Continental Chemists Ltd V Dr C.A Ifeakandu (1967)
LawGlobal-Hub Lead Judgment Report
The above company sued the doctor for breach of contract, and has appealed from [the dismissal of its suit: (Warri No. 3/1963 decided on 28 August, 1963).
When the doctor was still a student of medicine, in November, 1956 he and the company made a contract in writing exh.2 -whereby the company undertook to give him money to complete his studies in England, his part of the bargain being that on his return to Nigeria he would serve and practise under the company continuously for five years on a certain salary scale. He finished his course in England and came back and qualified in Nigeria as a medical practitioner; he took up employment at the companys Delta Clinic at Sapele in April, 1960; the parties fell out in February and March, 1962; the company asked him to close down the clinic at the end of March; he continued running it as his own private hospital and refused to work for the company; they wrote to him in August to attend a meeting for reorganization of the clinic, and again in November to report for duty at Warri, where they were setting up a clinic, but he did not go; so they sued him in January, 1963.
The doctor made two defences-one, that in February and March the company renounced the contract, but on that issue there is no finding; the other, that the contract was ultra vires the company and void, which Ekeruche, J. accepted having regard to the objects in the companys memorandum of association.
The memorandum states as follows:
‘Objects of the Company:
(a) To import and export Drugs, Medicines, Perfumes, Cosmetics, Galenicals and Chemicals into and out of Nigeria.
(b) To buy and sell Drugs, Medicines, Perfumes, Cosmetics and Chemicals in Nigeria and elsewhere.
(c) To manufacture for sale Drugs, Medicines, Perfumes, Cosmetics and Chemicals.
(d) To compound, prepare, mix, and dispense Drugs, Medicines, Perfumes and Chemicals.
(e) To enter into any business which the directors think will increase the profits of the Company.
(f) In addition to the objects, the Company shall have powers-. To take shares in another Company or business.
1. To take shares in another Company shall have powers-
2. To borrow money and to issue bills of exchange.
3. To enter into profits sharing agreement with other Companies or business.
4.To acquire similar businesses.
5. To sell or otherwise dispose of any part of the property of the company.
The Company can do all such businesses and things as may be incidental and conducive to the attainment of the above objects and powers or any of them.’
The learned judge states in his judgement that reading the Objects Clause and the contract of November, 1956 he is unable to say that the making of that contract is, without more, ultra vires the company. He observes that the contract does not define the character of service the defendant was to render: it only says he is to serve and practise under the company. The learned judge takes the view that the service and practice as a doctor must be in one of the businesses which is within the purposes for which the company was formed in accordance with the Objects Clause. He makes a finding that the company was running a hospital business, and in his view that was outside the Objects Clause. The company was relying on Para. (e) ‘To enter into any business which the directors think will increase the profits of the Company’, and on the final ancillary paragraph: the learned judge takes the view that both are limited by the purpose for which the company was formed as ascertained from the other objects, which he thinks are to be found in para. (a) to (d). For his mode of reading the Objects Clause he relies on the German Date Coffee Co. (1882) 20 Ch.D. 169; Engl. and Emp. Digest, vol. 9, p.83, Pt. 3, Art. 324; and Re Crown Bank(1890) 44 Ch.D. 634. He concludes:
‘The plaintiffs cannot hold the defendant in breach of a contract to serve in a business which they themselves have no powers to carryon and which cannot be said to he contemplated by Exh. 2 when read with the objects of the plaintiffs company. Their claim must be dismissed for aforesaid reason.’
As stated, the company has appealed.
Mr. Obi Okoyes arguments may be summarised under two heads-
l)that the learned trial judge erred in construing the duty ‘to serve and to practise under the employers’ by reference to the employment he was given at the Delta Clinic; (2) that the learned judge erred in his view that the contract was ultra vires the company.
Under the first head, the argument is that the company could have employed the doctor for the purposes of sections 32, 37 and 44 of the Pharmacy Act, or to have a medical superintendent to supervise staff, and there was no need to conclude that the company must run a hospital before it could employ a doctor. There is no need for a doctor to supervise pharmacists compounding medicines on a prescription; and the only section that has any bearing is section 44, which relates to the supply of medicines to hospitals and the like institutions, and requires a doctors or head nurses order. The words used in Clause 5 (a) of the contract are ‘to serve and to practise under the employers’, viz., the Continental Chemists Ltd., now the plaintiff company, and the fair meaning of those words, in reference to a person whom the company was educating to become a medical practitioner, is to practise as a doctor in the companys employment as its servant on a salary as provided in the Clause. In point of fact he was employed to examine patients at the out-patients department and to look after patients staying at the clinic during the two years of his service with the company; and the manner in which he was employed is a valid guide in understanding what the parties had intended when they made their contract.
The other argument is that the contract was intra vires the company, and in this case it turns on the construction of the objects set forth in the memorandum of association.
After a company is incorporated, the memorandum becomes the charter of its activities and at the same time defines its field of operation. Apart from statutory powers, anything done outside the stated objects is ultra vires the company; it is invalid and cannot be ratified by the members: Ashbury Railway Carriage-and Iron Co. v. Riche (1875) L.R. 7 H.L. 653, in which Lord Cairns said (at 667) that the rule served the dual purpose of protecting both investors and creditors. But the rule is applied liberally so that whatever is fairly incidental to the objects stated in the memorandum (unless expressly prohibited) is regarded as intra vires: Attorney-General v. Great Eastern Railway Co. (1880) 5 App. Cas. 473.
The next important case is In re German Date Coffee Co. (1882) 20 Ch.D, 169, in which (at p.188) Lindley LJ said as follows:-
‘In construing this memorandum of association, or any other memorandum of association in which there are general words, care must be taken to construe those general words so as not to make them a trap for unwary people. General words construed literally may mean anything; but they must be taken in connection with what are shown by the context to be the dominant or main objects. It will not do under general words to turn a company for manufacturing one thing into a company for importing something else, however general the words are. Taking that as the governing principle, it appears to me plain beyond all reasonable dispute that the real object of this company, which, by the by is called the German Date Coffee Company, Limited, was to manufacture a substitute for coffee in Germany under a patent, valid according to German law. It is what the company was formed [or, and all the rest is subordinate to that. The words are general, but that is the thing for which the people subscribe their money.’
That is commonly known as the ejudsem generis and ‘main objects’ rule of construction. It was applied by North J. in In re Crown Bank (1890) 44 Ch.D. 634; in particular we note that in regard to the requirement of the statute that the memorandum must state the objects of the company (cf. our Companies Act, s.5( 1 )(h)), the learned judge said strongly (at p, 644) that-
‘If the memorandum were to state, as the objects of the company, that it was to carryon
any business whatever which the company might think would be profitable to the shareholders. in my opinion that would not be a statement of the objects of the company as required by the Act of Parliament.’
That puts out of court para. (e) Of the memorandum on which the appellant company relies; it states this as an object-‘(e) to enter into any business which the directors think
will increase the profits of the Company’; it is indefinite and useless. Nor is the companys case helped by the final paragraph, that–
‘The Company can do all such businesses and things as may be incidental and conducive to the attainment of the above objects and powers or any of them.’
If ‘the above objects and powers’ do not include what is questioned, there is no basis for using the ancillary powers of the final paragraph. Palmers Company Law (20th ed.), referred to by Mr. Obi-Okoye for the appellant company, gives examples (at pp.8-86) of implied powers and illustrations of acts regarded as intra or ultra vires; they do not help the company.
The learned counsel referred, from the footnotes in Palmer, to (1) Peruvian Railways Co. v. Thames and Mersey Marine Insurance Co. (1867) vol. IT of L.R. Chancery Appeals 1866–7, p. 617; (2) Evans v. Brunner. Mond and Co. Ltd.  1 Ch. 359; and (3) Cotman v, Brougham  A.C. 514. Text-books are useful, but it is always better to read the cases themselves so as to appreciate their relevan
Other Citation: (1966) LCN/1358(SC)