Trans Bridge Company Limited V. Survey International Limited (1986)
LawGlobal-Hub Lead Judgment Report
This appeal touches on an important aspect of Company Law and though it is not new, the issues involved seldom arise in our courts.
The issues are in regard to enforceability vel non of pre-incorporation contracts and circumstances that could amount to what the Appellant chose to refer to as “equitable estoppel” and which the Respondents term “promisory estoppel” and “estoppel by conduct.”
Let me, however give the background to the case. The evidence is mostly documentary. Ibrahim Maina Damcida, a Company Director, and who later became the Chairman of Trans Bridge Company Ltd, the Appellants, entered into an arrangement with Survey International Ltd. (the Respondents in this case) for the sale of a landed property situate at 222/231 Apapa by the Respondents to the Appellants.
But it is not as simple as all that, as the documents would show presently. The Appellant Company was incorporated on 17th September 1976 but meanwhile the transaction in question had taken place before the incorporation.On 29th May 1976 Ibrahim Maina Damcida, hereinafter referred to simply as Damcida, had written a letter to the respondents, conveying to them the terms of the oral agreement they had had about the sale of the property. The letter of 29th May was not in evidence, but by 31st May, the Respondents replied, in a letter to Damcida, but addressed as the “Chairman” of Trans Bridge Co. Ltd., which was still unincorporated (Ex.P1) as follows –
“We are in receipt of your letter of the 29th May, 1976 on the above subject to confirm our acceptance to sell the property at the terms agreed between ourselves during the various meetings held some time ago.
We do agree to grant you the time required in order to allow you to finalise with your financiers all the transactions.
After the expiration of this time, stated by you as the first week in July, we will consider ourselves free to negotiate the sale with any other parties which might be interested in this property.
With best regards.
SURVEY INTERNATIONAL LIMITED
It is evident from EX.P1 that Damcida gave the end of the first week in July as the time limit within which to complete the terms of the agreement, as contained in Ex. P4 as follows –
Alhaji Ibrahim M. Damcida,
34, Oyekan Road,
RE: PROPERTY – 222/231, APAPA ROAD
We are in receipt of your letter of 26th May, 1976 and we would confirm to you that in principle we are prepared to sell said property at the following conditions:
(a) The area presently occupied by Motor Parts Industry is to be excluded from the deal as we want to retain ownership of the same. This portion of land is “L” shaped North-east oriented as per enclosed drawing with the following measurements 550.3′ x 515.7′ x 126.9′ approximately, covering therefore an area of 2.73 acres out of 6.23 acres approximately which is the entire area of said property. The area which actually would be left for your use is therefore 3.50 acres approximately as per drawings.
(b) The remaining area of the property actually partly covered by the Workshop and Offices of Structural Steel Works will have to be at our use for eight/nine months in order to allow Structural Steel Works to complete the erection of their new Workshop at Agege and to shift Machinery and Stock of raw materials in their new premises.
Kindly keep us informed of your’s and your partner’s decision on this issue.
SURVEY INTERNATIONAL LIMITED”
Meanwhile, by 30th June 1976, a week before the expiration of the time limit, a third party – The Nigerian Bank for Commerce and Industry, hereinafter referred to simply as the Bank, entered into the transaction. In a letter (Ex.12) to the Respondent, the Managing Director of the Bank said-
“We are informed by Trans Bridge Company Limited which company has lodged an application with us for financial assistance towards the implementation of an investment proposal, that it is under considerable pressure from you to exercise its action to acquire your property situated along Apapa Road, Lagos, which forms a part of the underlying assets of the proposal with us, on or before 7th July, 1976.
The business proposal received from the company involving inter alia, our participation in the Share Capital and the provision of a substantial Term Loan towards the implementation of the investment proposal is actively undergoing our appraisal exercise prior to the presentation to our Board of Directors for consideration and approval. It is, however, unlikely that that appraisal exercises will be completed before the expiration of the correct deadline, 7th July, 1976, agreed between you and Trans Bridge Company Limited.
Considering that our appraisal of the company’s regulations reached advanced stages it will be appreciated if you will exercise reasonable patience over the disposal to any other party of the above-mentioned property which we consider vital to the viability of the project until the conclusion of our current exercises. We assure you that necessary steps are being taken to expedite the completion of the appraisal exercise.
By July 6, a day before the expiration of the time limit, the Managing Director of the Appellant (be it noted it is still unincorporated), wrote to the Respondents (Ex. P3) as follows-
“TRANS BRIDGE COMPANY LIMITED
Tel. No. 45824 Office
Telegrams: 34, Oyekan Road,
Your Ref: …….
Messrs, Survey International Ltd.,
222/231 Apapa Road,
The letter addressed to you by the Nigerian Bank for Commerce and Industry on the 30th June 1976, was a clear confirmation of the Bank’s commitment to finance the project as well as participate in it as a Shareholder. At the meeting held in your office on Saturday 3rd July, 1976, however, you left us with the impression that despite the Bank’s letter you would still wish us to confirm our commitment to buying your property along Apapa Road, Lagos, which forms an integral part of the project in question.
By this letter we wish to confirm that we still firmly stand by our commitment to buy that property on the terms already agreed upon by our two parties, As you were informed last week, it is more than likely that in a few week’s time the Board of Directors of the Bank will meet and formally approve the partnership arrangement and the financing scheme for the project. Needless to repeat, we are confident that the outcome will be favourable.
Many thanks for the understanding.
MOHAMAMMED SAID FAWAZ”
As I earlier said, the Appellant/Company was incorporated on 17th September 1976. The arrangement was however not completed before the incorporation. Nor, was it at an end, for on the 3rd October, 1977, the respondents wrote to the Bank to the effect that the Board of Directors of the Bank were not in position to finalise the agreement in principle on May 1976. The letter reads –
Re: Property 223, Apapa Road, Lagos
As already explained to Alhaji Damcida in the meeting of 25th September, 1977 we would inform you that our Board of Directors is not in the position to finalize what they agreed in principle on May, 1976 but to the following reasons:-
(i) It was our intention to sell a portion of the above mentioned land in order to finance with the proceed of the sale the new establishment in Agege.
(ii) Our negotiations could not be finalised in time and in December last year we had to face financial hardship in order to keep our Agege project within completion scheduled time and we were therefore compelled to obtain fresh finance from our bankers against the mortgage of above property.
(iii) As at now, due to the rampant cost of the building we have also extended our borrowings to the extent of 3.5 million.
(iv) You would also appreciate that we might have sold the property subject to re-negotiation of selling price in order to enable us to repay back our bankers.
(v) Also we would point out that the current value of said property is far above the original amount offered by Messrs Transbridge.
We regret we are not in the position to satisfy your requirements and we remain.
SURVEYS INTERNATIONAL LIMITED
It is obvious that the Respondents were no longer willing to sell the property on the terms formerly agreed. A letter dated 11th October, 1977 from the Appellant is illuminating, and though rather long, would be best reproduced herein to appreciate the whole factual relationship between the parties before applying the principle of law to the situation.
Sale of Property Covered By Title No. 10855
You will recall the series of meetings we held with you and your officials in the course of which we discussed and agreed on the sale to Messrs TRANS-BRIDGE COMPANY LTD. of the above property located at No. 222/231 Apapa Road, Lagos. The area covered by your title was put at 6.230 acres, which title was registered in the Lagos Land Registry as Title No. MO.10855 on Lagos Sheet 542/896/14 and 342/896/10, Plan 23580 Parcel No. 19.
- Following that agreement we addressed a letter dated 29th May, 1976, to you confirming our acceptance of your offer to sell the said property to us on the terms agreed by both sides at the discussions. To refresh your memory, the terms so agreed were as follows-
(i) sale of the entire 6.230 acres of land including all the structures thereon;
(ii) the total price for the property as described in (i) above was N1.5 million;
(iii) the sale was to be subject to Messrs TRANS BRIDGE COMPANY LIMITED inheriting the lease already executed between you and your subsidiary company (Messrs. MOTOR PARTS INDUSTRIES LIMITED) covering an area 1.5 acres. The said lease was for a period of 25 years at an annual rent of N8,000.00 (subsequently, at a meeting held at No.2 Probyn Road, Ikoyi, it was agreed between our two companies that the said rent of N8,000.00 be raised to N10,000.00 and
(iv) that since your company’s new premises or workshop at Agege would not be ready immediately, Messrs. TRANS BRIDGE COMPANY LIMITED would permit your company to remain in occupation of No. 222/231 Apapa Road, until February, 1977. It was indicated in that letter that our acceptance of your offer was to be subject to the concurrence of our remaining partners and financiers, Messrs Nigeria Bank for Commerce and Industries; and that barring unforseen circumstances, we should be able to complete the negotiations with the said partners (the Nigerian Bank for Commerce and Industries) to enable us pay to you, in local Currency, the full value ofthe property by the first week of July, 1976.
- In your reply to the letter (your reference No. is L/668/TV of 31st May, 1976) you confirmed your offer on the terms set out in paragraph 2 above and, in addition, agreed to grant us the required time to enable us finalise with our financiers “all the transactions”. You however, indicated that after the expiration of the time required by us, i.e. first week of July 1976, you would consider yourselves free to negotiate the sale with other parties which might be interested in the said property.
- When it became clear that, in view of the protracted nature of the negotiations between us and the Nigerian Bank for Commerce and Industries, we would not be able to meet the deadline date i.e. first week of July, 1976, the Bank addressed a letter to you dated 30th June, 1976, confirming that we had approached them for part-financing of the purchase of the said Property as part of our investment proposal. They further confirmed their interest in the proposal and informed you that, in the light of their mode of operation, they would be unlikely to complete action on our proposal to enable us meet the deadline of July 1976 agreed between us. They, therefore, urged you, specifically, to exercise reasonable patience over the disposal of the land to any other party since they (the Bank) were not only interested as Shareholders in our company but also considered the purchase of the said Property vital to the viability of the entire project under consideration by them.
- On Saturday, 3rd July, 1976, we held a meeting with you at which we discussed the letter addressed to you by the Nigerian Bank for Commerce and Industries dated 30th June, 1976. You did not then raise any objection to the Bank’s request to you for further extensions of time to enable us conclude the negotiations with them. On the contrary, you indicated that you would be prepared to await the outcome of the negotiation provided we would confirm our commitment to buy the said property on the terms already agreed. In the circumstances we provided you with the required confirmation in our letter dated 6th July, 1976. We went further; we joined the Bank in asking you for the extension of time to enable us complete the purchase of the said land.
- Soon after our negotiations with the Bank were completed in May, 1977, we sought and had a meeting with you at which we informed you of our readiness to conclude the purchase of the land on the agreed terms. At that meeting, you confirmed that you were still prepared to sell the said piece of land to us subject to the following additional conditions:-
(a) a new lease arrangement must be made to enable your Company utilize another 1.5 acres of the remaining open space; and
(b) the remainder, including the workshop, must be left for you to use for another eight months, i.e. until February 1978.
Our reply to you then was that we would communicate those additional terms to the Nigerian Bank for Commerce and Industries. We subsequently addressed a letter to you dated 26th May, 1977, recalling the meeting with you the previous week and requesting you to confirm that our record of the meeting was correct. On 17th June, 1977, in your letter No. S11/108/IF/AG of 17th June, 1977, you confirmed that you were still prepared to sell the said property on the basis of the previous terms of sale and the two additional ones put forward by you at our meeting referred to above.
- It is significant that whilst throughout this period you have continually assured us, orally and in writing, of your determination to sell to us the said property on the agreed terms, culminating with your letter No. SIL/108/IF/AG dated 17th June, 1977, unknown to us, you had addressed a letter to the Nigerian Bank for Commerce and Industries (No. SIL/064/7 dated 8th July, 1976) emphasising that although you considered 7th July, 1976 as the deadline for conclusion of the sale, you were prepared to extend the period only to 15th August, 1976, after which you would consider yourself free to sell to other interested parties. Yet as late as 12th September, 1977, in a reaction to a letter addressed to you by the Bank for Commerce and Industries (the original of which you claimed not to have received) expressing their concern at the additional terms of sale of the said property and requesting for your comments, you reaffirmed your preparedness to sell the entire 6.230 acres of land to us at the “original” terms stated in your letter of June 17th, 1977.
- Given this background, therefore, you must appreciate why we reacted with indignation and utter disbelieve to your new proposal to sell the property to us on completely new terms when these were spelt out by you at a meeting held in your office at 6.00 p.m. on Sunday, 25th September, 1977. For instance, for the first time ever, you had sought to introduce inflation in Nigeria and its effects on the cost of your new Agege Workshop as one reason why you decided that we must negotiate a new price for the property. Another reason you put forward was your “excessive” indebtedness to your bankers for which you had pledged the property. It was made clear to you at the meeting that your new proposal, including the reasons adduced by you as necessitating the change in your position, were unacceptable to us. It was pointed out to you that at no time during the negotiations covering the entire period (May 1976- September 1977) was any of those points made a condition of the sale or an aspect which could influence the price of the property. All along you had led us (the Bank and ourselves) by your words and deeds to believe that you still stood by the terms of your offer to sell us this property. It is this belief that has led both the Bank and ourselves to continue with the negotiations for finance to enable us pay you the originally agreed price of N1.5 million. It is this belief that has led both the bank and us to maintain the close contact we have maintained throughout the period. Considering the time and efforts the Bank and we have expended on this project, we are firmly of the opinion that there can be no justification for you to change your position at this late hour.
- In the circumstance we now write to confirm to you our total rejection of your new terms. We also hereby confirm to you our continued acceptance of the original terms of your offer as set out in paragraph 2 above.
- In the alternative, and considering the friendly relation that exists between us, we will be prepared to consider the modifications to those terms referred by you in your letter to the Bank dated 12th September, 1977 (the modifications were spelt out in ” your letter to us dated 17th June, 1977). In this regard, naturally, we will insist that the original price of N1.5 million be renegotiated to take account of the reduced size of the land, etc.
- Please be informed that should you fail to inform us of your acceptance of either of the two alternative proposals in paragraphs 9 and 10 above, on or before 20th October, 1977, we will be left with no alternative other than to take steps and protect our legal rights under the contract.
- We regret the length of this letter. But as you will doubtless understand this has been necessitated by our desire to record every development in its proper and correct historical sequence.
We look forward to hearing from you very soon.
IBRAHIM M. DAMCIDA
The Appellant rejected the new terms (again it should be emphasized that by this time the Appellant/Company had been incorporated).
There was no reaction from the Respondents until the Appellants instructed their Solicitors who wrote the Respondents. The reaction of the Respondents to this letter, from the Appellants’ Solicitors, is contained in Ex. P8 directed to the Solicitors to the Appellants. It reads –
“Re: Sale of Premises at 223 Apapa Road, Lagos i.e. Title No. 10855 Re: Trans Bridge Company Limited
Your letter dated the 22nd day of October, 1977 in respect of the above subject matter has been referred to us with specific instructions. We would only at this juncture refer you to the last paragraph of our clients’ letter referred to in your above mentioned letter and to state that due to your clients’ inability to carry out their obligations under the said agreement for sale after the first week in July, 1976, the offer for sale thereon became lapsed.
If your clients told you the true position of the facts relating to the negotiation and if you went through the correspondence particularly your clients’ letter dated the 29th May, 1976 and our clients’ reply dated the 31st May, 1976 you would, without doubt, conclude that our clients had done what is lawfully within their power to do in the Circumstances.
May we go further to inform you that our clients are in no way liable to any specific performance or to pay the said substantial damages for breach of the said agreement as contained in paragraph 3 of our letter.
We do hope that you would advise your clients that they have no claim whatsoever with our clients because our clients had done what they were legally expected to do.
for A. Ola Yesufu & Co.”
The Respondents’ position is clear from EX.8. They claim that the arrangement between them and Damcida lapsed and so there was no contractual relationship between the two. The question of a breach of contract by the Respondents or liability to the Appellants after their incorporation would therefore not arise.
Appellants sued and claimed (as amended)
“4. Under and by virtue of series of negotiations through correspondence and meetings held between the plaintiff and the Defendant and in which the Nigerian Bank for Commerce and Industry was actively involved the Defendant agreed to sell the aforesaid premises to the plaintiff for mutually agreed terms at the purchaser price of N1.5 million and accepted by the plaintiff.
- The Defendant was aware of the magnitude of motor transport industry which the plaintiff had arranged to establish on the said premises involving over N5,000,000.00 and that the Nigerian Bank for Commerce and Industry was to participate through substantial investment of N2,500,000.00. This letter of participation by the Nigerian Bank for Commerce and Industry dated 4th May, 1977 will be founded upon.
- The said series of correspondence exchanged between parties concerned are dates 31st May, 1976, 30th June, 1976, 6th July, 1976, 8th July, 1976, 23rd July 1977, 12th September 1977, 3rd October 1977, 11th October 1977, letter dated 17th June, 1977, letter 12th and 19th October, 1977 and these letters will be founded upon.
- Subsequent to the conclusion of the agreement to sell the said premises to the plaintiff, the Defendant made inconclusive attempt to re-open the terms of the concluded agreement as evidenced by their letter dated 3rd October, 1977 which new terms were rejected by the plaintiff.
- As per Mr. Giusepee Cava’s letter dated 2nd October, 1977, the Defendant purported to cancel the concluded original agreement of May, 1976.
- On the face of the concluded original agreement for the sale of the said premises the plaintiff has entered into substantial financial and contractual obligations.
- The Plaintiff on the basis of the concluded agreement for the sale of the said premises by the Defendant abandoned all other avenues and since the purported unilateral retraction by the Defendant the plaintiff in spite of intensive efforts has not succeeded in obtaining any other suitable alternative sites for their industry.
- The plaintiff has been reliably informed that the Defendant is negotiating to dispose of the said premises or part thereof to some other companies e.g. Union Trading Company.
- By reason of the refusal of the Defendant to agree to assign the said premises in furtherance of the concluded agreement the plaintiff has suffered considerable loss both financially and in the business reputation.”
While the Respondents’ defence was one of reliance on the various documents, which I have already set out in this judgment, the learned trial Judge, Omololu-Thomas J. (as he then was) found for the Appellant. He made some fundamental pronouncements which I must refer to in this judgment for the purpose of bringing to light my own conception of the law.
Omololu-Thomas J. held that from the correspondence, the Respondents were aware, or must have been aware, that the Appellants were in the process of formation, and the Respondents treated the Appellants as a duly incorporated company. The learned trial Judge relied on (among others) on Ex. P5, Ex.P14, EX.P15. I have already reproduced on Ex.5. EX.P14 is as follows-
“Sale of Property Covered By Title No. 10855
I am authorised by my co-promoters of the above-named transport company in formation to refer to the series of meetings held between your goodself and us to discuss the sale to us of your above described property located along Apapa Road, Lagos.
I am to confirm to you, once more, our interest in purchasing the said property on the terms discussed and agreed by the two sides, subject only to the concurrence of our remaining partners and financiers, Messrs. Nigerian Bank for Commerce and Industries.
Our negotiations with that Bank have gone very far without a hitch. Indeed, we are confident that before the end of June these negotiations will be finalised to enable the new venture to commence operation by end of August.
Thus, barring unforeseen circumstances, we should be in a position to finalise this transaction with you including payment to you in local currency of the full value of the property – by the first week in July.
Needless to repeat, my partners and I are anxious to purchase this property. We hope, therefore, that you will as promised, bear with us for the next four weeks while we and the Bank finalise our
Negotiations With warmest regards.”
It was written before the incorporation of the company and it promised finalisation before 7th July. The Respondents said in Ex. P15
We thank you for your letter of 30th June in which you confirm the interest of your bank to participate in the share capital of Trans Bridge Company Limited.
We however assure you that we will not consider the 7th of July as the deadline for the conclusion of the transactions with the above company but on the other end, we hope that you will exercise pressure in order to reach the conclusion not later than the 15th of August 1976.
Assuring you of best co-operation, we remain,
SURVEYS INTERNATIONAL LTD.
The deadline for the completion of the contract has now been shifted from July 7 to August 15, still, before the formation of the contract. The Appellants’ counsel never disputed the rigour of the law, in the courts, which would not bind companies with pre-incorporation contracts after incorporation, nor, could the company, after incorporation, ratify the contract, he sought sanctuary in equity. He said, after referring to so many authorities in support of the proposition that a company cannot by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before the company came into existence –
“I do not think that the facts of these cases have been any real relevance to this case, and even if they do, will the cases be decided in the same way in equity if there are circumstances or facts that warrant the application of equitable principles’”
Omololu- Thomas J. further held that taking the correspondence as a whole though payment or finalisation of the contract was fixed for August 15, time was no longer of essence after Agust 15. He relied upon Exhibit P5 and P7 for the proposition. I have already reproduced EX.P5 herein. Ex.P7 states –
“Alhaji Ibrahim Damcida,
c/o Nigerian Bank for Commerce & Industry,
P. O. Box 4424,
Through Mr. OKOBI
Dear Alhaji Damcida,
Please be informed that on Friday 30th September 1977 at 9.00 a.m. myself, Mr. Vegezzi and Mr. Guzzetti have reported for the meeting at the Headquarters of the Nigerian Bank for Commerce & Industry as agreed and I waited till twenty to ten hoping to see you and bank representative. It is unfortunate that I have to leave the country and lost the opportunity to meet you again and confirm you I regret not to be in the position to finalize what agreed in principle on May, 1976.
I hope that our mutual esteem will last and our friendship strengthens to do business together at an early convenience.
I take this opportunity to remind you my invitation to spend some days with me in Italy and awaiting to hear from you soon.
(Sgd.) G. CAVA”
The writer of Ex.P7 (supra) Cava, was the Chairman of the Respondent Company. He also held that the Respondents waived the completion time and opted to vary the time of the contract. And so, he said –
“I …. hold, from the various affirmations, by reference to the original contract after the time limit, that the defendant has elected to waive the completion time and opted to vary the time of the contract …. substituting a new contract without first determining or repudiating the original contract. He cannot now …. be heard to say that time was of essence of the contract. … ”
As I said earlier, he found for the Appellants and he granted them the reliefs sought.
The Respondents appealed to the Court of Appeal. In that Court, Ademola J.C.A., reading the judgment of the Court of Appeal, with which Kazeem and Uthman Mohammed JJ.C.A. concurred, after stating the law affecting the position of a company in regard to pre-incorporation contract, and tracing the ameliorating effect of Equity, and having stated that the law in this country is in pari materia with the law in England, refused to apply the authorities on equitable estoppel to the facts of this appeal, for the learned Justice of the Court of Appeal held that equity is inapplicable to this case. He found, and this he did after a thorough consideration of the facts and the law-
“(1) That no new contract has been arrived at between the parties after the incorporation of the respondent company in September, 1976.
(2) That the exhibits, the letters exchanged between the parties, cannot be regarded as representation to the respondent (that is the Appellant herein) by the appellant (the Respondent herein) that the agreement of May 1976 reached with the promoter of respondent company should bind it.
(3) That the respondent (the Appellant herein) cannot take it upon itself to be bound by any agreement reached in May 1976 as this would amount to ratification or adoption of any act of the promoters which it could not have authorised in any event.”
He allowed the appeal filed by the present Respondents, and set aside the order for specific performance made by Omololu-Thomas J. (as he then was) and also the award of damages made by the trial Judge in the alternative.
And so, the Appellants, who were dissatisfied with the judgment of the Court of Appeal, have appealed to this Court, basing their complaint against the judgment on the ground of appeal that –
“(1) The Court of Appeal misdirected itself in law and on the facts in holding that the subsequent protracted series of conduct of the Defendant/Appellant both before and after incorporation of the Plaintiff through series of correspondence and meetings making specific reference to the Agreement of May, 1976 with the Plaintiff/Respondent and the Nigerian Bank for Commerce and Industry do not raise an equitable estoppel to render it unconscionable on the part of the Defendant/Appellant to repudiate the contract of sale of the disputed landed property on the ground that the alleged contract of May, 1976 was a pre-incorporation contract.
There were seven particulars of error attached to that ground of appeal, apart from the appeal on the general ground, of the judgment being against the weight of evidence.
Chief Sobo Sowemimo, S.A.N. learned counsel for the Appellant filed a most comprehensive brief, wherein he accepted the general theme that pre-incorporation contracts are unenforceable in law, but went on to propound the theory of law that gives special circumstances, “Equity” will interpose to render such a pre-incorporation contract enforceable through mitigation of strict legal rules. He called this equitable estoppel.
Learned Senior Advocate said that it was admitted by both parties that an agreement to purchase the Respondents’ property at 233 Apapa Road was concluded in May 1976, when the Appellant Company was in the process of incorporation. But was it so admitted I think one must pause here, a bit to investigate the facts. I have already set out the correspondence between the parties, and it is clear to me that EX.P11 made the sale conditional upon the completion of the contract by 7th July 1976. There is also no such admission in the pleadings. However, according to the brief filed by Chief Sowemimo, the earlier question for the determination of this Court is whether by virtue of the doctrine of equitable estoppel, in the circumstances of this case, and having regard to the evidence “a pre-incorporation contract made in May, 1976, between the [parties] prior to the incorporation could be enforceable at the instance of the unincorporated Appellant Company.” Chief Sowemimo then submitted that although the proposition that-
(1) A company does not exist in the eyes of the law until it has been duly registered and invested with a certificate of such registration (Kilner v. Baxter (1866) L.R. 2 CP 124 d p.183);
(2) A company, to be bound by an agreement entered into on its behalf before incorporation, must enter into a new contract in terms of the previous one Kilner v. Baxter (supra) pp.185-186 Omnis retihabitio retrotratium, et mandato prior aequiparatur;
(3) A subsequent ratification could only be with the assent of the plaintiff, and then it would be a new contract; is correct in law, it is untenable in equity. He submitted that it would be unconscionable for a party to do so for equity, by the doctrine of estoppel and justice and fair play, will intervene.
Then Chief Sowemimo stated that it was only in the past thirty years that, what he termed the aggressive and stimulating evolution of the rules of equity especially the doctrine of estoppel, came in. He referred the Court to attempts by Lord Denning in such cases as Liverpool C.C. v. Irwin (1976) Q.B. 311 at 332, where the Master of the Rolls said that it was for Judges to develop the law, case by case, as they have done in the past; Re Vanderwell Trusts (No.2) 1974 Ch.269 332, and the law Lords “Family Story” where he exhorted Judges to assume, as their proper role, to do justice before them. He finally referred to the recent decision of the High Court and the Court of Appeal in England in the case of Amalgamated Investment v. Texas Commerce (1981) 1 All E.R. 923 as per Goff J. in the High Court, and Lord Denning’s judgment in the same case in the Court of Appeal (1981), 3 All E.R. 577.
This case had nothing to do with pre-incorporation contracts, but it is illuminating on the subject of estoppel by conduct or representation. A property company in England arranged with an English Merchant Bank for a loan of $3m, on the security of properties in England owned by that Company, and $3.25m to its Bahamian subsidiary on the English Company’s security guarantee and the security of an office building in Nassau. The building was owned by the subsidiary. The English Company’s guarantee was to the effect that, in consideration of the Merchant Bank making loans or advances or giving credit from time to time to the subsidiary, the English Company covenanted to pay the Bank on demand all money owing to the Bank by the subsidiary. There was an arrangement made to circumvent Bahamian restrictions on foreign Banks trading in the Bahamas, and the Bank purchased “off the shelf” Bahamian subsidiary which subsidiary, known as the Bahamian Bank, made the loan to the English Company’s subsidiary after the Bahamian Bank had got a loan from its principal, the English Bank. The mortgage of the Nassau building was executed by the Bahamian Bank and the English subsidiary but the original guarantee by the English Company to the English Bank was never amended, and thus it remained a guarantee by the English Company in respect of money owing to the English Bank, rather than to the Bahamian Bank.
Now, and this is important in the case, in the course of dealings between the parties, both the English Bank and the English Company were under a mistaken belief that the guarantee was binding and effective and to cover the liability of the English Company in respect of the Nassau loan. The mistake originated in the Bank but the English Company by its course of conduct, represented to the Bank and encouraged it to believe that the guarantee was binding and effective and that it covered the Nassau loan. This reinforced and confirmed the English Bank’s mistaken belief.
Robert Goff J. made certain pronouncements, in an action for the winding up of the English Company, where both the English Bank and the Bahamian Bank exercised their respective powers as mortgagees and sold the English properties owned by the English Company and the Nassau building. He held that –
(1) both the officers of the Bank directly concerned believed that the English Company guarantee was binding and effective and covered the liability of its subsidiary in respect of the Nassau loan. (2) The officers of the English Company also believed that the guarantee was likewise binding
(3) The English Company by their whole course of conduct represented to the English Bank and encouraged the English Bank to believe that this guarantee was binding and covered the Nassau loan And so he said –
“Of all doctrines, equitable estoppel is surely one of the most flexible. True from time to time distinguished judges have enunciated statements of principle concerning aspects of the doctrine, as, for example, the statements of Lord Cranworth LC in Ramsden v. Dyson (1866) LR 1HL 129 at 140-141, of Thesiger U in De Bussche v. Alte (1878) 8 Ch D 286 at 314, [1874-80] All ER Rep 1247 at 1253and of Fry J in Willmott v. Barber (1880) 15 Ch. D. 96at 105 – 106, concerning what is usually called the doctrine of acquiescence; the statement of Lord Kingsdown in Ramsden v. Dyson LR 1 HL 129 at 170-171, on what may be called the doctrine of encouragement; and the statements of Lord Cairns LC in Hughes v. Metropolitan Railway Co. (1887) 2 App Cas 439 at 448, (1874-80 All ER Rep 187 at 191 and of Denning J in Central London Property Trust Ltd. v. High Trees House Ltd.  1 All ER 256 at 258,  K.B. 130 at 134, on promissory estoppel. But all these have been statements of aspects of a wider doctrine; none has sought to be exclusive. It is no doubt helpful to establish, in broad terms, the criteria which, is certain must be fulfilled before an equitable estoppel can be established; but it cannot be right to restrict equitable estoppel to certain defined categories, and indeed some of the categories proposed are not easy to defend. Thus, in Snell on Equity (27th Edn, 1973, Ch 7), the learned editors isolate two categories of equitable estoppel, promissory estoppel and proprietary estoppel. It may be possible nowadays to identify the former with some degree of precision; but the latter is much more difficult to accept as a separate category. The cases concerned appear to derive from two distinct principles the principle stated by Lord Cranworth LC in Ramsden v. Dyson, and the principle stated by Lord Kingsdown in the same case, the former being concerned with an estoppel precluding a person, who stands by and allows another to incur expenditure or otherwise act on the basis of a mistaken belief as to his rights, from thereafter asserting rights inconsistent with that mistaken belief (commonly called the doctrine of acquiescence) and the other being concerned with an estoppel precluding a person, who has encouraged another to improve his, the encourager’s, property in the expectation that he will receive an interest in it, from denying that the first of these principles appears to be directed towards preventing a persons from fraudulently taking advantage of another’s error, whereas the latter appears to derive rather from encouragement or representation. ”
On appeal, Lord Denning MR, reading the judgment of the Court of Appeal, gave a resume of the doctrine of estoppel. He said-
“The doctrine of estoppel is one of the most flexible and useful in the armoury of the law. But it has become overloaded with cases. That is why I have not gone through them all in this judgment. It has evolved during the last 150 years in a sequence of separate developments; proprietary estoppel, estoppel by representation of fact, estoppel by acquiescence and promissory estoppel. At the same time it has been sought to be limited by a series of maxims; estoppel is only a rule of evidence; estoppel cannot give rise to a cause of action; estoppel cannot do away with the need for consideration, and so limitations. When the parties to a transaction proceed on the basis of an underlying assumption (either of fact or of law, and whether due to misrepresentation of mistake, makes no difference), on which they have conducted the dealings between them, neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands.” (The italics are mine)
Chief Sowemimo has made much of the pronouncements of these learned Judges of England, and submitted that in this case, equity should soften the rigour of the law in regard to hard line taken over the years by the Courts in dealing with pre-incorporation contracts.
Chief F.R.A. Williams S.A.N. learned Senior Advocate for the Respondent, in a very concise brief, submitted that the “equitable estoppel” is not an accurate expression. He preferred “promissory estoppel” and “estoppel by conduct”. In Birmingham & District Land Co. v. London & N. W. Ry. Co. (1888) 40 CH 268 Bowen LJ had interpreted the principle of promissory estoppel as follows –
“If persons who have contractual rights against others induce by their conduct those against whom they have such rights to believe that the rights will either not be enforced or will be kept in suspense or abeyance for some particular time, those persons will not be allowed by a Court of Equity to enforce the rights until such time has elapsed, without at all events placing the parties in the same position as they were before.”
See also Lord Cairns L.C. in Hughes v. Metropolitan Ry Co. (1877) 2 A.C 439. In this country, in Ajayi v. R.T. Briscoe Ltd (Nig) Ltd. (1964) 3 ALL ER. 556, the Privy Council as per Lord Hodson, held the principle to be quasi -estoppel, or promissory estoppel and said –
“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.
But then, the board qualified this proposition –
“This equity is, however subject to the qualifications-
(a) that the other party has altered his position;
(b) that the promisor can resile from his promise on giving the promisee a reasonable opportunity of resuming his position;
(c) the promise only becomes final and irrevocable if the promise cannot resume his position.”
In the submission of Chief Williams , he said that for a promissory estoppel to apply there must be a legal relationship subsisting between the parties. Learned counsel also submitted that if that Appellant knew the true state of the facts, he cannot be heard to say that he was induced to act to his prejudice in reliance on the representation of the respondent.
As regards estoppel by conduct, learned counsel referred this Court to section 150 of the Evidence Act which provides –
“150 Where one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative in interest shall be allowed, in any proceedings between himself and such persons representative in interest, to deny the truth of that thing.”
The issue of estoppel by conduct has not arisen in this case, learned counsel concluded. The courts will not be too hasty to infer a contract and will not do so merely because one or both parties wrongly thought that the company is bound by the alleged contract, counsel concluded. And so, Chief Williams summarised what he termed cases in which a company has been held bound by a pre-incorporation contract as follows –
(a) Where the court, on the particular facts presented, is prepared to grant relief by way of restitution to promoters who before the incorporation of the company have performed services which have enhanced the value of the company’s assets. Such promoters can either enforce an equitable claim against those assets for the value of the services, or sue the company for a quantum meruit. See Re Hereford and South Wales Waggon & Engineering Co. (1876) 2 Ch.D. 621; Re Empress Engineering Co. (1880) 16 Ch.D.125.
(b) Where grounds exist for holding that the company is estopped from asserting that it had entered into a fresh contract on the terms of a pre-incorporation contract. In this class of cases however it is not, strictly speaking, the pre-incorporation contract that is being enforced. The pre-incorporation contract only serves as evidence of the terms of a post-incorporation contract, the existence of which, the company is estopped from denying. Moreover the contract sued for must be clearly pleaded. It is also clear that in this class of case it is the other party and not the company sought to be bound that can so plead. See cases cited in Part 4 of this brief.
(c) Probably (though there are conflicting judicial decisions on the point) a person who before incorporation contracts with the promoters of the company may enforce his claim against the company by being subrogated to the promoters’ rights to an indemnity out of the company’s assets for the expense of carrying out the contract. It must however be established that the company contracts to indemnify the promoters after incorporation. See Touche v. Metropolitan Railway Co. (1971) 6 Ch. App. 671; Melhade v. Porro Alegre Railway Co. (1874) LR OCP 503; Hagot Pneumatic Tyre Co. v. Clipper Pheumatic Tyre Co. (1902) 1 Ch. 146. But see also Re National Motor Mail Coach Co. (1908) 2 Ch. 515.”
I am of the view, with great respect, that much as interesting as the exposition made by learned Senior Advocate for the Appellant has been, much theory has been generated into this appeal, without relevance to the very facts of the case. I have no difficulty in agreeing with Lord Denning in Liverpool C.C. v. Irvine (1976) Q.B. 311. It would be tragic to reduce Judges to a sterile role and make an automaton of them. I believe, it is the function of Judges to keep the law alive, in motion, and to make it progressive for the purpose of arriving at the end of justice, without being inhibited by technicalities, to find every conceivable, but acceptable way of avoiding narrowness that would spell injustice. Short of a Judge being a legislator, a Judge, to my mind, must possess an aggressive stance in interpreting the law.
Notwithstanding all these, law should only be applied to facts of a case. It is not for a Court to manufacture facts or work from law backwards to facts on the pre of justice. That could amount to judicial anarchy. It is the establishment of facts that comes first, and later the application thereto of the principles of law. Indeed, I consider this as the only legal process by which justice could be arrived at.
Be that as it may, the facts of this case having regard to the correspondence which I have already set out in this judgment show already that-
(1) the Appellants had till 7th July to finalise all the transactions of the sale of the property (Ex. P1).
(2) That the letter Ex. P2 asking for extension of time within which the Appellant should perfect the arrangement between the Appellant and the Respondent was written not by the Appellant but by a third party. That was on 30th June 1976 a week before the deadline.
(3) That EX.P3 written by the Appellants on the eve of the deadline was asking for extension to time . …,
(4) That there was no such extension granted by the Respondents up till the time the Appellant Company was incorporated in September 1976 and therefore by the time of that incorporation, there was nothing legal between the parties.
(5) That EX.P5 is a new negotiation between the Appellant and the Respondent and the respondents have put up new terms in that exhibit.
(6) That these new terms were totally rejected by the appellants in Ex. P6. When therefore, the Appellants said, in paragraph 9 of that Exhibit –
“9. in the circumstances we now write to confirm to you our total rejection of your new terms. We also hereby confirm to you our continued acceptance of the original terms of your offer as set out in paragraph 2 above.”
Where, the said paragraph 2, refers to the offer of 29th May 1976 which had lapsed by 7th July, 1976, there was no legal agreement between the two – see Odufunade v. Josiah Folorunso Ososami (1972) U.I.L.R. 101 Chief Samson Obaseki v. African Continental Bank Ltd. and Anor. 1966 NMLR. 35.
Upon what facts then will equity be invoked in this case Surely, equity should not be treated as a tyrannous phenomenon threatening the law. It does not exist in vaccuo or supposedly to roam about pouring water on the fire of the law. Equity is not a warlord, determined to do battle with the law. It is part of a legal system which has been mixed with the law and the admixture is for the purpose of achieving justice.
Since the Judicature Acts, 1873 and 1875, and the fusion of law and equity, there had been an amalgam of the superior courts, in England, into one Supreme Court of Judicature. The Courts of Queens Bench, Exchequer, and Common Pleas, and the Court of Chancery, together with the Court of Exchequer Chamber, and the Court of Appeal in Chancery, were all replaced by the Supreme Court. These replacements were the Courts of Appeal and the High Court with five, but later, three Divisions. The Supreme Court – that is, these Courts (Court of Appeal and the High Court) was directed to administer both law and equity. Pollock put the admixture into a ditty –
“The Courts that were manifold dwindle.
To diverse Divisions of one”
See Pollock: Leading Cases Done into English 1892 p. 57. And though it has always been a “catechism” that where law and equity conflict, equity prevails, there have always been Limits to this rule. The Judicature Acts 1873 and 1875 and later 1925, never abolished the distinction between legal and equitable rights – see Gentle v. Faulkman 1900 2 Q.B. 267, at 274 – 275. The Acts never abolished the distinction between legal and equitable remedies either, see Joseph v. Lyons (1884) 15 Q.B.D. 280, where Cotton L.J. said –
“I think that the clause enacting that the rules of equity shall prevail (Judicature act, 1873) shows that it was not intended to sweep away altogether the principles of the common law – see p. 286. see also Manchester Brewery Co. v. Combs (1901) 2 Ch. 608 at 617. And so the legal right in a contractual obligation exists and is certainly not abolished by equity. In so far as Equitable Estoppel is concerned, it is usually in two forms – “promissory estoppel” which I believe is the one the Appellant could claim to rely upon in this appeal- see Ajayi v. R. T. Briscoe (Nig.) Ltd. (1964) 1 W.L.R. 1326 at 1330; Dean v. Bruce (1952) 1 K.B. 11 at p.14 or “proprietary estoppel” in E.R. Ives Investments Ltd. v. High (1967) 2 Q.B. 379 at 399. There is also estoppel by representation see S.150 of the Evidence Act. As I have said, the legal right and the legal remedy of the parties have not been submerged by equity, all that could be claimed in this case, is that, as a result of the agreement between the parties, which made one party to perform certain acts, that party should not be made to suffer by the other party resiling on the agreement. And so the question must remain, was there an agreement between the parties Was there one before incorporation. Was there one after incorporation
I am very much inclined to the submission of Chief Williams that this case does not come within the scope of cases where the existence of a fresh contract could be inferred. The old contract died before incorporation. The new contract was never agreed upon after incorporation. It was still born. And so, where will equity lie
Ademola, J.C.A. is perfectly right, and I adopt his reasoning when he concluded that nothing in this case turned to warrant an embarkation on an exercise of applying the authorities on equitable estoppel.
As this is the only issue in this appeal the appeal must be and it is hereby dismissed with N300.00 costs to Respondents.
UWAIS, J.S.C.: I have had a preview of the judgment read by my learned brother Eso, J.S.C. and I agree that the Appeal should be dismissed. Both learned counsel for the appellant, Chief Sowemimo, and learned counsel for the respondent, Chief Williams, are at one on the question whether a company can ratify or enforce a contract entered by its promoters before it is incorporated or it comes into existence by registration under the Companies Act, 1968. The law on the point is settled. It is that the company is not bound by a pre-incorporation contract and it cannot ratify such contract without the consent of the other party (i.e not the promoters of the company) see Kilner v. Baxter, (1866) L.R. 2 CP 174; Caligara v. Giovanni Sertori & Co. Ltd. (1961) 1 ALL NLR 534, and NIPC Ltd. v. Bank of West Africa Ltd. (1962) 1 ALL NLR 556.
In the present case two contracts were actually contemplated by the parties although none came to fruition. There was one negotiation, for the sale of land, in respect of the contracts, which lasted throughout the period material to the dispute between the parties. The first contract was to be executed by 7th July, 1976 but later the time was extended to 15th August, 1976. The contract fell through when the appellants were unable to raise loan from their Bankers – Nigerian Bank for Commerce and Industries – by the stipulated dates. The appellant became incorporated on 17th September, 1976. On 25th November, 1976 its Bankers made finance available to it for the completion of the contract which had become ineffective on 16th August, 1976.
The negotiation for the sale of the land to the Appellant by the respondent was kept alive despite the inability of the Appellant to complete the first contract which became frustrated by 16th August, 1976. The Chairman of the Appellant wrote a letter (exhibit p.12) on 26th May, 1977 to the Chairman of the respondent from which it transpired that the respondent was imposing new conditions to those earlier agreed upon in the frustrated contract. These new conditions were specifically mentioned by the chairman of the Respondent in his reply, which is exhibit P4, dated 17th June, 1977. The new conditions were rejected by the appellant in a letter (exhibit P6) which its Chairman wrote to the Chairman of the respondent on 11th October, 1977 in the following words-
“9. In the circumstance we now write to confirm to you our total rejection of the new terms. We also hereby confirm to you our continued acceptance of the original terms of your offer as set out in paragraph 2 above.”
Exhibit P6 continues as follows in paragraph 11 thereof –
“Please be informed that should you fail to inform us of your acceptance of either of the two alternatives proposals in paragraphs 9 and 10 above, on or before 20th October, 1977 we will be left with no alternative other than to take steps and protect our legal rights under the contract.”
Thus the ground had been prepared for the institution of this case. It is significant to note that the chairman of the appellant – Alhaji Ibrahim Mina Damcida – was one of the promoters of the appellant, who had been involved in the negotiation with the respondent from the very beginning of the transaction.
Now it is obvious that the second contract contemplated by the respondent on their new conditions was never completed because the appellant’s Chairman rejected the proposal. There is therefore no contract whatsoever which the appellant could have ratified after its incorporation. The action in this appeal was not brought by any of the promoters of the appellant who negotiated with the respondent. Although Alhaji Ibrahim Mina Damcida is the Chairman of the appellant, his status as a promoter of the company is different from that as the Chairman of the Company. And the fact that the case was instituted by the appellant does not make him a party to the case even as Chairman.
From the foregoing it is clear that the appellant per se has no legal right to enforce against the respondent. The novel question for determination in this appeal is: whether a company is entitled in equity to enforce, after its incorporation, an agreement made on its behalf by its promoters Chief Sowemimo has conceded that at common law, the appellant cannot claim legal right from the negotiation that took place between its promoters and the respondent. He however argued that the appellant can enforce the contract between the promoters and the respondent by calling to aid the doctrine of “equitable estoppel”. Learned Senior Advocate relied in the main on the decisions of the English High Court and the Court of Appeal in Amalgamated Investment Co. Ltd. (in liquidation) v. Texas Commerce International Bank Ltd. (1981) 1 ALL ER. 923 and (1981) 3 ALL ER 577 respectively.
Chief Williams, learned Senior Advocate replied that the term “equitable estoppel” is an inaccurate expression and instead it should be either “promissory estoppel” or “estoppel by conduct”. Counsel argued that for a promissory estoppel to apply in a case, there must be a legal relationship between the parties thereof. He submitted that estoppel by conduct is defined under Section 150 of the Evidence Act. It is his contention that both promissory estoppel and estoppel by conduct do not apply in the present case.
Since the appellant was not party to the negotiation entered between its promoters and the respondent and moreover, there is no contract whatsoever as earlier found, between the promoters and the respondent, there is, in my opinion, no legal right which the appellant can enforce, because the appellant has not suffered any disadvantage or loss. Suppose there was even a contract between the promoters and the respondent (which I hold there was not) the contract had not been ratified by the appellant and therefore, the appellant could not claim any right under it.
For these and the reasons contained in the lead judgment read by my learned brother Eso, J.S.C. I too will dismiss the appeal and it is hereby dismissed with N300.00 costs to the respondent.
COKER, J.S.C.: I agree with the lead judgment just delivered by my learned brother Eso, J.S.C. the draft of which I have had the privilege of reading. I adopt his reasons as mine and have nothing to add. I agree with the order for costs of N300.00 to the Respondent.
Other Citation: (1986) LCN/2265(SC)