Company Law

Question 1

Salomon v Salomon

Answer 1

Facts: Salomon, a leather merchant and wholesale boot manufacturer was the owner of a profitable business, and in order to gain the advantages of a limited liability, he, being perfectly solvent at the time converted his business into a company.

The company paid for the business partly by issuing Mr Salomon with 20,000 £1 shares and also issuing him £10,000 in debentures (a document issued by a company to evidence a loan). Following a depression in the boot trade, the new company encountered trading difficulties. The appellant attempted to keep the company going by lending it money raised by way of a mortgage. However, it did not work and the company went into liquidation.

The court was asked to determine whether the debentures originally issued to Salomon were valid and entitled to priority over the unsecured creditors. The House of Lords held that:

the company, Salomon&Co.Ltd must be treated as different from Salomon. Therefore, Salomon became a preferred creditor and therefore entitled to the payment over other unsecured creditors

Since this decision, the veil of incorporation has been “opaque and impassable as an iron curtain.” - Gower L.C.B The Principles of Modern Company Law.

Question 2

Corporate Veil

Answer 2

A theoretical device which is said to separate the membership and management of a company from the corporate entity’s independent legal form.

Question 3

Lifting the Corporate Veil

Answer 3

The possibility of looking beyond the company framework to make members, directors, or any of the officers of a company officers liable.

Question 4

Lord Denning: Littlewoods Mail order Stores Ltd v IRC

Answer 4

“The decision in Salomon vSalomon & Co. Ltd has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can and often draw aside the veil. They can, and often do, pull off the mask. they look to see what really lies behind. The legislature has shown the way with group accounts and the rest and the courts should follow suit.

Question 5

Public Finance Securities Ltd v Jefia

Answer 5

“The court can lift the veil. it can pull down the mask. The court will lift the veil of incorporation of any company to find out who was behind the fraudulent and improper conduct of the company. This will be necessary where the canopy of legal entity is used to defeat public convenience, justifying wrong, perpetrate and protect fraud and crime…or involved in reckless or fraudulent trading activities tainted with fraud.”

Question 6

Circumstances where corporate veil can be lifted

Answer 6

UNDER EXPRESS STATUTORY PROVISIONS
*Where the number of members fall below the legal minimum - S.118 CAMA 2020
*Reduction in the number of directors below legal minimum - S.271(1) CAMA 2020
*Where there is recklessness or fraudulent trading - S.672 CAMA 2020
*Mis-description of the company where the company’s name is not mentioned on the bill of exchange, etc. -S.729 CAMA 2020
*Holding and Subsidiary companies (or group enterprises) - S. 8(1)(C), S. 379-381, S.388 CAMA 2020
*Investigation into related companies - S.316 (1). S.357-373, S.8(1)(C) CAMA 2020
*Taxation - CITA 2004
*Investigation into ownership - S. 8(1)(C), 357-373 CAMA 2020
*Nationality
JUDICIAL INROADS
*Where a company is used as a sham or cloak to commit fraud or improper conduct to evade legal obligations
*Where a company is used as an agent or where there is an implied agency
*Where a company acts as a trustee
*Ratification of Corporate Acts
*Determination of residence
*Paramount public interest
*Special Circumstances

Question 7

S.118 - Liability for company debts where membership is below legal minimum

Answer 7

If a public company or a company limited by guarantee carries on business or its objects, without having at least two members and does so for more than six months, every director or officer of the company, during the
time that it so carries on business with only one or no member, is liable jointly and severally with the company for the debts of the company contracted during that period.

Question 8

S. 271 - Number of Directors

Answer 8

(1) Every company, not being a small, company shall have at least two directors.
(2) Subject to subsection (1), any company whose number of directors falls below two shall, within one month of its so falling, appoint new directors and shall not carry on business after the expiration of one month, unless such new directors are appointed.
(3) A director or member of a company, not being a small company, who knows that a company carries on business after the number of directors has fallen below two for more than 60 days is liable for all liabilities and debts incurred by the company during that period when the company so carried on business.

Question 9

S.672 - Responsibility for fraudulent trading

Answer 9

672.—(1) If, in the course of the winding-up of a company, it appears that any business of the company has been carried on in a reckless manner or
with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the Court, on the application of the
official receiver, or the liquidator or any creditor or contributory of the company, may, if it deems proper to do so, declare that persons who were knowingly
parties to the carrying on of the business in that manner, is personally responsible, without any limitation of liability for all or any of the debts or other
liabilities of the company as the Court may direct
(2) Where the Court makes a declaration as to responsibility for debts or liabilities under subsection (1), it may give any direction it deems proper for
the purpose of giving effect to that declaration, and in particular the Court may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage, charge or interest in any mortgage, or charge or assets of the company held by or vested in him, or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any company or person acting on his behalf, and may make any further order
necessary for enforcing any charge imposed under this subsection.
(3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in subsection (1) (other than recklessly), every person who was knowingly a party to the carrying on of the business in that manner, commits an offence, and is liable on conviction to a fine as the Court deems fit or to imprisonment for a term of two years or both.
(4) In its operation, this section shall have effect, so that—
(a) a declaration may be made notwithstanding that the person concerned may be criminally liable in respect of matters which are grounds for the declaration and a declaration, if made, is deemed to be a final judgment of
the Court ;
(b) the official receiver or the liquidator, as the case may be, on the hearing of an application to the Court, may himself give evidence or call witnesses;
(c) the expression “assignee” includes any person to whom or in whose favour by the direction of the person liable, the debt, obligation, mortgage, or charge was created, issued or transferred, or the interest created, other than any person being an assignee for valuable consideration given in good faith and without notice of any of the matters on the ground of which the declaration is made ; and
(d) “valuable consideration” shall not include consideration by way of marriage.

Question 10

Re Patrick and Lyon Ltd (1933) - concerns fraudulent purpose and personal liability under the Companies Act 1929.

Answer 10

Facts:

In the case of Re Patrick and Lyon Ltd (1933), the applicants were creditors of the respondent company, which was in liquidation. Under the summons, issued in October 1932, the applicants sought a declaration. They requested that the director of the respondent company be personally responsible for all the debts and liabilities. The ground for liability shall be the charge of carrying on the company’s business with the intent to defraud creditors.

Issue:

Whether the business of the company was carried on for a fraudulent purpose within the meaning of section 275 of the Companies Act 1929?

Held:

The court examined the issue of fraudulent purpose on the part of the respondent company and laid down the following findings. In particular, the case was considered as very unusual. It derived from the facts that there was a scheme to defraud creditors by extending the life of the company when there was no reason for doing so. The company lost money from the beginning, never made a profit, and by the end of 1931 had exhausted its reserves.

However, the court held that the respondent company had not deliberately intended to conduct its business with the fraudulent purpose or with the view to defraud creditors. There was no enough evidence to justify the charge of fraudulent conduct. As a result, the court dismissed the applicants’ summons, requesting the director’s personal liability.

Question 11

Holding and Subsidiary companies (or group enterprises) - Union Beverages Ltd v. Pepsicola International Ltd.

Answer 11

UBL entered into an agreement with Pepsicola Incorporated (P.Inc.) under which P.Inc was granted exclusive bottling appointment. The representative company of P.Inc was Pepsi International Ltd (PIL). a subsidiary company.
UBL brought an action seeking an injunction to prevent a breach of contract against PIL. On appeal, it was held that the injunction should not have been granted because the agreement was between P.Inc and UBL and not PIL.
If however, the two companies were shown to be one to all intent and purposes, their corporate veil should have been pierced and each could be held liable for the action of the other.

Question 12

JUDICIAL INROADS
Where company used as a sham - Gilford Motor Co. Ltd v Horne

Answer 12

D, managing director bound himself by a “restraint of covenant” clause in a valid agreement not to compete with his company or solicit its customers, even after leaving the company. Thinking he could avoid liability by hiding under the corporate veil, he formed a one man company to do a competing business and solicited customers of former company.
Held: Horne guilty of breach of covenant. An injunction was granted against him personal and the company.

Question 13

JUDICIAL INROADS
Where company used as a sham - Jones v Lipman

Answer 13

D attempted to avoid having to complete the sale of his house to the plaintiff by conveying it to the company formed for the purpose. In ordering the defendant and his company specifically to perform the contract with the plaintiff. Russel J described the company as “the creature of the first defendant, a device, a sham or a mask which he holds before his face to avoid recognition by the eye of equity.
See also Nigerite limited v Dalami Nigeria Ltd.

Question 14

JUDICIAL INROAD
Public Interest - Daimler’s Case

Answer 14

A company in England owned and controlled by German nationals was declared an enemy during a war between the two countries.

Question 15

Where a company is used as an agent or where there is an implied agency - Re F.G (Films) Ltd.

Answer 15

An American company provided all the funds for producing a film which is sought to register as a British film, the British company was no more than a nominee or agent of the American company which is the true maker of the film. The British company was supposed to help provide access to privileges that an American company cannot access.
Hence, the courts will apply the principle of the law of agency (in the event that certain criteria are met) to disallow the use of corporate personality for perpetuation of injustice by using the company to conceal the true state of things.

Question 16

Special Circumstances - Malyon v Plummer

Answer 16

A wife assisted her husband on part time basis in the business of his one man company for which he received a salary. When the husband was killed, she claimed compensation under the Fatal Accidents Act 1874. It was necessary to decide whether she was being paid as being a wife by the husband or the company as an employee.
Held: While the company was a separate legal entity, there is nothing in Salomon’s case that precludes the conclusion that the salary derived solely from their relationship

Question 17

American Judicial Activism - Undercapitalisation - Anderson v Abott

Answer 17

A group of individuals wished to purchase the shares of certain banks and for this purpose created the Banco Kentucky Corporation to be formed and to invest the bulk of its capital in majority stock interest in seven banks and a minority in an eight. Though there were other investments, Banco was plainly formed for the purpose of controlling these banks. One of the banks it controlled failed and the banks’ receiver obtained judgement against Banco for double liability imposed on the bank’s shareholders, but could not collect in full. The receiver brought an action against the individual stockholders of Banco to collect the balance of the assessment. Held: Individual stockholders liable.

Question 18

S. 1 (1) Partnership Act 1890

Answer 18

Partnership is the relationship which subsists between two or more persons doing business in common with a view of making profit.

Question 19

Types of partnership

Answer 19

1. Ordinary or General Partnership
2. Limited Partnership (Part D, SS 795 -810 CAMA 2020)
3. Limited Liability Partnership (Part C SS 746 - 794 CAMA 2020)

Question 20

S. 746 (1) CAMA 2020

Answer 20

A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from the partners.

Question 21

Legal personality of a limited liability partnership - S.746 CAMA 2020

Answer 21

746.—(1) A limited liability partnership is a body corporate formed and
incorporated under this Act and is a legal entity separate from the partners.
(2) A limited liability partnership shall have perpetual succession.
(3) Any change in the partners of a limited liability partnership does not
affect the existence, rights or liabilities of the limited liability partnership.

769.—(1) In the event of an act carried out by a limited liability
partnership, or any of its partners, with intent to defraud creditors of the limited liability partnership or any other person, or for any fraudulent purpose, the liability of the limited liability partnership and partners who acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the limited liability partnership :
Provided that where any act is carried out by a partner, the limited liability
partnership is liable to the same extent as the partner unless it is established
by the limited liability partnership that the act was carried out without the
knowledge or the authority of the limited liability partnership.
(2) Where any business is carried on with such intent or for such purpose
as mentioned in subsection (1), every person who was knowingly a party to
the carrying on of the business in the manner stated, commits an offence and
is liable on conviction to imprisonment for a term which may extend to two
years or a fine as the court deems fit or to both.
(3) Where a limited liability partnership or any partner or designated partner
or employee of the limited liability partnership has conducted the affairs of the limited liability partnership in a fraudulent manner, then without prejudice to any criminal proceedings which may arise under any law for the time being in force, the limited liability partnership and any such partner or designated partner or employee shall be liable to pay compensation to any person who has suffered any loss or damage by reason of the conduct, but the limited liability partnership shall not be liable if any such partner or designated partner or employee has
acted fraudulently without the knowledge of the limited liability partnership.

Question 22

Essential Features of a Partnership - Plurality of persons - S. 19 CAMA 2020

Answer 22

19.—(1) No association, or partnership consisting of more than 20 persons
shall be formed for the purpose of carrying on any business for profit or gain by the 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 enactments in force in Nigeria.
(2) 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—
(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
practise as an accountant.
(3) If at any time the number of members of an association or partnership exceeds 20 in contravention of this section and it carries on business for more
than 14 days while the contravention continues, each person who is a member of the company, association or partnership during the time it so carries on business is liable to a fine as prescribed by the Commission for every day during which the default continues.

Question 23

Essential Features of a Partnership - Plurality of persons -
A. Walter & Ors v Bingham

B. Akinlose v A.I.T Co. Ltd

Answer 23

A. A partnership consisting of thirty members was held to be invalid.

B. A group of more than one hundred people got together to form a partnership to exploit timber forest. they were under the impression that they were a partnership.
Held: They exceeded the maximum number of prescribed members for a partnership.

Question 24

Essential features of a partnership
- Sharing of Profits
Cox v Hickman

Answer 24

Until 1860, sharing of profit was regarded as a sine qua non for determining the existence of partnership.
In the case, some individuals were carrying on a business under the name of Hickman. The firm fell into financial difficulties; they assigned the business to their creditors and executed an agreement to that effect. The creditor, Cox was nominated as trustee to run the affairs of the firm which entitled him to share the profits plus his own capital. Cox however did not carry out the work and the other creditors held him liable.
Held: Mere sharing of profit does not indicate the existence of partnership in general as a rule. The true test is whether or not there is an agreement for a partnership among the parties involved.
HOL held that Cox was not liable.

See also Mallow March & Co. v The Court of Wards where the difference between a loan on security and a partnership was exemplified.

Question 25

Rights and Duties of Partners Inter se -S. 24 Partnership Act 1890

Answer 25

Equality of shares - S. 24(1)
Right to indemnity - S.24(2)
Interest on advances and capital - S.24(3)
Interest on capital - S.24(4)
Management and remuneration - S.24(5) and (6)
Introduction to new partners - S. 24(7)
Settlement of differences - S. 24(8)
The Partnership Books - S.24(9)

Question 26

Dissolution of partnership

Answer 26

1. Mutual agreement - S.806(4) CAMA 2020 (dissolution of limited partnership )
2. Expulsion - S. 25 PA 1890
3. Bankruptcy, death, charge - S. 33(1-2) PA 1890
   [A limited partnership will not be dissolved by death or bankruptcy by virtue of section 806 (2) CAMA 2020]
4. Insolvency - S.33(2) PA 1890
5. Operation of law - S. 34 PA 1890
6. Court Order - S. 35 PA 1890
7. Expiration/Effluxion of time - S. 32 PA 1890

Question 27

Consequences of dissolution

Answer 27

S. 790(F) and 789 CAMA 2020
S. 806(3) CAMA 2020

Question 28

Disadvantages of corporate companies - Professor Otto Kahn Freund

Answer 28

Sometimes. corporate entity works like a boomerang and hits the man who was trying to use it”.

Question 29

Types of Companies

Answer 29

*Private companies limited by shares
*Public companies limited by shares
*Private companies limited by guarantee
*Public companies limited by guarantee
*Private unlimited companies
*Public unlimited companies

Question 30

Types of Companies - CAMA 2020

Answer 30

21.—(1) An incorporated company may be a company—
(a) having the liability of its members limited by the memorandum of association to the amount, if any, unpaid on the shares respectively held by
them (in this Act referred as “a company limited by shares”) ;
(b) having the liability of its members limited by the memorandum of association to such amount as the members may respectively undertake to
contribute to the assets of the company in the event of its being wound up (in this Act referred to as “a company limited by guarantee”) ; or
(c) not having any limit on the liability of its members (in this Act referred to as “an unlimited company”).
(2) A company of any of these types may either be a private company or a public company.

Question 31

Companies limited by guarantee - S.26

Answer 31

26.—(1) Where a company is to be formed for the promotion of 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 towards the promotion of its objects and no portion thereof is to be paid or transferred directly or indirectly to the members of the company except as permitted by this Act, the company shall not be registered as a company limited by shares, but may be registered as a company limited by guarantee.
(2) Any provision in the memorandum or articles of association or in any resolution of the company purporting to give any person a right to participate
in the divisible profits of the company or purporting to divide the company’s undertaking into shares or interest is void.
(3) A company limited by guarantee shall not be incorporated with the object of carrying on business for the purpose of making profits for distribution
to members.
(11) If a company limited by guarantee carries on business for the purpose of distributing profits to its members, all officers and members who are
cognisant of the fact that it is so carrying on business shall jointly and severally be liable for the payment and discharge of all the debts and liabilities of the
company incurred in carrying on such business, and the company and every such officer and member shall be liable to penalty as prescribed by the Commission for every day during which it carries on such business.
(12) The total liability of a member of a company limited by guarantee to contribute to the assets of the company in the event of its being wound up shall not at any time be less than N100,000

Question 32

Unlimited Company - S.25 CAMA 2020

Answer 32

25. An unlimited company shall be registered with a share capital not below the minimum issued share capital permitted under section 27 (2) (a) of this Act.

Question 33

Private Company - S.22 CAMA 2020

Answer 33

22.—(1) Private company is one which is stated in its memorandum of association to be a private company.
(2) Subject to the provisions of the articles, a private company may restrict the transfer of its shares and also provide that—
(a) the company shall not, without the consent of all its members, sell assets having a value of more than 50% of the total value of the company’s assets ;
(b) a member shall not sell that member’s shares in the company to a non-member, without first offering those shares to existing members ; and
(c) a member, or a group of members acting together, shall not sell or agree to sell more than 50% of the shares in the company to a person who is not then a member, unless that non-member has offered to buy all the existing members’ interests on the same terms.
(3) The total number of members of a private company shall not exceed 50, not including persons who are bona fide in the employment of the company, or were, while in that employment and have continued after the determination of that employment, to be members of the company.
(4) Where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of subsection (3), be treated as a single
member.
(5) A private company shall not, unless authorised by law, invite the public to—
(a) subscribe for any share or debenture of the company ; or
(b) deposit money for fixed periods or payable at call, whether or not bearing interest.

Question 34

Public Company -S. 24 CAMA

Answer 34

24. Any company other than a private company shall be a public company and its memorandum of association shall state that it is a public company.

Question 35

Classification of companies by size

Answer 35

*Small companies
*Holding and subsidiary companies
*Wholly-owned subsidiary
*Subsidiary company
*Group of companies
*Consortium of companies

Question 36

Small Companies - S. 394(3)(b)&(c) CAMA 2020

Answer 36

(3) The qualifying conditions are met by a company in a year in which it satisfies the following requirements—
(a) it is a private company ;
(b) its turnover is not more than N120,000,000 or such amount as may be fixed by the Commission from time to time ;
(c) its net assets value is not more than N60,000,000 or such amount as may be fixed by the Commission from time to time ;
(d) none of its members is an alien ;
(e) none of its members is a government, government corporation or agency or its nominee ; and
(f ) in the case of a company having share capital, the directors between themselves hold at least 51% of its equity share capital.

Question 37

Holding, Subsidiary, Wholly-Owned subsidiary Companies - S.381 CAMA 2020

Answer 37

381.—(1) Subject to subsection (4), a company is for the purposes of this Act deemed to be a subsidiary of another company if the company—
(a) is a member of the company and controls the composition of its board of directors ;
(b) holds more than 50% in nominal value of its equity share capital ; or
(c) the first-mentioned company is a subsidiary of any company which is that other’s subsidiary

Question 38

Formation of a Company - S.18 CAMA 2020, Ezekwere v Golden Guinea

Answer 38

18.—(1) As from the commencement of this Act, any two or more persons may form and incorporate a company by complying with the requirements of this Act in respect of registration of the company.
(2) Notwithstanding subsection (1), one person may form and incorporate a private company by complying with the requirements of this Act in respect
of private companies.
(3) A company may not be formed or incorporated for an unlawful purpose

Question 39

Exceptions to the formation of a company

Answer 39

19.—(1) No association, or partnership consisting of more than 20 persons shall be formed for the purpose of carrying on any business for profit or gain
by the 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 enactments in force in Nigeria.
(2) 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—
(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 practise as an accountant.

Question 40

Capacity or Right to Form a Company

Answer 40

20.—(1) Subject to subsection (2), an individual shall not join in the formation of a company under this Act if he is—
(a) less than 18 years of age ;
(b) of unsound mind and has been so found by a court in Nigeria or elsewhere ;
(c) an undischarged bankrupt ; or
(d) disqualified under sections 281 and 283 of this Act from being a director of a company.
(2) A person shall not be disqualified under subsection (1) (a), if two other persons not disqualified under that subsection have subscribed to the memorandum.
(3) A corporate body in liquidation shall not join in the formation of a company under this Act.
(4) Subject to the provisions of any enactment regulating the rights and capacity of aliens to undertake or participate in trade or business, an alien or
a foreign company may join in forming a company

S. 280 CAMA 2020
280.—(1) Where—
(a) a person is convicted by a High Court of any offence in connection with the promotion, formation or management of a company, or
(b) in the course of winding-up a company, it appears that a person—
(i) has been guilty of any offence for which he is liable (whether he has been convicted or not) under sections 668-670 of this Act, or
(ii) has been guilty of any offence involving fraud, the court shall make an order that that person shall not be a director of or in any way, whether directly or indirectly, be concerned or take part in the management of a company for a specified period not exceeding 10 years.

281. A person may be appointed a director for life provided that he shall be removable under section 288 of this Act.
282. The following persons shall be disqualified from being director—
     (a) an infant, that is, a person under the age of 18 years ;
     (b) a lunatic or person of unsound mind ;
     (c) a person suspended or removed under section 288 of this Act ;
     (d) a person disqualified under sections 279, 280, 284 of this Act ; and
     (e) a corporation other than its representative appointed to the board for a given term.

Question 41

Procedure for the formation of the company

Answer 41

1. Ascertainment of the particulars of the proposed company
2. Preparation of incorporation documents
3. Filing of incorporation documents
   4, Registration of the company

Question 42

Memorandum of Association - S.27 CAMA 2020

Answer 42

27.—(1) The memorandum of association 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 authorised to carry on, or, if the company is not formed for the purpose of carrying on business, the nature of the object or 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 ; and
(f ) that the liability of its members is limited by shares, by guarantee or unlimited, as the case may be.
(2) If the company has a share capital—
(a) the memorandum of association shall also state the amount of the minimum issued share capital which shall not be less than N100,000.00 in the case of a private company and N2,000,000.00, 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 ; and
(b) each subscriber shall write opposite 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 that
fact and the name of the beneficiary in the memorandum of association.
(4) The memorandum of association 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 debts and liabilities of the company, and of the costs of winding-up, such amount as may be required not exceeding a specified amount and the total of which shall not be less
than N100,000.
(5) The memorandum of association shall be signed by each subscriber in the presence of at least one witness who shall attest the signature.
(6) The memorandum shall be stamped as a deed

Question 43

Article of Association - S.32 CAMA 2020

Answer 43

32.—(1) A company shall have articles of association prescribing regulations for the company.
(2) Unless it is a company to which model articles apply by virtue of section 34 it shall register articles of association.
(3) Articles of association registered by a company shall be—
(a) contained in a single document, and
(b) divided into paragraphs numbered consecutively.
(4) Reference in this Act to a company’s “articles” are to its articles of association

Question 44

Registration Documents - S.36 CAMA 2020

Answer 44

36.—(1) The memorandum of association shall be delivered to the Commission together with an application for registration of the company, the
documents required by this section and a statement of compliance.
(2) The application for registration shall state—
(a) the company’s proposed name ;
(b) the registered office address and head office address if different from the registered office address ;
(c) whether the liability of the members of the company is to be limited and, if so, whether it is to be limited by shares or by guarantee ; and
(d) whether the company is to be a private or a public company.
(3) If the application is delivered by a person as agent for the subscribers to the memorandum of association, it shall state the name and address of that agent.
(4) The application shall contain—
(a) in the case of a company that has a share capital, a statement of initial issued share capital and initial shareholdings ;
(b) in the case of a company that is limited by guarantee, a statement of guarantee ;
(c) a statement of the company’s proposed directors ;
(d) a statement of the proposed registered office of the company ; and
(e) a copy of the proposed articles of association to the extent that these are not supplied by the default application of model articles

Question 45

Statement of Compliance - S.40 CAMA 2020

Answer 45

40.—(1) The statement of compliance required to be delivered to the Commission is a statement by the applicant or his agent that the requirements of this Act as to registration have been complied with.
(2) The Commission may accept the statement of compliance as sufficient evidence of compliance.
(3) Nothing in this section prevents the Commission from accepting declaration of compliance which is signed by a legal practitioner and attested
before the commissioner for oaths or notary public.

Question 46

Particulars of Directors - S.39(1)(a) CAMA 2020

Answer 46

39.—(1) The statement of the company’s proposed directors required to be delivered to the Commission shall contain the required particulars of—
(a) the person who is, or persons who are, to be the first director or directors of the company ; and
(b) where applicable, the person who is, or persons who are, to be the first secretary or joint secretaries of the company.

Question 47

Registration of the Company - S.41 CAMA 2020

Answer 47

41.—(1) The Commission shall register the memorandum and articles
unless in its opinion—
(a) they do not comply with the provisions of this Act ;
(b) the business which the company is to carry on, or the objects for which it is formed, or any of them, are illegal
(c) any of the subscribers to the memorandum is incompetent or disqualified in accordance with section 20 of this Act ;
(d) there is non-compliance with the requirement of any other law as to registration and incorporation of a company ; or
(e) the proposed name conflicts with or is likely to conflict with an existing company, trade mark or business name registered in Nigeria.
(2) Any person aggrieved by the decision of the Commission under subsection (1), may give notice to the Commission requiring it to apply to the
Court for directions and the Commission shall, within 21 days of the receipt of such notice, apply to the court for the directions.
(3) The Commission may, in order to satisfy itself as provided in subsection (1) (c), by instrument in writing, require a person subscribing to the memorandum
to make and lodge with the Commission, a statutory declaration to the effect that he is not disqualified under section 20 of this Act from joining in forming
a company.
(4) Steps to be taken under this Act to incorporate a company shall not include any invitation to subscribe for shares or on the basis of a prospectus.
(5) Upon registration of the memorandum and articles, the Commission shall certify under its seal—
(a) that the company is incorporated ;
(b) in the case of—
(i) a limited company, that the liability of the members is limited by shares or by guarantee, or
(ii) an unlimited company, that the liability of the members is unlimited ; and
(c) that the company is a private or public company, as the case may be.
(6) The certificate of incorporation shall be prima facie evidence that all the requirements of this Act in respect of registration and matters precedent
and incidental to it have been complied with and that the association is a company authorised to be registered and duly registered under this Act.
(7) The Commission may withdraw, cancel or revoke a certificate of incorporation issued under this Act where it is discovered that the certificate
was fraudulently, unlawfully or improperly procured.
(8) The Commission may cause the publication of the withdrawal, cancellation or revocation of certificates of incorporation periodically in the
Federal Government Gazette

Question 48

Incorporation of foreign companies - S. 868 (1) CAMA 2020 , S. 78 CAMA 2020, S. 79 CAMA 202, S.80 CAMA 2020

Answer 48

Foreign companies - a company incorporated elsewhere other than Nigeria

78.—(1) Subject to sections 80-83 of this Act, every foreign company which before or after the commencement of this Act was incorporated outside
Nigeria, and having the intention of carrying on business in Nigeria, shall take all steps necessary to obtain incorporation as a separate entity in Nigeria for
that purpose, but until so incorporated, the foreign company shall not carry on business in Nigeria or exercise any of the powers of a registered company
and shall not have a place of business or an address for service of documents or processes in Nigeria for any purpose other than the receipt of notices and
other documents, as matters preliminary to incorporation under this Act.
(2) Any act of the company in contravention of subsection (1) is void.
(3) Nothing in this section affects the status of any foreign company—
(a) which before the commencement of this Act was granted exemption from compliance under the provisions of any preceding Companies Acts that
had been applicable in Nigeria before the commencement of this Act ; and
(b) exempted under any treaty to which Nigeria is a party.

Exemptions
80.—(1) A foreign company may apply to the Minister for exemption from the provisions of section 78 of this Act if that foreign company belongs to one of the following categories, that is—
(a) foreign companies other than those specified in paragraph (d), invited to Nigeria by or with the approval of the Federal Government to execute
any specified individual project ;
(b) foreign companies which are in Nigeria for the execution of specific individual loan projects on behalf of a donor country or international
organisation ;
(c) foreign government-owned companies engaged solely in export promotion activities ; and
(d) engineering consultants and technical experts engaged on any individual specialist project under contract with any of the governments in the Federation or any of their agencies or with any other body or person, where such contract has been approved by the Federal Government.

Status of an exempted company - S. 82 CAMA 2020
Penalties for false information - S. 83(1)&(2) CAMA 2020

Question 49

Consequences of Incorporation

Answer 49

1. Limited liability - Okolo v Union Bank of Nigeria
2. Perpetual succession - S.564CAMA 2020
3. Ownership of property
4. Ability to sue and be sued - Provincial Highway Chemists (Nigeria) Ltd v Umaru and ors, Dansa foods (Nig) Ltd v Isong
5. Transferability of shares
6. Formalities and publicities S.50 - 77, S. 235 - 247, S.314 - 340 CAMA 2020
7. Nationality, domicile and residence - Gasque v Commissioner for inland revenue
8. Doctrine of ultra vires - S.44 CAMA 2020
9. Corporate personality - Salomon v Salomon & Co. Ltd, S.42 CAMA 2020
10. General capacity to contract independently - S.95 CAMA 2020

Question 50

Refusal of CAC to register a company - S.41 CAMA 2020

Answer 50

41.—(1) The Commission shall register the memorandum and articles
unless in its opinion—
(a) they do not comply with the provisions of this Act ;
(b) the business which the company is to carry on, or the objects forwhich it is formed, or any of them, are illegal ;
( c) any of the subscribers to the memorandum is incompetent or disqualified in accordance with section 20 of this Act ;
(d) there is non-compliance with the requirement of any other law as to registration and incorporation of a company ; or
(e) the proposed name conflicts with or is likely to conflict with an existing company, trade mark or business name registered in Nigeria.
(2) Any person aggrieved by the decision of the Commission under subsection (1), may give notice to the Commission requiring it to apply to the Court for directions and the Commission shall, within 21 days of the receipt of such notice, apply to the court for the directions.

Question 51

S.553 Filing, now 733 CAMA 2020

Answer 51

733.—(1) Every banking company, insurance company or a deposit, provident or benefit society shall, before it commences business, and also on the first Monday in February and the first Tuesday in August in every year
during which it carries on business, submit to the Commission a statement in the form in the Fourteenth Schedule to this Act or as near thereto as circumstances may admit.

Question 52

Effect of Registration - S.42 CAMA 2020

Answer 52

As from the date of incorporation mentioned in the certificate of incorporation, the subscriber of the memorandum together with such other persons as may become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the powers and performing all functions of an incorporated company including the power to hold land, and having perpetual succession, 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 this Act.

Question 53

Memorandum of Association - Section 27 CAMA 2020

Answer 53

CONTENTS
1. Name of the company - S.27(1)(a), S. 852(1)(a), Lagos Chamber of Commerce v Registrar of companies, Niger Chemists Ltd v Nigeria Chemists Ltd.
Name Change - S.30 (1) CAMA 2020.
Reservation of name - S.31 (1) CAMA 2020
Publication of name - S.729 (1) CAMA 2020
2. Registered Office - S.27(1)(b) CAMA 2020, S. 36(2) CAMA 2020, Gresham Life Insurance Society Ltd v Registrar of Companies & Anor, Nnaemeka Ibezue v African Continental Bank Ltd.
3. Object of the company - S.27(1)(c) CAMA 2020, S. 44(1) CAMA 2020, S.35 CAMA 2020, Edokpolo & Co. Ltd v Sem Edo Wire Industries Ltd
4. Power of the company - S.43(1) CAMA 2020, S.44(1) , 44(3), 44(4) CAMA 2020.
5. Type of company to be registered - S.27(1) (e)
6. Liability of members - S. 27(1)(f) CAMA 2020, S.49 CAMA 2020
7. Capital Clause - S.27(2) CAMA 2020, S.27(5) CAMA 2020
8. Subscription Clause - S.27(3) CAMA 2020
9. Signature and Stamping - S.27(5) & (6) CAMA 2020

Question 54

Prohibited and Restricted Names - S. 852 (1)(a) CAMA 2020

Answer 54

852.—(1) No company, limited liability partnership, limited partnership, business name or incorporated trustee shall be registered under this Act by a
name or trade mark which— (Absolutely prohibited names)
(a) is identical with that by which a company or limited liability partnership in existence is already registered, or so nearly resembles that name as to be calculated to deceive, except where the company or limited liability
partnership in existence is in the course of being dissolved and signifies its consent in such manner as the Commission requires ;
(b) contains the words “Chamber of Commerce” unless it is a company limited by guarantee
(c) 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 ;
(d) in the opinion of the Commission, would violate or conflict with any existing trademark or business name registered in Nigeria or body corporate formed under this Act unless the consent of the owner of the trade mark, business name or trustees of the body corporate has been obtained ;
(e) contains any word which, in the opinion of the Commission, is likely to mislead the public as to the nationality, race or religion of the persons by
whom the business is wholly or mainly owned or controlled ;
(f ) is, in the opinion of the Commission, deceptive or objectionable in that it contains a reference or suggests association with any practice, institution, personage, foreign state or government, international organisation
or international brand or is otherwise unsuitable ; or
(g) is capable of undermining public peace and national security.
(2) Except with the consent of the Commission, no company, limited liability partnership, limited partnership, business name or incorporated trustees
shall be registered by a name which—(Conditionally prohibited/Restricted names)
(a) includes the word “Federal”, “National”, “Regional”, “State” ;
(b) “Government”, or any other word which, in the opinion of the Commission suggests or is calculated to suggest that it enjoys the patronage of the Government of the Federation, the Government of a State in Nigeria,
any Ministry or Department of Government, or contains the word “Municipal” or “Chartered” or in the opinion of the Commission, suggests or is calculated to suggest, connection with any municipality or other local
authority ;
(c) contains the word “Cooperative” or its equivalent in any other language or any abbreviation; or of the words “Building Society” ; or
(d) contains the word “Group” or “Holding”.
(3) No individual or firm shall be registered under PART D or E of this Act if the age of the individual or any individual who is a partner is stated in the statement furnished under section 796 of this Act to be less than 18 years, unless the statement shows at least two other individuals aged above 18 years.
(4) No company, business name or incorporated trustee shall be registered where there is irrefutable evidence to the effect that the company, business name or incorporated trustee has previously been involved in fraudulent trade malpractices, either in local or international trade.

Question 55

Statement of company’s objects

Answer 55

35.—(1) Unless a company’s articles specifically restrict the objects of the company, its objects are unrestricted.
(2) Where a company amends its articles to add, remove or alter a statement of the company’s objects—
(a) it shall give notice to the Commission ;
(b) on receipt of the notice, the Commission shall register it ; and
(c) the amendment is not effective until after the entry of that notice in the register.
(3) Any such amendment does not affect any right or obligation of the company or render defective any legal proceeding by or against it.

Question 56

Requirements for MOA - S.27 CAMA 2020

Answer 56

27.—(1) The memorandum of association 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 authorised to carry on, or, if the company is not formed for the purpose of carrying on business, the nature of the object or 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 ; and
(f ) that the liability of its members is limited by shares, by guarantee or unlimited, as the case may be.
(2) If the company has a share capital—
(a) the memorandum of association shall also state the amount of the minimum issued share capital which shall not be less than N100,000.00 in the case of a private company and N2,000,000.00, 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 ; and
(b) each subscriber shall write opposite 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 that
fact and the name of the beneficiary in the memorandum of association.
(4) The memorandum of association 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 debts and liabilities of the company, and of the costs of winding-up, such amount as may be required not exceeding a specified amount and the total of which shall not be less than N100,000.
(5) The memorandum of association shall be signed by each subscriber in the presence of at least one witness who shall attest the signature.
(6) The memorandum shall be stamped as a deed.

Question 57

Alteration of CAMA - S.49(1)

Answer 57

49.—(1) A company may not alter the conditions contained in its memorandum except in the cases and in the manner and to the extent for which express provision is made in this Act.
(2) Only those provisions which are required by section 27 or by any other specific provision contained in this Act, to be stated in the memorandum of the company concerned, are deemed to be conditions contained in its
memorandum.

50.—(1) The name of the company shall not be altered except with the consent of the Commission in accordance with section 30.
(2) The business which the company is authorised to carry on or, if the company is not formed for the purpose of carrying on business, the objects for
which it is established, may be altered or added to in accordance with the provisions of section 51.
(3) Any restriction on the powers of the company may be altered in the same way as the business or objects of the company.
(4) The share capital of the company may be altered in accordance with the provisions of sections 128-130, but not otherwise.
(5) Subject to section 54, any other provision of the memorandum maybe altered in accordance with section 51, or as otherwise provided in this Act.

Question 58

Alteration of name clause - S.30(3) CAMA 2020

Answer 58

(3) Any company may, by special resolution and with the approval of the Commission signified in writing, change its name, provided that no such approval shall be required where the only change in the name of a company is the substitution of the words, “Public Limited Company”, for the word, “Limited” or vice versa on the conversion of a private company into a public company or a public company into a private company in accordance with this Act

Question 59

Alteration of Object Clause

Answer 59

S.50 (2) CAMA 2020
S. 51 CAMA 2020
Re Government Stock Investment Company
Re Eygptian Delta Land and Investment Company
Re Parent Tyre Company

Question 60

Alteration of Share Capital

Answer 60

S.125 (1) CAMA 2020
S.127 CAMA 2020
S.128 CAMA 2020

Question 61

Articles of Association - S.32 CAMA 2020

Answer 61

32.—(1) A company shall have articles of association prescribing regulations for the company.
(2) Unless it is a company to which model articles apply by virtue of section 34 it shall register articles of association.
(3) Articles of association registered by a company shall be—
(a) contained in a single document, and
(b) divided into paragraphs numbered consecutively.
(4) Reference in this Act to a company’s “articles” are to its articles of association

Question 62

Guinness v Land Corporation of Ireland, Kehinde v Registrar of Companies

Answer 62

Where there is a conflict between the provisions of the memorandum of association, and those of the articles, the MOA prevails

Question 63

Model Articles of Association

Answer 63

S.33 - S.35 CAMA 2020

Question 64

Alteration of Articles of Association

Answer 64

53.—(1) Subject to the provisions of this Act and to the conditions or other provisions contained in its memorandum, a company may, by special resolution, alter or add to its articles, including deletion or modification of the provisions stated in section 27 (1) (a)(d).
(2) Any alteration or addition made in the articles shall, subject to the provisions of this Act, be as valid as if originally contained therein and be subject, in like manner, to alteration by special resolution

The court has no power to extend the period of submission of any resolution for alteration - Re Saltgitter (WA) Ltd

A company cannot deprive itself of the power to alter its articles - Bushell v Faith

The court will restrain an alteration if it is discriminatory or amounts to expropriation of an individual shareholder - Brown v British Abresive Wheel Co. Ltd.

The onus is on the party challenging an alteration to prove fraud or abuse of power - Shuttleworth v Cox Bros and Company Limited.

Question 65

Effect of Articles of Association under Common Law

Answer 65

It is a contract between members and the company - Hickman v Romney mash Sheep Breeders

It is a contract between the members themselves - Rayfield v Hands

Question 66

Effect of Articles of Association under CAMA 2020

Answer 66

46.—(1) Subject to the provisions of this Act, the memorandum and articles, when registered, shall have the effect of a deed 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 in so far as they relate to the company, its members, or officers.
(2) All money 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 of the nature of a specialty debt.
(3) 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.
(4) In any 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 is a defendant and the provisions of Chapter 13 of this Act shall apply.

Question 67

Doctrine of Constructive Notice

Answer 67

Section 14, Supreme Court Ordinance 1914 provides that:
“..Subject to the terms of these or any ordinance, the common law, the doctrine of equity and statutes of general application which were in force within the jurisdiction of the court in England on Jan 1st, 1900, shall be in force within the jurisdiction of those courts..”

Kreditbank Cassel v Schenker’s Ltd., Wright J. held that the memorandum and articles of association of a company are public, and people dealing with the company are said to be acquainted with their terms and bound by it.

Question 68

Ernest v Nicholls (1857)

Answer 68

Lord Wensleydale stated that:
“members of the public should acquaint themselves with the nature of the company from its public documents before dealing with it. Persons dealing with the company are expected to inspect their public documents to ascertain that the transaction falls within the competence or object clause of the company, else he should have himself to blame”.

In that case, a contract was made for the acquisition of the goodwill of a company and it was signed, sealed, and attested to by two directors and a director who had an “interest” in the transaction. The company had four directors, and for such transactions, a quorum is formed by three directors of the company. Also, where there is any contract with third parties by which any director is interested, then such contract shall be set as agenda for the next general meeting in which shareholders shall be summoned and consent to such dealing. This was not done. Lord Wensleydale laid down that the articles which restrict and regulate authority are to be stipulated in an obligatory manner for those who deal with the company. Further, he also laid down that directors can make no contract so as to bind the whole body of shareholders. The case assumed constructive notice and constructive knowledge of the constitution.

Question 69

Abolition of constructive notice of registered documents

Answer 69

92. Except as mentioned in section 223 of this Act, regarding particulars in the register of particulars of charges, a person is not deemed to have knowledge of the contents of the memorandum and articles of a company or of any other particulars, documents, or the contents of documents merely because such particulars or documents are registered by the Commission or
    referred to in the particulars or documents so registered, or are available for inspection at an office of the company

Question 70

Indoor Management Rule

Answer 70

The indoor management rule was laid down in the case of Royal British Bank v Turquand, which provides that:
“while persons dealing with a company are assumed to have read the public documents of the company and to have ascertained that the proposed transaction is not inconsistent therewith, they are not required to do more; they need not inquire into the regularity of internal proceedings….the indoor management and may assume that all is done regularly.”

In that case, Mr.Turquand was the official manager (liquidator) of an insolvent company, Cameron’s Coalbrook Steam, Coal and Swansea and Loughor Railway Company. The company had given a bond of £2000 to the Royal British Bank, which secured the company’s drawings on its current account. The bond was signed by two directors and the secretary. The articles of association provided that directors only had the power to borrow up to an amount authorised by a company resolution. When an action to recover the loan was instituted, the company alleged that the manager that negotiated the loan should have been authorised by a company resolution for the specific amount that was borrowed. The company attempted to rely on the doctrine of constructive notice, claiming that the bank should have done its due diligence inquiring into the articles of association of the company. The court ruled in favour of the bank.

Explaining the rationale for the decision, Jervis C.J. stated thus:
“We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, on reading the deed of settlement, would find not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the documents appeared to be legitimately done”

Question 71

Mahony v. East Holyford Mining Co.

Answer 71

In that case, a company was formed by Wadge and had its memorandum and articles of association was subscribed by two persons to purchase Wadge’s shares in excess of its real value. The company’s affairs were subsequently managed by the two subscribers, Wadge, four clerks employed by Wadge and one independent person. Although the articles of association empowered the subscribers to appoint the company directors, this was not done. They issued a prospectus inviting ordinary members of the company to subscribe to the shares of the company and the money received was deposited at the appellant bank with Wadge holding himself out as the company’s secretary, asking them to honour cheques signed on the company’s behalf by any two of the three directors. Subsequently, the company went into liquidation, and the bank was sued for the amount thus paid. It was held that the bank was not legally required to enquire about the internal procedure but rather the memorandum of and the articles of association. This case can be distinguished from Turquand’s case on the basis that the party does not need to rely on the representation and act on it. Otherwise, the bank would have been held to the standard of the reasonable man and, accordingly, would have had a duty to at least inquire whether all the procedures had been followed.

Another modification to the principle can be found in the case of Morris v. Kanssen, where it was held that the rule is not applicable to parties that formed parts of the company management though they were outsiders to the transactions in question.

Question 72

Presumption of Regularity - S.93 CAMA 2020

Answer 72

A person dealing with a company or deriving under the company is allowed to presume that the company’s memorandum and articles have been duly complied
with.

“omnia praesumuntur rite et solemniter esse acta” – “all things have been done properly and solemnly which ought to have been done”.

Question 73

Application of the Indoor Management Rule

Answer 73

In the case of Victor Vanni v Nigerpak Limited, the principle of indoor management was applied to the effect that a plaintiff who claimed the sum of ₦9,180 as damages against the defendants for a breach of contract could claim damages as the agreement was valid and binding contrary to the contention of the defendant. The defendant company denied liability on the basis that the official who entered into the agreement with the plaintiff had no authority to do so.

Similarly, in International Paints (W.A) Limited v Akiwowo and Anor, it was held that:
“No one dealing with the defendant company is expected to peep into its memorandum and article of association or to investigate the locus stand of its officers before transacting any business of a normal everyday nature like the employment of a member of staff each time matter comes up between the company and outsider”.

Metalimpex v. A.G. Leventis and Co. (Nig.) Ltd, the Supreme Court held that the appellant was entitled to assume that the director of the respondent company had the authority to indorse the bill of exchange in the absence of any suspicious circumstances which could have put the appellant on inquiry.
The facts of the case are as follows, The appellant was owed the sum of ₦1,347,022.00 by the (West African Steel and Wire Co. Ltd. (WASCO). The Leventis and Co. as guarantor of WASCO endorsed 12 bills of exchange payable to it and accepted by WASCO to cover each of the 12 monthly instalment payments to appellant as agreed. Negotiations relating to the payment scheme were carried out by a director of Leventis and Co. who endorsed the bills of exchange. When the second bill was presented for payment, it was dishonoured. Appellant sued the Leventis and Co. for the amount of the dishonoured bill as Leventis and Co. denied liability claiming that the director who signed the guarantee had no authority to commit the company as a guarantor or to indorse the bills.

in Onuh v. United Nigeria Insurance Co. Ltd. the court held that the rule was inapplicable and the company was not bound to a third party on the basis of a letter written by a clerk who did not sign even in a representative capacity. The court held that the plaintiff was under a duty to find out what position the person who signed the letter held in the company and that he was not entitled to assume that the clerk was an authorised official. The inevitable conclusion from this is that when an employee or agent of the company does not occupy a position in the company in which it will be usual for him to have delegated authority to bind the company in the transaction concerned, the company will not be bound unless he has actual authority or has, in some other way, been held out as having authority to bind it in relation to that transaction.

Ajayi v. Lagos City Council, a case which cast some doubts as to the real position of the Nigerian courts as it relates to the indoor management principle. In that case, the articles of association allowed powers to be delegated to a director of the company. The plaintiff entered into a contract with a director who had no power to do so. But the plaintiff was not aware of the delegation of powers contained in the articles of association. It was held that the plaintiff, who had no knowledge of the articles, could not rely on it as conferring ostensible or apparent authority on the directors and that the company was not estopped from establishing that there was no authority in the director to enter into the contract or agreement with the plaintiff on its behalf.

Question 74

Exceptions to the indoor management rule

Answer 74

1. Where the outsider knows of the agent’s lack of authority - Howard v Patent Ivory Manufacturing Company
2. Where the doc the outsider relies upon is a forgery - Ruben v Great Fingall Consolidated
3. Where an insider purported to act in the transaction - Morris v Kensen
4. Where the person seeking to rely on the doctrine was put on inquiry and irregularity and would have been discovered if he had made inquiries - Underwood Ltd v Bank of Liverpool, Freeman and Lockyer v Burkhurst Park Properties Limited
5. Where the person seeking to rely on the rule had no knowledge of the contents of the MOA and AOA - Ajayi v Lagos City Council