that a partnership is not the same as an

incorporated company, it is therefore pertinent to note that it lacks
a separate legal status and most importantly, it does not confer
any limited liability on the partners. The implication is that each
partner is liable for all debts incurred by the business jointly and
severally with all the other partners to the extent of such debts
and in line with their terms or sharing formula as agreed in the
partnership agreement or Deed on the strength of which the
business was formed.
Just like any other business, the law requires that a partnership
business be registered with the Corporate Affairs Commission in
Nigeria. The procedure is similar to that for the registration of a
company and so starts with the filling of a name reservation form.
When this form is submitted, the Commission will conduct a
search to determine the availability of the proposed name. This
process used to take about two weeks, but the Commission
appears to have abridged the time making it possible presently to
conclude this exercise within a week.
As is customary in the incorporation procedure, where the name

is not available, the applicant will choose another name and
repeat the process until an available one is approved. Once this is
done, the paperwork will then continue. Part of this is that the
355
Sections 5 and 7 of the Partnership Act, 1890 (A Statute of General
Application which governs partnerships except in the old Oyo, Ogun, Ondo,
and Bendel states where the Partnership Law 1958 applied, and Lagos which
now has the Partnership Law P1, Laws of Lagos State of Nigeria, 2015).
310
person applying will necessarily provide the details of the

proposed partners which includes the passport photographs,
addresses, and phone numbers of the individuals or persons. The
rule is that a partnership business should have a minimum of two
and a maximum of twenty members. Once the commission is
satisfied that all these formalities have been complied with and
the necessary payments made, the applicant(s) will be issued with
a business name certificate.
In Nigeria, partnerships are regulated by the Partnership laws of

some states and principally the Companies and Allied Matters
Act356, which is the federal legislation that manages the
registration and supervision of companies in Nigeria. In addition
to the provisions of these statutes, the parties to a partnership
usually come up with partnership agreements or Deeds which
state the details of their terms of operation, provided and to the
extent that it is not inconsistent with the laws.
The following are the basic requirements that are mandatorily

attached to the form for the reservation of name and submitted to
the Corporate Affairs Commission for the purpose of registration
of a partnership:
 The proposed name for the business.
 The general nature of the business or proposed activities to be

carried out by the business.
 The full address of the principal place of business and every

other subsidiary place of business.
 Where the registration to be done is that of a firm, the present

forenames, surnames, nationality, age, sex, occupation, and
356
Cap.C.20, Laws of the Federation of Nigeria, 2004
311
usual residential address of each of the individuals who are the

intending partners, and the corporate name and registered office
of such corporation which is an intending partner as the case
may be.
 The proposed date of commencement of the business or

activities.
 A passport sized photograph of each of the intending partners.
 The certificate of professional qualification in cases where the

business is of a professional nature.
Regarding the restriction on the number of members referred to

above, guidance is provided by the Act. Specifically, Section
19(1) of the Companies and Allied matters Act (CAMA),
provides that:
“No company, association, or partnership consisting of more than

20 persons shall be formed for the purposes of carrying on any
business for profit or gain by the company, association, or
partnership, or by the individual members thereof, unless it is
registered as a company under this Act, or is formed in pursuance
of some other enactment in force in Nigeria”.
It is noteworthy however that this provision is subject to some

exceptions. Pursuant to this therefore Subsection (2) of Section
19 provides that:
Nothing in this section shall apply to –
(a) Any co-operative society registered under the provisions

of any enactment in force in Nigeria; or
(b) Any partnership for the purpose of carrying on practice;
312
(i) as legal practitioners, by persons each of whom is a legal

practitioner; or
(ii) as accountants by persons each of whom is entitled by law
to practice as an accountant.
Thus, except for lawyers and accountants, the membership of

every group that goes into a partnership shall not exceed 20 at
any point in time. Indeed, if it exceeds this maximum at any
given period, every member who participates in the business at
such time shall be liable to a fine.357
Advantages of a Partnership.
Partnerships are usually built on a foundation of mutual trust and

faith. This creates a number of advantages as well as fiduciary
duties in the course of which each partner acts as a trustee unto
the other(s). To this extent, businesses often engage in
partnerships as against the formality of incorporation for the
following reasons:
1) Minimal Formalities - The main advantage of a

partnership is the lack of strict formality that surrounds it. This is
evident in the procedure for setting up one. Thus, an agreement
to create a partnership can be created orally, in writing, or may
be inferred from the conduct of the parties in which case there
may be no need for any form of documentation.
2) Easy to Terminate - Another major advantage of a

partnership is the fact that just like the parties start a partnership
arrangement without undue resort to strict formalities, a
partnership may also cease at any time the parties to it so desire
357
Section 19 (3) CAMA.
313
without the necessity of formalities. This allows each partner the

freedom to leave the partnership at any time he or she desires.
This liberty to either commence or discontinue makes this form
of business relationship very attractive to most people
particularly professionals and so is the preferred form adopted by
lawyers and accountants for instance.
3) Confidentiality - The documentation relating to a

partnership enjoys a high degree of confidentiality on the
strength of which the parties can keep their affairs away from
unnecessary public scrutiny. This is a major advantage and so
makes a partnership stand out as against the situation regarding
an incorporated company wherein the law requires every
company to make certain documents available for public
scrutiny at the Corporate Affairs Commission. In a partnership
therefore, it is the partners that have the absolute discretion to
decide what type and volume of their business records that may
be accessed by strangers to the business.
4) Capital - Depending on the nature of the business, the

partners will have an opportunity to fund the enterprise by
raising the required startup capital among themselves. The
implication is that the more partners there are, the more money
they can put together and inject into the business. This usually
allows for better flexibility and greater potential for growth, and
by extension more profit potential for the business. The partners
thus have a chance to own a huge business that can generate
more revenue for them to share, above the level of business they
would naturally be engaged in if they relied on their individual
abilities.
5) Shared Responsibility - Partners usually, share the

responsibility of running the business. This offers the individual
314
partners the opportunity to make the most of their abilities in

their area of strength while having ready assistance in their areas
of weakness. Thus, rather than split the management and taking
an equal share of the business tasks before them, they can split
the workload according to their respective areas of expertise,
skills and strength. This in the long run makes for greater
efficiency and professionalism as there is a wider pool of
knowledge, skills, contacts, and network.
6) Attractive to intellectuals and experts - In a partnership,

the prospect of becoming a partner ultimately makes the business
more attractive to prospective employees as a result of which the
initial partners have greater chances of poaching the best of
brains in terms of both intellectual ability and practical expertise.
7) Cost effectiveness - A partnership can be more cost

effective to run as each partner specializes in particular aspects
of the venture thereby minimizing the need to pay external hands
to take up specialized areas. Thus, in some instances, a
partnership involving lawyers or accountants is usually made up
of individuals who specialize in different disciplines cutting
across all the major areas of focus. In some cases, a law firm
may even engage an accountant, an estate valuer, a surveyor, etc.
if it is into real estate practice for instance thereby obliterating
the need to constantly engage the services of such professionals
externally at high cost per transaction.
Duties of Partners
In addition to these advantages, partners also have the following

duties which they owe each other and the business itself:
315
1) Honesty and full disclosure – The Common Law has

imposed a duty of utmost good faith and fairness from one
partner to others. Indeed, the Partnership Act, 1890 sets out
specific principles358 one of which is that the partners must
divulge to one another all relevant information connected with
the business and their relationship.
2) Duty to avoid conflict of interest – Another duty imposed

by the Act is that partners must not only avoid conflict of
interest, but must also share any profit or benefit received
without the consent of other partners in connection with the
partnership or from carrying on a competing business.
3) Duty to avoid unauthorized or secret profits - Closely

related to the duty to avoid conflict of interest is the fact that in
the actual conduct of the affairs of the partnership, a partner is
not permitted to make any unauthorized or secret profit.359 Any
attempt to do this therefore will amount to a violation of the
fiduciary relationship that exists between and among the
partners.
4) Reasonable care and obedience to rules - Every partner

must use reasonable care in transacting the partnership‟s
business and is liable for any loss resulting from a failure to do
so. Similarly, partners must observe any limitations adopted by a
majority of the partners with regard to the ordinary details of the
partnership business. A partner who violates any such limitation,
such as a decision not to offer goods, services, or products on
credit will be liable for any loss caused to the others and the
business by his disobedience to the limitation.
358
Sections 28-30.
359
Section 32 of the Partnership Act,1890
316
Disadvantages of a Partnership
Despite the perceived advantages of a partnership, there are

some obvious disadvantages of a partnership business. The
following deserve special mention:
1) Lack of trust arising from financial indiscretion – In most

partnership businesses, issues usually arise where there is
evidence of financial indiscretion. The implication is that once it
is established that there is misappropriation of the company‟s
funds, the partners will naturally be pitched against each other in
a situation of lack of trust and mutual suspicion. This has the
tendency of further affecting the fortunes of the business
adversely except and until the source of the fraud or indiscretion
is determined and addressed.
2) Loss of goodwill upon the bankruptcy or criminal

conviction of a partner – Where a partner in a business is a
certified bankrupt or convicted for a criminal activity, the
goodwill of the partnership will naturally be jeopardized. This is
in view of the fact that the goodwill of every partnership
business rides on the integrity of the individual partners.
Consequently a partner may become a victim of a failed
partnership business due to the nefarious activity of his partners
for which he had no hand.
3) Laissez-faire attitude of some partner towards the business

– It has been noticed that due to the existence of multiple
partners in most partnership businesses, it is impossible for each
of such partners to be equally committed to the venture. The
result is that in most partnerships, some of the partners end up
being the drivers of the idea while others barely exhibit enough
commitment to justify their share of profits.
317
4) Likelihood of conflict of interest - one of the most obvious

disadvantages of a partnership business is the danger of conflict
and disagreements arising among the partners. Naturally, when
people of diverse backgrounds come together to own and run a
business, there will always be a divergence of opinions on the
acceptable modus of operation and administration of the tasks
involved. This usually leads to disputes some of which affect not
only the individuals but the success of the business itself. This
may however be reduced by the existence of a memorandum or
agreement stating the role of all the partners clearly.
5) Lack of continuity - The death of a partner usually has an

adverse effect on the business as well as the retirement,
resignation, or bankruptcy of any of the partners. This can mean
a sudden and unexpected end to an otherwise viable business.
This is unlike a registered company which requires greater
formalities which must be followed before it can be wound up.
6) Unlimited liability - Because a partnership is not the same

as an incorporated limited liability company, the partners do not
enjoy a separate legal personality from the business itself. The
implication is that partners are in law personally liable for any
debts or commitments incurred by the partnership business.
7) Strict formality when made by Deed - A partnership can

sometimes lose its advantage of informality if a partnership
agreement or deed is made by the parties at the inception. In
such instances, a breach of any of the terms of the agreement or
deed will give rise to a right of action on the strength of which
other parties can sue the party in default.
8) Uncertainty - A partnership that has no specified duration

can be dissolved at any time and this can create insecurity and
instability for the remaining partners. In fact, in some extreme
318
cases, resignation or withdrawal of a partner can lead to the

entire partnership coming to an end depending on the position of
the particular partner who initiates it. This happens often to the
disagreement of the other partners who may not be in a position
to buy over the shares of the out-going partner.
9) Risk of automatic agency - In a partnership business, each

partner is an agent of the partnership and is liable for all lawful
actions by other partners done in the course of the business. This
can expose a partner to a greater extent than he originally
bargained for to risks that were not contemplated and which are
beyond the natural expectation of the particular partner.
10) Effects of addition or exit of partners - In a partnership

business, the addition or exit of a partner has consequences
which may sometimes affect others adversely. Where for
instance a partner is brought in whom one or some of the
existing partners did not known to be of a dubious or
questionable character, the effect can be damaging to the
business. Sometimes also, the addition or removal of a partner
may lead to the need to audit or re-value the assets of the
business for the purpose of accommodating the adjustment
inherent in such process. This can be costly in some instances.
11) Likelihood of the personal liability of a partner affecting

the business or other partners jointly and severally - In some
instances, the partnership business may be affected by the
personal liability of a partner to the extent that the other partners
will be jointly and severely liable for such liability of a partner.
Where this occurs, the innocent partners will become victims of
their decision to get into the partnership arrangement with the
defaulting party.
319
12) Profits must be shared - Since a partnership is built around

a fiduciary relationship, all profits arising from the business must
be shared by all the partners. This is so irrespective of the
amount of time and energy put in by each member some of
whom may not be as committed as others to the business.
Types of Partnerships.
There are different types of partnerships. The most common are:
(1) General Partnership - A general partnership involves two

or more persons carrying on a business in circumstances where
they share equal rights and responsibilities regarding the
management of the business including profits, debts, and
liabilities. It is thus a partnership with only general partners. In
such situations, if one partner is sued, all the partners can be held
liable. For this reason, general partnerships appear to be the least
desirable form of this business model. The partners are thus
jointly liable for the debts or legal judgments against the
business.
(2) Limited Partnership - This typically refers to investors

who get into a partnership arrangement solely to make profit
without necessarily getting involved in the day-to-day activities
of the business. It is thus a kind of partnership arrangement
which allows each partner to restrict his or her personal liability
to the amount of his or her business investment. It is not every
partner that can benefit from this limitation since at least one of
the partners must accept general partnership status, thereby
exposing himself to full personal liability for the debts and
obligations of the business. A limited partnership therefore
includes both general and limited partners.
320
(3) Limited Liability Partnership - This form of partnership

offers some personal liability protection to the participants. In a
limited liability partnership, all partners have limited liability
from errors, omissions, negligence, incompetence, or
malpractice committed by other partners or their employees. Any
partners(s) involved in such wrongful or negligent acts remain
personally liable, but other partners are protected from liability
for those acts. As such, a limited liability partnership combines
the characteristics of partnerships and corporations. It is
presently the most common type of partnership nowadays and is
preferred by investors.
Kinds of Partners.
Some authors have attempted a classification of the kinds of

partners that exist in the course of partnership businesses. They
include:
(1) General or Active Partners -These are partners who invest

in the partnership and equally participate in the day-to-day
operations and are liable for debts and lawsuits of the
partnership. Such partners who take active interest in the conduct
and management of the partnership business are sometimes
referred to as Managing Partners.
(2) Dormant Partners - This refers to partners who invest in

the business but who do not participate in the day-to-day
operations of the partnership. Such a partner only contributes to
the capital of the firm, is bound by the activities of other
partners, and shares in the profits of the business and its losses.
They are sometimes referred to as sleeping partners. They are
321
generally not known to the clients, customers, or outsiders to the

business.
(3) Nominal Partners - A nominal partner is one who does not

have any real interest in the business but lends his name to the
firm for the purpose of documentation. In most instances, a
nominal partner makes no capital contribution to the business
and does not share in the profits of the partnership. Such a
partner exists only on paper and also does not usually have a
voice in the management of the business of the firm. He is
however liable to outsiders as an actual partner presumably
because his actual status is known only to the other partners. In
reality, he is admitted for the purpose of taking advantage of his
name, reputation, or credentials.
(4) Partner by Estoppel - If a person, by his writing words, or

conduct, holds out to another that he is a partner of a business, he
will be estopped from denying that he is a partner subsequently.
The person thus becomes liable to third parties to pay the debts
of the firm and in law is known as a partner by estoppel or a
holding out partner. This happens only where the other party had
knowledge of the representation and acted on it.
Dissolution of a Partnership.
Several factors may lead to the dissolution of a partnership. It

could be any of the following:
1) By Mutual Agreement of the Partners - The parties to a

partnership may state in their agreement or at any time
subsequently agree to bring the partnership to an end by consent
of all the partners. Once there is such a consensus among the
322
partners either at, or in the course of the existence of the

partnership agreement, the law allows the business to come to an
end. The situation may however require certain formalities
depending on the terns of the agreement such as the auditing of
the accounts of the business, etc. especially where there is a
formal agreement or Deed, the terms of which must be adhered
to in order to avoid unnecessary litigation.
2) By Unilateral Withdrawal of a Partner - If no partnership

agreement exists, or if there is no exclusion of such provision
within the agreement, the partnership can be dissolved at any
time by any of the partners giving notice to the others(s). This is
called a „partnership at will‟. In such a situation, the notice of
dissolution can have immediate effect and need not be in writing
unless the agreement evidencing the partnership is made by
Deed. This option to withdraw at any time by any of the partners
is perceived as a major attraction by many investors who insist
on flexibility of the arrangement with a view to avoiding strict
adherence to formalities.
3) By Operation of Law - A partnership agreement may also

come to an end by operation of law if any of the following
occurs, to wit: death, incapacity, breach of terms, insanity or
unsoundness of mind of any of the partners. This is especially so
in instances where the position of the affected partner is such
that the occurrence of any of these events will make it difficult if
not impossible for the business to continue. Where for instance
there are only two partners, the occurrences of any of the above
will automatically bring the partnership to an end. This is also
the case where there has been fraud by one of the partners. In
rare instances a partnership may be dissolved by order of court
either at the instance of an aggrieved partner, or upon the
application of the Corporate Affairs Commission.
323
Structure and Characteristics of a Partnership.
The following are the basic structure and characteristics of a

partnership:
1. Hierarchy and Authority in Management -Most partnership are

structured in a pyramidal form and seniority is determined either
by the ethics of the particular profession, in the case of
professionals, or by the volume of investment in purely business
partnerships, or both. Where no specific partnership agreement
exists however, the Partnership Act 1890 sets out that all partners
share the responsibility for the business and for the decisions
which affect the business. Each partner therefore has the right to
equally contribute to matters that affect the day-to-day running of
the business and decisions will be made on the basis of a simple
majority, with each partner entitled to one vote. Decisions that
change the nature of the business or are based on the introduction
of a new partner require unanimous consent.
It must be noted however that not all partners have the authority
to manage contracts on behalf of the partnership. Nevertheless,
every partner will have the ability to bind the entire firm if they
have actual or apparent authority. If a partner acts without
authority and binds the firm, he will be personally liable to the
other party to the particular contract. He must also indemnify his
other partners for any liability or loss arising therefrom.
2. Work Input - All partners are entitled to take part in the

administration and running of the business. However, there is no
obligation to do so especially where the agreement allows that
and if roles are not assigned to a particular partner, or he is
perhaps indisposed. There is no obligation on a partner to devote
all his time and attention to the business provided he carries out
assigned responsibilities. Wilful neglect of the business will
324
nevertheless attract the payment of compensation to other

partners or a variation in the sharing formula depending on the
agreement or understanding between the parties.
3. Profit and Losses - Ordinarily, partners set out their ratio for
sharing of both profits and losses arising in the course of the
business. This is the case where there is a formal agreement or
Deed stating their terms of engagement. It is common for such
ratio to depend on the financial input initially made by each
partner, volume of work, rank or position, and time each partner
puts into the business.
Where however there is no formal agreement by the parties, resort

is had to the Partnership Act as usual. The position of the law is
that in the absence of any agreement to the contrary, each partner
is entitled to share the profits of the business equally, regardless
of the amount contributed. The same applies to losses incurred in
the course of running the business.
4. Contribution and Indemnity - If a partner pays more than his

proportionate share of the debts or liabilities of a partnership, he
is entitled to a reimbursement from the other partners. Similarly,
if an employee of a partnership business negligently injures a
third party while acting within the scope of his employment, and
the injured third party collects damages from one of the partners,
the partner in question is entitled to a reimbursement from the
other partners in order to divide the loss equally. In the same vein,
a partner who advances money to the business or incurs travel
expenses in the course of his duty is entitled to a reimbursement
of such lawful expenses.
325
CHAPTER THIRTEEN
BANKING, NEGOTIABLE INSTRUMENTS, AND

SECURED CREDITS.
Introduction.
A bank is any company licensed to carry on financial institution
business as its principal business including all branches and
offices of that company. Historically banking was introduced into
Nigeria by the British. The initial phase of banking in Nigeria was
witnessed by expatriate banks, solely owned by foreigners; this
was followed by the establishment of banks by indigenous
businessmen; thereafter the combination of both foreign and
indigenous ownership of banks; and finally the era of trade
liberalization where both foreigners and indigenes have the same
freedom to establish banks either as foreigners alone or in
combination with local investors.
The first bank that was established in Nigeria was the African
Banking Corporation followed by the Bank of British West
African (BBWA). The Bank of Nigeria which was initially
known as Anglo-African Bank Ltd. was later acquired by the
BBWA. The Colonial Bank which later became Barclays Bank
(Dominion, Colonial, and Overseas) debuted and became a strong
competitor to BBWA. Other foreign banks also subsequently
established branches in Nigeria.
The first indigenous bank in Nigeria was the Industrial and

Commercial Bank followed by the Nigerian Mercantile Bank and
later the National Bank of Nigeria. It was after the establishment
of the African Continental Bank that other indigenous Banks
326
began to emerge. Notable among them was the Agbomagbe Bank

which later became WEMA Bank. As time went on, both
foreigners and Nigerians jointly established banks, but with the
commencement of the indigenization policy of the Nigerian
Enterprise Promotion Decree, Nigerians subsequently took over
those banks.
Prior to 2005, there were about eighty-nine banks in Nigeria.

Most of them incidentally were not viable owing to a weak capital
base which posed great danger both to the citizens who transacted
with them, and the economy itself. Consequently, the Central
Bank of Nigeria ordered an increased minimum capital base of
N25 Billion to ensure viability. Most of the banks necessarily had
to consolidate via mergers and acquisitions. At the end of the
consolidation exercise, only 25 banks emerged, while 14 banks
that could not merge or be acquired were deemed distressed and
accordingly liquidated.360
Section 43 of the Banks and Other Financial Institutions (BOFI)

Act361 defines a Bank as “Any person who carries on banking
business and includes a commercial bank, an acceptance house, a
discount house, financial institution and a merchant bank”.
Similarly, Section 2 of the Bill of Exchange (BOFE) Act362
defines a “banker” thus: “includes a body of persons whether
incorporated or not who carry on the business of banking”.
Equally instructive is Section 66 of the BOFI Act363 which
defines a commercial bank to mean “a bank in Nigeria whose
business includes the acceptance of deposits, withdrawals by
360
Goldface – Irokalibe,I.J., Law of Banking in Nigeria, Lagos: Malt house .
Press Limited, 2007.
361
Cap. B3 L.F.N., 2004 (as amended).
362
Cap B8 L.F.N., 2004(as amended).
363
Ibid.
327
cheques” and a merchant bank to mean “a bank whose business

includes receiving deposit accounts, provision of financial
consultancy, and advisory services relating to corporate and
investment matters, making or managing investments on behalf of
any person.”364
Section 66 of the BOFI Act, 2004 defines banking business as

“the business of receiving deposits on current accounts, savings
accounts, paying or collecting cheques drawn by or paid in by
customers; provision of finance or such other business as the
Governor may, by Order published in the federal Gazette,
designate as banking business”. In the course of banking
however, the words „Bank‟ or „Banker‟ are used interchangeably
to mean one and the same thing and refers to an incorporated and
licensed corporate body and not an individual who works in a
bank.
There is unfortunately no statutory definition of what a bank

customer is. The main requirement to become a bank‟s customer
nevertheless is having an account irrespective of what form of
account, whether savings, deposit, or current, provided the
account is in the name of the individual or organization. This
position was adopted by the court in the case of UBN PLC v.
365
Integrated Timber and Plywood Products Ltd. In addition, one
becomes a customer when he makes an offer to open an account
and the bank accepts by accepting a deposit for instance. Such
actions create a binding and enforceable contract.366
Banks operating in Nigeria are corporate bodies and so must first

be incorporated as a company under the CAMA by complying
364
Trade Bank Plc v. Bralux (Nig) Ltd (2000) 13 NWLR (pt. 685)
365
(2000) 12 NWLR (Pt.680), 99.
366
Ibid.
328
with the requirements in respect of registration of such a

company.367 In the same vein, Section 2(1) of the BOFI Act states
that “no person shall carry on any banking business in Nigeria
except if it is a company duly incorporated in Nigeria and holds a
valid banking license issued under the Act”. The procedure for
application for grant of license to undertake banking business is
contained under Section 3(1)(2) of the BOFI Act.
The Central Bank of Nigeria (CBN) is established as a body

corporate under Section 1 of the CBN Act.368 It is constituted by a
Board chaired by its Governor. The CBN Governor has unfettered
discretion as to whether to issue or not to issue a banking license.
This however is done with the prior approval of the Minister of
Finance.369
Types of Banks.
There are different types of banks that may be found in a country.

The most common classifications are: Commercial, Merchant,
Mortgage, and recently Islamic banks. All these are regulated and
supervised by the Central Bank of Nigeria. It is necessary to take
a closer look at the services provided by each of them. The
following list will serve as a guide though not exhaustive.
1. Commercial Banks: These provide the following services –

 Acceptance of call, demand, savings and time
deposits withdrawable by cheque or otherwise.
 Overdrafts and short to medium term loans.
 Foreign exchange facilities.
367
Sections 18 &35 of the CAMA.
368
Originally No. 24 of 1958; Now the CBN Act, 2007 (as amended).
369
Section 3(3)&(5) of the BOFI Act, 2004.
329
 Accepting and discounting of Bills of Exchange.

 Provision of financial or investment advise.
 Participating in inter-bank clearing services and
systems.
 Guarantees, bonds, or other forms of collateral, and
acceptance of / placement of third-party drafts and
promissory notes connected with operations in which
they take part.
2. Merchant Banks – This group of banks provide the following

services:
 Acceptance of corporate call and time deposits.
 Provision of foreign exchange facilities.
 Facilitation of trade through the granting of
acceptance facilities.
 Provision of corporate finance of advisory service
through: (a) share issues; (b) rights issues; (c)
mergers and acquisitions, and corporate
reconstruction; (d) private placement (excluding
underwriting arrangements).
 Issuing bonds, debt obligations, and certificates in
such loans as they may grant or any other
instrument traded in the domestic market or abroad
according to the Central Bank regulations.
 Investment portfolio management, investment
advisory services, and nominee services.
 Arranging finance, lending or participating in
syndicated loans and acting as grantors.
3. Mortgage Banks – Mortgage banks render the following

services:
 Receiving deposits of participation in mortgage
loans and in special accounts
 Granting of loans for acquisition, construction,
enlargement, repair, maintenance of urban / rural
330
estates and for substitution of mortgages taken out

for that purpose.
 Giving guarantees, bonds, or other form of
collateral connected with operations which they
may take part in.
 Obtaining foreign loans currency, acting as
intermediaries in loans extended in local and
foreign currency (with authorization from the
Central Bank in deserving circumstances).
There are three main regulations that guide the operation of banks
in Nigeria. They are: The Banks and other Financial Institutions
(BOFI) Act, the Bill of Exchange (BOFE) Act, and the Central
Bank of Nigeria (CBN) Act. While the BOFI Act regulates the
activities of all banks apart from the Central Bank of Nigeria, the
BOFE Act deals with the various Bills of Exchange and other
negotiable instruments which are used by banks in the conduct of
their business, especially cheques. The Central Bank acts as the
apex regulator of the banking sub-sector with functions and
powers stated under the CBN Act.
Nature of Banker- Customer Relationship.
The exact nature of the relationship that exists between a Banker

and its customer has been a subject of serious debate and in actual
fact has a long evolutionary history. The courts have had different
opportunities to pronounce on it and the consensus of opinion
seems to be settled now to the effect that the bank is a bailee or
debtor to the customer. The implication is that the bank, being a
depository of customer‟s money implies that such monies
deposited with the bank is a debt on the bank.
331
Despite this seemingly settled law that the banker-customer

relationship is generally considered a debtor – creditor or at the
least bailor - bailee relationship, there are other ancillary services
that banks render which create special relationships. These special
relationships are contractual in nature and include Agency and
Trusteeship in addition to the Bailment.
When a customer delivers an item to the bank for safe custody

and the bank accepts the item, a contract of bailment is created.
This is in view of the fact that apart from cash, banks equally
keep valuable items for their customers in the course of their
relationship as banker - customer. In such situations, the bank is
duty bound to deal with the property in accordance with the
instruction of the customer. In all such instances, the customer is
then a bailor while the banker is a bailee with particular reference
to the item in question.
Similarly, an agency - principal relationship is created between

the bank and the customer when the bank in the course of its
operations collects a cheque from a third party for and on behalf
of its customers. In the same vein, when a customer receives a
third party cheque and pays it into his account, the customer is by
so doing constituting his banker as his agent for the purpose of
collecting its value from the issuer and his own bankers. The
situation is the same even if the same cheque was issued by
another customer of the same bank.
Finally, it must be noted that with particular reference to

trusteeship, bankers sometimes act as executors or trustees in the
execution of the Will of a deceased customer. In some of such
instances, bankers have been known to have administered trust
property and this naturally establishes a trusteeship relationship
between the banker and a customer or his estate.
332
Negotiable instruments
A negotiable instrument is a document guaranteeing the payment

of a specific amount of money, either on demand, or at a set time,
with the payer named on the document. In the banking industry, a
negotiable instrument usually refers to cheques, draft, bills of
exchange, and some types of promissory notes. They are
documents used in commercial transaction and monetary dealings
to transfer a debt or cash from one person to another.
Under the Uniform Commercial Code370(UCC), there are two

classifications of negotiable instruments: promises to pay and
orders to pay. Within these two classifications, the UCC specifies
four types of instrument: Drafts and Cheques, which are orders to
pay and promissory notes and Certificates of Deposit, which are
promises to pay. While Promissory notes and Certificates of
deposit have two parties, Drafts and cheque have three parties.
PROMISSORY NOTE - A Promissory note is an unconditional

undertaking which is signed by the maker to pay a certain sum of
money to the order of a certain person or to the bearer of the
instrument. The person who makes the promissory note, promises
to pay and is called the „maker‟, while the person to whom the
payment is to be made is called the „payee‟. The following are the
essential features of a promissory note.
1. The promise must be in writing.
2. The promise must be signed by the maker or payer, called the

maker.
370
A comprehensive Code addressing most aspects of Commercial Law.
333
3. The promise must unconditional.
4. The amount to be paid must be definite in items of money.
5. It must be payable on demand or at a fixed or determinable

future date.
6. It must be payable to a definite person as payee.
7. A promissory note must bear a stamp at the rate prescribed by

the law of a country.
8. There are usually two parties to a promissory note, the maker

and the payee.
BILL OF EXCHANGE - A bill of exchange is an instrument in

writing which contains an unconditional order signed by the
maker, directing a certain person to pay a certain sum of money to
the bearer of the instrument or to his order. From the foregoing, a
bill of exchange has some basic and essential features which
include the following:
1. The amount payable must be certain.
2. The payment must be made in money.
3. The bill payable may be either on demand or after a specific

period.
4. The bill of exchange may be payable either to the bearer or to

the order of the payee.
334
The following are the differences between a Promissory Note and

a Bill of Exchange:
1. The liability of the maker of a Promissory Note is primary and

absolute, while the liability of the drawer of a Bill of Exchange is
secondary and conditional. Thus, the maker will only be liable if
the drawee, after accepting the bill fails to pay the money due
upon it, provided that notice of dishonour is given to the drawer
within the prescribed time if any.
2. A Promissory Note is presented for payment without any

previous acceptance by the maker. A Bill of Exchange on the
other hand is required to be accepted by either the payee himself
or by someone else on his behalf before it can be presented
subsequently for payment.
3. A Promissory Note is a promise to pay while a Bill of

Exchange is an order to pay.
4. The maker of a Promissory Note stands in an immediate

relationship with the payee and so is primarily liable to the payee
or holder. Conversely the maker of a Bill of Exchange, or drawer
thereof stands in an immediate relationship with the acceptor as
well as the payee.
5. While a Promissory Note cannot be made payable to the maker

himself, in the case of a Bill of Exchange, the drawer and the
payee may be the same person, such as where one uses his own
cheque book to withdraw from his account in a bank.
6. There are usually two parties to a Promissory Note, the maker

and the payee, while in the case of a Bill of Exchange, there are
usually three parties, viz: the drawer, the drawee, and the payee
and in some instances, one of the parties may occupy two out of
the three positions.
335
7. While a Promissory Note can never be conditional, a Bill of

Exchange can be accepted conditionally with the consent of the
holder.
In all instances, the person who signs or endorses a negotiable

instrument does so for the purpose of obtaining payment by
giving up their right to the instrument itself. At International law,
according to the Uniform Commercial Code (UCC), there are five
types of endorsement:
1. Blank Endorsement - This is the most common and least

restrictive type of endorsement. It features the signature of the
drawer exactly how it appears on the front of the instrument.
2. Special Endorsement – A special endorsement allows the payee

to assign the instrument to another person by writing on the back
“pay to the order of”, specifying the person to whom it is to be
transferred, after which he signs the document. This is also
known as a “third party cheque”. Third party cheques are rarely
honoured nowadays unless the original payee is present.
3. Conditional Endorsement - A conditional endorsement

specifies certain conditions that must be met before the cheque
can be negotiated. Such instruments can only be honoured upon
the fulfilment of the condition attached thereto.
4. Restrictive Endorsement - Restrictive endorsement limits the

negotiability of the cheque. A common restrictive endorsement is
the “crossed cheque” otherwise marked “for deposit only”, which
specifies that the cheque may only be deposited into the account
of the payee. This prevents another person from endorsing or
further negotiating the cheque in the case of theft.
5. Qualified Endorsement - Qualified endorsement limits the

responsibility of the drawer / holder of the instrument. Thus, the
336
drawer may write “without recourse” before signing the cheque,

signifying that he has no responsibility if the cheque bounces for
any reason.
Secured Credit Transactions.
Why take security? There are both statutory and business reasons
why in appropriate cases, a lending banker must ensure that it
takes adequate security for loans to its customers. Thus, Section
18(1)(b) of the Banks and other Financial Institutions (BOFI)
Act371 provided that:
“No manager or any other officer of a bank shall grant any loan or
credit facility to any person, unless it is authorized in accordance
with the rules and regulations of the bank; and where adequate
security is required by such rules and regulations, such security
shall, prior to the grant, be obtained for the advance, loan, or credit
and shall be deposited with the bank”.
Closely related to this is Section 19(1) of the Failed Banks

(Recovery of Debts) and Financial Malpractice in Banks Decree
(No.18) of 1994372 which provides on the subject of security that:
“Any director, manager, officer, or employee of a bank who
a. Knowingly, recklessly, negligently, willfully, or

otherwise grants, approves the grant, or is otherwise
connected with the grant or approval of a loan, an
advance, a guarantee, or any other credit facility or
financial accommodation to any person:
I. Without adequate security or collateral, contrary to
the accepted practice or the bank‟s regulations;
II. With no security or collateral where such security or
collateral is normally required in accordance with
the banks regulations; or
371
Cap B3, L.F.N., 2004(as amended).
372
Now Act, Cap. F2, L.F.N., 2004.
337
III. With a defective security or collateral;

IV. Without perfecting, through his negligence or
otherwise, a security or collateral obtained… is
guilty of an offence under this Decree.”
A more important reason is that as a matter of sound lending

practice, adequate security must be obtained from customers
whose financial standing and track record do not justify lending
on a „clean‟ basis.
Functions of Security.
In many ways security is like insurance to which a lender or other

provider of credit can have recourse in the event of a failure by a
borrower to fulfil his obligations. In taking security, the lender
acquires rights over and above the basic contractual right to sue
the customer if repayment is not made according to the terms of
the contract. Thus, should the borrower become insolvent, the
lender avoids the full consequences of his bankruptcy - in the case
of an individual or a partnership, or liquidation - in the case of a
limited liability company.
Where suitable security has been taken, the whole debt can be
recovered by the realization of the security with any surplus being
paid over to augment the amount available to other creditors. If
the advance was unsecured, the lender would only be able to
claim the amount owed, in competition with the other unsecured
creditors. In such circumstances, an unsecured creditor might,
perhaps receive only a fraction of the debt after the total assets
available for distribution have been divided by the total liabilities.
338
Attributes of good Security.
A good Security usually has some basic attributes. The following

are the most common:
a. The value of the security should be reasonably stable and easily

ascertainable with sufficient margin for depreciation.
b. The Security should be readily realizable in all conditions, with

a simple title, which preferable is transferable without undue cost
or difficulties.
c. The lender should be able to obtain a safe, unquestionable title,

without undue stress or cost.
d. The lender should incur no liability to third parties arising out

of its title to the security. An example of this is the use of partly
paid shares as security and the liability that this creates for a
lender in the event that there is a call.
Types of Security
A lender may obtain security for a facility he offers to a borrower

by any of the following methods:
A) Mortgage
A mortgage is a conveyance of a legal or equitable interest in

property by a borrower or third party known as the mortgagor, as
a security for the payment of a debt. As implied by the above
definition, a mortgage may be either legal or equitable. The types
of property or assets that can be mortgaged include land, stocks,
shares, and insurance policies.
Legal Mortgage of Land–A legal mortgage of land is created by

the borrower in this case known as the mortgagor, charging the
339
land to the lender, also called the mortgagee, subject to the

proviso that upon repayment or discharge of the obligation, the
charge will be released. The right which the mortgagor has to
have the property released back to him upon repayment of his
indebtedness in this situation is called the mortgagor‟s equity of
redemption. Notwithstanding the charge however, the mortgagor
still retains both possession and ownership of the land.
Equitable Mortgage of land - An equitable mortgage of land is

created by the mere deposit of the title deed to the property with
the intention of creating an equitable mortgage, with or without a
memorandum of deposit as evidence of the intention of the
parties.
Why a legal mortgage is preferable - A legal mortgage of land

gives the lender immediate rights over the land itself whereas an
equitable mortgage creates only personal rights against the
mortgagor and the lender cannot exercise rights over the land
without an order of court. An equitable mortgage of land or other
property can therefore be defeated where a subsequent purchaser
or morgagee of the land or other property has acquired his interest
or title without notice of the prior equitable mortgage. In view of
this situation, a legal mortgagee of land or any other property that
can be subject of a mortgage is therefore in a stronger position
than an equitable mortgagee.
The Land Use Decree, 1978 - The Land Use Decree373 came into
force on March 29th 1978. The legislation radically altered the
method of land holding in the country by vesting all land
comprised in the territory of each state, except land vested in the
Federal Government or any of its agencies, solely in the Governor
of the state who holds it in trust for the people and administers it
373
Now Act, Cap. L5 L.F.N., 2004.
340
for the use and common benefit of all Nigerians. The state
Governors are by this law now responsible for the allocation and
transfer of title to all lands situate in the urban areas374 while
similar powers with respect to the non-urban areas are conferred
on Local Government Councils within the area of jurisdiction in
which the land is situated.375
In view of this position of the law, the Law Use Act therefore has
a fundamental effect on the way lenders take security over land.
Of particular significance to lenders who provide credit on the
security of land is Section 22 of the Act which provides that:
“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 howsoever without the consent of
the Governor first had and obtained”.
There is however a proviso to Section 22, which states that:
“The consent of the Governor shall not be required to the

creation of a legal mortgage over a statutory right of
occupancy in favour of a person in whose favour an
equitable mortgage over the right of occupancy has already been
created with the consent of the Governor”.
From the foregoing, the following can be deduced from the Act,
with regard to its operation:
1. From the date of the commencement of the Land Use Act, what
is owned, and can therefore be mortgaged in Nigeria is in fact not
land, but a right of occupancy, either arising by operation of the
Act, or granted by the Governor in accordance with the provisions
of the Act.
374
Section 1,& 2(1)(a), Land Use Act.
375
Section 2(1)(b), Land Use Act.
341
2. The mortgaging of the right of occupancy requires the consent

of the Governor to the mortgage in the absence of which the
transaction is null and void in the case of a legal mortgage.
3. A Certificate of Occupancy is not the only recognized

document of title under the Act. A Conveyance or Deed of lease
executed, stamped, and registered prior to the commencement of
the Act, or an assignment of such conveyances effected after the
commencement of the Act, with the consent of the Governor, are
valid and acceptable evidence of title for mortgage purposes.
4. The Act makes no provision for consent where an existing

equitable or legal mortgage is being up-stamped, to secure further
lending on the same property. The practice is to up-stamp such
mortgage to cover the new lending without consent. The
justification for this practice is that consent has already been
obtained for the original mortgage.
Investigation of Title and Valuation
A mortgage of land should only be taken after there has been a

satisfactory investigation of the title of the borrower and a
valuation of the land and any developments thereon. Thus, at the
inception, the borrower must tender his title documents which
could be either a Certificate of Occupancy issued by the Governor
of the state where the land is situated under powers conferred by
the Land Use Act; or any other authority such as the Chairman of
the Local Government Council for a Customary Right of
Occupancy in case of land situated outside the municipal area; a
Deed of lease or Assignment executed, stamped, and registered
after the date of commencement of the Act376; or depending on
where the land is situated, a Deed of Conveyance, Lease, or
376
29th March, 1978.
342
Assignment properly executed, stamped, and registered before the

same commencement date.
It should be noted that possession of any of these documents is

only prima facie evidence of title, and so using these document as
a basis, an investigation of title must be conducted to ensure that
the prospective borrower is in fact the owner of the property he
seeks to charge to the lender as security; that if he is truly the
owner, he has not already charged it in favour of others; and that
no other encumbrances exist with respect to the property. The
essence of the valuation is to ensure that in the event of the
borrower‟s default, the lender will be adequately protected.
Registration
A mortgage of land by a company, whether legal or equitable

must be registered with the Corporate Affairs Commission
(“CAC”) or the mortgage will be void against the liquidator and
any creditor of the company. Pursuant to this, Section 197(1) of
the Companies and Allied matters Act377 provides that such
registration must be effected within 90 days after the creation of
the mortgage. Mortgages of land whether by individuals or
companies must, in addition, be registered at the Lands Registry
of the state in which the land is situated.
Legal and Equitable Mortgage of Shares.
A legal mortgage of shares is created where the shares are

transferred to and registered in the name of the lender or his
377
Cap C20, Laws of the Federation of Nigeria, 2004.
343
nominees, subject to the proviso that the shares will be transferred

back to the borrower upon repayment of the loan. An equitable
mortgage of shares is created by a deposit of the share certificate
relating thereto, with or without delivery of a blank shares
transfer form to the lender. Often, lenders require the borrower to
execute a blank transfer form, a memorandum of deposit, as well
as a dividend mandate form.
Where a blank share transfer form is executed by a customer, the

intention is that the lender shall be at liberty later to fill up the
blank and perfect his security by getting himself, his nominee, or
some other transferee named by him registered. The ability of the
lender to fill up the blanks will however depend on whether the
Articles of Association of the company in respect of which the
shares are issued requires the transfer to be under seal.
If it is not required by the Articles that the transfer be under seal,

the authority to fill up the blank form is implied from the nature
of the transaction. This intention can be made clear if, in the
memorandum of deposit or by a separate instrument, the borrower
appoints the lender as his attorney for all purpose connected with
the shares.
The Articles of Association of many companies provide however

that the “transfer of any shares… shall be in writing in the usual
common form”. Where a provision of this sort exists in the
Articles, a Deed is required and this means that the lender cannot
fill in the blanks on the share transfer form unless, also given
authority to do so by Deed. This is because the law does not allow
an agent, which is what the lender is in relation to the borrower,
to execute a deed, unless he is appointed by deed.
It is impracticable to find out in every case of a mortgage of

shares whether the Articles require a transfer to be by Deed. It is
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therefore advisable as a matter of practice to ensure that the

memorandum of deposit containing an appropriate power of
attorney clause is executed by the borrower under seal.
There are a number of reason why it is not advisable therefore to

opt for an equitable mortgage of shares. Thus, the lender is
usually advised to bear in mind the fact that technically, shares
cannot be pledged. The implication is that a lender with whom
share certificates are deposited without more only has an
equitable mortgage which is riddled with several disadvantages.
The following are the most common of them:
1. Except and until the shares are registered in the name of the
lender or his nominee, all communications concerning bonus
issues, right issues, take-over bids, and dividends will be sent to
the holder or to the order of the registered holder. The lender will
also find it practically impossible to enforce the charge against
additional shares arising as a result of bonus issues even if the
loan has outgrown the initial value of shares used as security
owing to interest components.
2. A dishonest customer may obtain a duplicate share certificate

and either sell, transfer, or vest good title in a bona fide third
party that acquires the shares without notice of the equitable
charge.
3. Being an equitable interest, unless the lender obtains legal title

to the shares, his interest can be defeated by any prior equitable
interest.
In the light of the above, it is in the interest of the lender to have

the shares registered in his name or that of his nominee. This will
345
ensure that all documents concerning bonus issues, rights issues,

take-over bids, and dividends are sent to him or his nominee,
which will also receive the actual dividends. In the past, this was
a time consuming process that could take several months
especially where the shares of a publicly quoted company are
involved. However, with the introduction of the Central Securities
Clearing System (CSCS) and the advent of internet transactions,
the entire process can now be concluded in a matter of days.
It is noteworthy that wherever possible, the shares of a private

company should not be accepted as security for a credit facility.
This is so in view of the fact that, unlike those of a public
company quoted on the Stock Exchange, the shares of a private
company are difficult to sell. Apart from the commercial
constraints that are attendant to it, the Articles of Association of
most private companies contain restrictions on transfers of their
shares. Thus, relying on such restriction clauses, the Board of
Directors of some private companies deliberately make it
extremely difficult for a lender to realize the value of such shares.
Equally important is the fact that the Banks and other Financial
Institution Act as well as the Companies and Allied Matters Act
prohibit a lending bank from granting loans on the security of its
own shares. Thus, a Fist Bank share certificate cannot be used as
collateral to secure a loan from the same First Bank378
Legal and Equitable Mortgage of Life Assurance Policies.
A Life Assurance Policy is a contract whereby the insurer, in

consideration of a certain premium which may be payable in one
378
Section 160 of the CAMA, 2004.
346
amount or by annual installments, undertakes to pay to the

beneficiary of the policy a sum or annuity upon the death of the
life assured. A mortgage of a Life Assurance Policy may be legal
or equitable. A legal mortgage is taken by an assignment under
seal of the mortgagor‟s rights to the policy monies. Written notice
of such assignment must be given to the insuring company.
An equitable mortgage is taken by the policy being deposited

with the lender usually supported by a memorandum of deposit
which sets out the purpose of the deposit. Such memorandum
must state clearly that the policy is deposited as a security, and for
safe keeping, the terms of the mortgage, and the rights of the bank
as mortgagee. A legal mortgage is however a better security, as it
enables the lender to sue in its own name on the policy without
the cooperation of the insured.
The following must be taken into consideration by a lender,

lending against the security of a Life Assurance Policy:
 The standing of the insurance company that issued the
policy.
 The type of policy.
 The age of policy, amount of premium, and whether the
said premium is paid up to date.
 The value of the policy.
 That the age of the assured has been admitted.
 That the insurance policy has acquired a surrender value
(usually after payment of a specified number of
premiums).
 That an insurable interest exits.
 That the policyholder is permitted by the policy to assign
his interest therein.
347
A lender having assured himself of the foregoing should ensure

that the beneficiary clause of the policy is amended to read that
the sum payable will be paid “to the assured, his administrators,
executors and assigns”. Thereafter, if a legal mortgage of the life
assurance policy is being created, a Deed of Assignment will be
executed and should be witnessed by an official of the lender.
As soon as the Deed of Assignment is executed, written notice of

the Assignment should be served on the insurance company at its
principal office. The giving of notice is very important because
the policy holder may surrender or deal with the policy and the
lender cannot sue in its own name, until notice of the lender‟s
interest is received by the insurance company.
The date on which the insurance company receives a notice of

assignment regulates the priority of all claims to the policy. To
evidence this, the insurance company must acknowledge receipt
of the notice on the duplicate form and return it to the lender.
Giving of notice binds the insurance company such that if it pays
to another claimant, it will be held responsible. The notice also
preserves the lender‟s priority as against subsequent assignees.
However, upon repayment of the loan, the policy is returned to
the borrower whereupon the policy is re-assigned to him.
B) Lien
A lien is the right of a person in possession of the securities or
goods of another to retain them until the owner discharges his
debt or other obligation to the possessor. It differs from a
mortgage or pledge in that it arises by operation of law, rather
than by the deliberate act of the parties. Mortgages and pledges
for instance are the result of express agreements between
348
borrowers and lenders. However, the holder of a lien has no right

to dispose of goods over which he has a lien without a court
order.
The banker‟s lien is a special type of lien that confers on the

banks the right to retain possession of the customer‟s assets in its
possession until the balance outstanding on a customer‟s account
has been repaid. With regard to negotiable instruments, a banker
exercising a right of lien is not only entitled to retain such
instruments, but is also empowered to realize the indebtedness. In
this circumstance, a banker‟s lien is said to confer rights above
that of an ordinary lien.
Neither a general lien nor a banker‟s lien requires registration.

The right which bankers have to combine accounts is often
described as a bankers‟ lien but they are not in fact the same
though both of these rights of the banker are derived from
custom. A banker has an implied right to combine the accounts of
its customer held with the banker to offset the customer‟s
indebtedness to the banker. In the absence of an agreement to the
contrary, this right is fairly limited. It will not apply for instance
where the accounts are not held in the same right, such as where
one is a loan or trust account; where there is an express agreement
to keep accounts separate; or where the balance is held in a
deposit account until the account matures.
It must however be noted that the above limitations do not apply

where accounts are being combined as a result of the customer‟s
insolvency. Thus, where a customer is insolvent, even an express
agreement to keep the accounts separate will be superseded by
such insolvency. Thus, letters of set-off which are now generally
included as part of standard account opening documents usually
349
state in express contractual terms that the banker has a right to

combine accounts.
C) Letter of Hypothecation
A letter of hypothecation is a form of security used where it is
impracticable to give possession of goods or documents of title
which forms the security for a loan to the lender. It gives the
lender the right, in preference to other creditors to have the
hypothecated goods sold in order to satisfy the liability secured.
Hypothecation therefore is a legal term that refers to the granting
of a hypothec to a lender by the borrower. In practice, the
borrower pledges an asset as collateral for a loan, while retaining
both ownership and possession thereof as well as enjoying the
benefits there from.
It therefore differs from a mortgage or a pledge because the

lender does not have either possession or title over the goods
hypothecated. However, where a company grants a letter of
hypothecation, it must be registered as a charge at the Corporate
Affairs Commission (CAC). A letter of hypothecation granted by
an individual, to be enforceable, is registrable as a Bill of Sale.
D) Guarantees
A guarantee is a written promise by one person, called the
“guarantor” or “surety” to repay a debt if another person who
should make payment, called the “principal debtor” fails, refuses,
or neglects to pay. The liability of a guarantor is both a dependent
and secondary one. Thus, he is not liable if, for any reason, the
contract between the principal debtor and the creditor is invalid,
and his promise can only be enforced against him if the principal
350
debtor defaults. It follows from the above definition of a

guarantee that a person cannot guarantee his own debt or that of
his firm. This point is often overlooked and so is worth
emphasizing. A person may however, guarantee an incorporated
company of which he is a shareholder or director since in law, the
company has a separate legal personality.
Similar to a guarantee and often confused with it is an indemnity.

An indemnity is an undertaking by one person to be directly
responsible for the debt or obligation of another. The distinction
between a guarantee and an indemnity is however important. A
person giving an indemnity assumes a primary and independent
liability, and the principal debtor need not have defaulted before
the person giving the indemnity is called upon. Again, the
indemnity, unlike a guarantee, is not affected by any invalidity of
title regarding the contract between the lender and the person in
respect of whom the indemnity is being given.
Most guarantees prepared and signed in modern business

transactions to secure the liabilities of borrowers are in fact
indemnities rather than actual guarantees as they almost
invariably contain a clause to the effect that the obligation of the
guarantor shall be that of a primary rather than a secondary
obligor. The dividing line is however very thin and so it is normal
to use the two interchangeably. Guarantees are simple to take and
no registration is required. However, unless a cash deposit or
other security is used to support them, they are of uncertain value
as collateral, since the guarantor‟s financial position can change
rapidly.
Before accepting a guarantee as security therefore, it is essential

to ascertain the financial position of the proposed guarantor. An
351
opinion as to the suitability of the guarantor for the amount of the

proposed guarantee should be sought from his banker. Even
where he is found to be suitable, and the guarantee is accepted, it
is imperative that further enquires about the guarantor‟s financial
stability should be made at regular intervals. It is also necessary
to explain the nature of the contract of guarantee to the guarantor.
Whilst no pressure should be exerted on the guarantor, it is not

part of the duty of the lender to volunteer a full disclosure of the
debtor‟s dealings. The lender must however not conceal from the
guarantor any fact materially affecting the transaction between
the lender and the customer, though care should be taken to keep
the customer‟s affairs confidential. The safest course when
obtaining a guarantee is to arrange a joint meeting between the
guarantor, the customer, and an official of the lender. At the
meeting, the guarantor may then in the customer‟s presence, ask
for any information required on the customer‟s affairs.
While there has been some uncertainty as to whether the death of

a Guarantor who is an individual will bring to an end his or her
obligations under the guarantee for monies already advanced or
indeed for further advances made to the borrower thereafter, what
is clear however is that the estate of the deceased will not be
liable for any further advances made after giving formal notice to
the lender of the guarantor‟s death.
A guarantee under hand made by an individual or a company

should be dated at the time of its execution and stamped. An
official of the lender should witness the guarantee. If it is not
possible for the signature of the guarantor to be witnessed by an
official of the lender, arrangements should be made for the
352
document to be witnessed by the guarantor‟s bankers, whose

signatories should then be verified by the lender.
E) Domiciliation of Contract Proceeds.

In some situations, a borrower may require the lender to provide
funds to enable the customer execute a contract it has entered into
with third parties. In such cases, an assignment of monies due to
the borrower under the contract being financed by the loan may
be accepted as security for the loan. This is usually effected by
means of a „Domiciliation of Payments Agreement‟.
The lender, the borrower, and the third party obliged to make
payment under the contract with the borrower will then execute
the Domiciliation of Payments Agreement. The agreement
charges monies due to the borrower from the third party and the
third party undertakes to make such payments directly to the
lender as they become due. However, a domiciliation of payments
agreement has the following limitations as a security:
 Where the borrower is a builder or contractor, the value of

the domiciliation agreement will depend on the ability or
willingness of the borrower to execute the work
satisfactorily, and is subject to the terms of the contract
and the rights of set-off enjoyed by the person for whom
the contract is being performed.
 If the borrower uses the advances for purposes other than
work on the contract, no obligation to make payment to
the borrower will arise and the lender will be left with a
worthless security.
 If the agreement is by a company registered under the
Companies and Allied Matters Act, it must be registered
353
at the Corporate Affairs Commission within 90 days after

its creation.
F) Perfection of Security.
The process of perfecting securities depends on the precise type
of security involved. Generally however, perfection involves
three main steps, to wit:
i. Consent - Obtaining any consent required by law or by the
documents of title.
ii. Stamping – A document which requires stamping, but which
does not bear the appropriate stamp duty is inadmissible in
evidence, though it is not void. Stamping must be done within the
prescribed time limit.
iii. Registration – Where necessary, a security must be registered
either at the Lands Registry, or at the Corporate Affairs
Commission.
G) Discharge of Security.
When the advance plus interest component has been fully repaid,
the security will be discharged. A security is not discharged by
simply returning the documents of title to the customer and
cancelling the security documents executed by him. This is
because doing so alone would still leave subsisting, the entries
concerning the security in the Lands Registry or the Corporate
Affairs Commission. In order to be legally effective therefore, a
proper deed of release must be executed and filed with the
Corporate Affairs Commission or the Lands Registry. Thereupon,
the title document may then be returned to the customer together
with the deed or instrument of release.
354
REFERENCES
Achike, O., Commercial Law in Nigeria, Enugu: Fourth

Dimension Publishers, 1985.
Achike ,O., „Limits to the Right to Retake Possession of Goods
under Hire-purchase Agreements in Nigeria‟ Nigerian
Law Journal, (Vol.13, No.1) 1987.
Agomo, C.K., “The Status of Pre-Incorporation Contracts”, in
Akanki, E.O. (ed.) Essays on Company Law, Lagos,
University of Lagos Press, 1992.
Ahunwan, B.U., “Conceptualizing Company Laws: A comparison
of the Nigerian and Canadian Shareholders‟ Remedies”,
an Unpublished Thesis submitted to the Faculty of
Graduate Studies and Research, University of Alberta,
Edmonton, Alberta, in partial fulfillment of the
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BUSINESS LAW IN NIGERIA: CONTEMPORARY ISSUES AND CONCEPTS

Book · January 2017

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Nwosu, Uchechukwu Wilson Esq. (Ph.D)

First Published, 2017

© Nwosu, Uchechukwu Wilson Esq. (Ph.D)

All rights reserved. No part of this publication may be

The Law of Contract

Nigerian Company Law

The Memorandum of Association

The Articles of Association

Promoters and Pre-Incorporation Contracts

Banking, Negotiable Instruments, and Secured Credits

The book Business Law in Nigeria: Contemporary Issues and

The word „Business‟ is defined in Black‟s Law Dictionary (6th edition)

Thus, while Commercial Law is more restrictive, and basically deals

This phenomenal text was created to provide citizens with a high

This piece is a necessary handbook for those who are in search of

Hon. Justice B.A. Njemanze (Rtd.)

Primarily, its purpose is to help you to be your own lawyer, while

Nwosu, Uchechukwu Wilson Esq. (Ph.D)

I suddenly came to understand that because of the way in which the

Abba v. S.P.D.N.L.(2013) All FWLR (Pt. 708) Pg. 812

Bagot Pneumatic Tyre Co. v. Clipper Pneumatic Trye Co.

Bentworth Finance (Nigeria) Ltd v. De Bank Transport Ltd

1 All E.R117....................................................................49, 108

Lagos Chamber of Commerce (Inc) v. Registrar of Companies

Osemobor v. Niger Biscuits Co. Ltd. and Nassar & Sons

Stephen v. Build Co. Nigeria Limited (1968) 1 All N.L.R., 183.......307

Taylor & Martin, Inc., v. Hiland Dairy, Inc.,

Advertisement (Hire-Purchase) Act of 1957,

English Companies (Consolidation) Act, 1908................................219

Federation of Nigeria, 2004............................................178, 289

United Nations Guidelines for Consumer Protection, 1985...........177

Office of Fair Trading (OFT) Annual Report, 2013.......................173

AGM - Annual General Meeting.

IOCs - International Oil Companies.

Law is a system of rules that a particular group, community, or

According to Kelson, law is a coercive technique of social

Various kinds of law exist across the globe. For administrative

The following are some of the major classifications of law

Public law and Private law: Whereas public law relates to

there is no element of criminality in the alleged violations. This

Common law and Statute law: Historically, the Common Law

The above is however not the only classification used when

Torts law – This is the law relating to violations of civil rights in

Family law – This branch of law is concerned with marriage,

Commercial and Consumer Protection law– While

Taxation law – The law of taxation relates to the assessment and

Constitutional law – This is the body of laws which define the

Labour law – This branch of law which mediates in the

Environmental law – This branch of law is concerned with the

Equal Opportunity law – This is the branch of law which deals

Administrative law – This branch of law governs the activities

Law of Equity and Trusts – While Equity may be defined as a

Company law – Company law is the branch of law that deals

Jurisprudence – This refers to the study and theory of law with

Banking and Insurance law – Banking law covers the various

Law of Evidence – This is also known as the rules of evidence

International law – This refers to the set of rules generally

Law of Intellectual Property – This area of law regulates

Legal system – This area of law refers to the set of laws of a

Law of Arbitration – Arbitration, otherwise known as Mediation