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31ST MAY, 1977.

SUIT NO. SC 185/1975

3PLR/1977/2 (SC)



(1977) 5 S.C. 235


BEFORE THEIR LORDSHIPS                     






Chief R. A. Fani-Kayode, Chief S. A. S. Sowemimo, E. O. Goodwill – for Appellants

Dr. F. A. Ajayi, Miss V. O. Okorodudu – for Respondents



COMMERCIAL LAW – CONTRACT:- Existence of – Enforcement of via specific performance – When proper

COMMERCIAL LAW – AGENCY: Agent of undisclosed principal – Implication for privity of contract with third parties


CAPITAL MARKET – Transaction relating to transfer of shares

PRACTICE AND PROCEDURE –APPEAL:  Civil Procedure – Court pronouncing on issues not raised by parties- Effect.




IRIKEFE, J.S.C. (Delivering the Judgment of the Court):

The appellants by their plaint filed at the Federal Revenue Court on 24th April, 1974 claimed against the respondents:-

“(a)    A declaration that there is a valid and subsisting agreement between the plaintiff and the defendant whereby the plaintiff is entitled to 53,500 shares in the defendant’s company.

(b)     Specific performance of the said agreement by executing a formal deed of transfer of the said shares to the plaintiff.

(c)     An injunction to restrain the defendant from transferring the said shares or any part thereof in any manner prejudicial to the plaintiff’s interest.”


The case derives its life from a mass of documentary evidence in the form of correspondence exchanged between the parties and these will be set out in this judgment as, and when relevant.


The plaintiffs, hereinafter referred to as appellants, are a limited liability company registered in Nigeria. The defendants, hereinafter referred to as respondents, are also a limited liability company registered in Nigeria.


It would appear that as the result of a meeting between the accredited representatives of the two companies sometime in May, 1973 wherein the possibility of the appellants purchasing some of the respondents’ shares was discussed, the appellants wrote as follows to the respondent:- Exh. A.

Date 7th May, 1973.

Sale of Shares

At a meeting held on 6th May, 1973 between representatives of African Continental Seaways Limited (hereinafter referred to as A. C. S.) and Nigerian Dredging Roads and General Works Limited (hereinafter referred to as N. D. R.) it was agreed as follows:-

(a)     that N. D. R. shall offer and A. C. S. shall acquire between 30% and 35% of N. D. R. shares;

(b)     that effective date of transfer of shares shall be 1st June, 1973;

(c)     that the proposal regarding payment of shares be left a little more flexible in the meantime (N. D. R representatives proposed that the method of payment shall be by a deferred call-up of shares and the pattern of call-up shall be 25% in the first instance.

(d)     that these proposals are subject to final ratification by the Board of Directors of both companies. It was accordingly arranged that the Board of A. C. S. AND the total shareholders should meet on 17th May, 1973, and that similarly the Board of N. D. R. should deliberate on the issue about the same time. Thereafter, a meeting of the representatives from both companies will meet to take final decision on the 20th May, 1973, In Lagos.


The representatives of N. D. R. stated that a small number of shares, that is, the balance to make up the 40% of the Nigerian participation is being reserved for other persons, (individual Nigerian friends including N. D. R. Senior Staff).


I shall be grateful for your confirmation of the above record. Director.”


To the above letter was the following reply from the respondents dated 9th May, 1973 (see exhibit B):-

“African Continental Seaways Limited, P.O. Box 5417,


For the attention of Miss F. E. Ayanka Dear Madam,

We are in receipt of your letter of the 7th May, 1973 concerning the sale of shares and agree that this letter reports the substance of the meeting of the 6th May, 1973, between representatives of Nigerian Dredging, Roads AND General Works Limited and African Continental Seaways Limited.

Yours faithfully,

  1. R. R. P. JARMAN, Managing Director, Nigerian Dredging, Rds AND General Works Limited.”


The respondents thereafter in exhibits C and D made available to the appellants data from which their (respondents’) performance and assets spanning a period of several years might be ascertained.


The appellants having apparently now had time to ponder over the facts at their disposal decided (in exhibit E) to write to the respondents on 20th June, 1973, as follows:-

“Mr. R. R. P. Jarman, Managing Director, Nigerian Dredging, Road AND General Works Ltd., 6, Bauchi Road,



Dear Sir,

Re: Purchase of Shares In Nigerian Dredging, Roads AND General Works Ltd.

Further to our letter of 7th May, 1973 and subsequent correspondence and discussions, we are prepared to offer you N10 (£5: 0: 0) a share for 55,000 number of your new share issue of 66,666 shares. It is understood that these shares will not rank for dividends on past results, but will rank with existing shares for future dividends.

We respectfully draw your attention to the original target date of the 1st of June which was mutually earmarked for conclusion of negotiations.

We regret we must impress on you the need to conclude these negotiations and we request a firm indication of your reactions to this offer before the end of this week. We understand the Board of your holding company sits on a Tuesday hence we assume that should your indication be favourable we can expect formal approval from your board by telex on Tuesday.

In furtherance of our offer to buy 55,000 number shares of your new shares issue we would like your existing share- holders to consider giving A. C. S. financial assistance in the purchase whilst A. C. S. make arrangements for a bank loan. We would like to offer a down payment of N20,000 (£10,000), the balance to be met by a loan from your shareholders.

The loan would be at current bank rates of interest here, and if delay arose in our negotiating a bank loan then dividends would go towards liquidating this loan. It would be necessary to arrange some transfership or guarantee against the loan of course.

Awaiting an early reply from you.

Yours faithfully,



The respondents on 22nd June, 1973 (See exhibit F) replied as follows to exhibit “E”:-

“For the attention of Chief S. A. Sowemimo

Dear Sirs,

Further to your letter offering to buy 55,000 shares of our new issue at £5 (N10 Naira) per share (ex dividends), I am pleased to inform you the Board of the Holding Company (STEVIN) agree to 53,500 shares at the above price.

Your terms of payment are also accepted. Of course the above is all subject to examination of the details, legal implications, etc. on which I as a layman cannot comment. However, I will request our company lawyers and auditors to now examine the above in detail and providing all is in order to proceed with drawing up a formal agreement.

Yours faithfully

R.R.P. Jarman,

Managing Director, Nigerian Dredging, Roads AND General Works Ltd.         “

The respondents again wrote as follows on 29th June, 1973 (See exhibit H) by way of comment on their earlier letter (exhibit F):-

“Dear Sirs,

On reading through the typed version of my letter of 22nd June, 1973, conveying the Holding Companies acceptance of the African Continental Seaways offer of the 20th June, 1973, I think there is little to add by way of detail or explanation.

The value of £5 (10 Naira) based on the valuation of the company less profits to date which will go to existing shareholders needs no further elucidation having been discussed at some length. One point I would like to mention again however, is the interest of the management of Nigerian Dredging, Roads AND General Works and the Holding company in ensuring that the indigenous holders of the new issue are representative of the Federal Republic as a whole. This is felt to be of considerable importance for the future of Nigerian Dredging, Roads AND General Works, a company with work spread throughout the Federation. From my knowledge of those interested in African Continental Seaways Limited, the above condition could possibly be realised. However, this is a matter we can look into later and no doubt can be taken care of by some readjustment of share holding if required.

Thanking you for your attention.

Yours faithfully,

……….. R.P.P. Jarman, Managing Director.

It would be safe to say that exhibit “H” carried above was the last in the series of friendly exchanges of correspondence between the parties; for shortly there-after, the negotiations ceased to run on an even keel with the result that by the 24th April, 1974 the writ commencing this action was filed.

Thereafter, pleadings were duly exchanged and the action proceeded to trial. The learned trial judge (Belgore, J.), after a hearing in which evidence was called only by the appellants (the respondents did no more than tender a document exhibit O – the memorandum and articles of association of their company) dismissed the appellants’ claims, giving two grounds for so doing, namely:


(a)     The fact that the action had been brought against the agent of a disclosed principal, such a disclosed principal not having been made a party to the proceedings.

(b)     The fact that the contract to acquire the shares herein was to be given effect to by means of a loan from the respondents, a circumstance which was ultra vires paragraph 3(U) of the objects of the company as listed in the memorandum of association.

This appeal has been brought against the said dismissal on the following grounds which were canvassed before us by learned counsel appearing on be-half of the appellants with considerable force:-

“(a)    The learned judge misdirected himself in law when he dismissed the plaintiff/appellants action on the ground that the defendant/respondent was the agent of a disclosed principal.

Particulars of Misdirection in law

The defendant/respondent accepted and concluded the terms of purchase and payment etc for the shares and signed the letter of acceptance etc constituting the agreement without expressly indicating that they were acting for a disclosed principal, hence the defendant/respondent was the competent party to be sued or in the alternative the plaintiff/appellant in the circumstance of the facts of this case was justified to elect to sue either the defendant/respondent or the disclosed principal.

(b)     The learned judge misdirected himself in law when he held that the plaintiff/appellant had not performed its part by payment of its allotted shareholding nor did it lead evidence of such part-performance.

Particulars of Misdirection in law

The defendant/respondent did not in their pleadings raise such issue of non-performance by the plaintiff/appellant.

(c)     The learned trial judge misdirected himself on the facts when he held that the plaintiff/appellant did not lead evidence of offer to make its own payment of the shareholding when there was unchallenged evidence of the plaintiff/appellant that the defendant/respondent rejected the alternative method of payment i.e. payment of N20,000 and the balance to be loaned from the holding company i.e. existing shareholders and consistently insisted on total payment of its shareholding by Bank loan – i.e. one of the two methods of payment.

The above grounds were argued together and learned counsel’s submissions may be summarised thus:

(a)     Every contract must depend upon its own special conditions.

(b)     The issue of a disclosed or undisclosed principal upon which the case was decided was not raised in the pleadings.

(c)     A party coming before a court as a plaintiff is obliged to set out the materials he relies upon and If a defendant, the materials he relied upon as establishing that defence.

(d)     That there was unchallenged evidence that the respondents’ firm offer of 53,500 shares was accepted and this would conclude the matter between the parties.

(e)     That the issue of part-performance was equally not raised in the pleadings.

(f)      That on the facts placed before the court in this case, the agent would be bound in any event and it was open to the appellants to elect who to sue as between the agent and the principal.      ,

For the respondents it was submitted that upon a proper construction of the documents produced at the hearing, it would be wrong to hold that there had been a legally enforceable agreement between the parties. All that had happened, it was argued, was a continuing negotiation to conclude an agreement, which un-fortunately did not materialise. It was further argued that the learned trial judge erred in law in holding, as he did, that there was in fact an agreement for and sale of 53,500 shares.

It was also argued that the issue of a disclosed principal was not only raised in the pleadings, but was in fact adverted to by the appellants themselves.

The appellants, it was submitted, were at no time in doubt that they were negotiating, with the holding company (STEVIN) through its subsidiary, the respondents.

The most important issue that falls to be determined in this appeal is whether there exists in law a legally enforceable contract between the parties for the sale of 53,500 shares.

If such a contract exists, then an order of specific performance would issue to enforce the terms thereof. See Odessa Transways Co. vs. Mendel (1878) 8 Ch. D p.235. Also Sri Lanka Omnibus Co. Ltd. vs. Perera (1952) A.C. p.76 (P.C.).

Unless the contrary is established by evidence, and there was no evidence called by the respondents, it is trite law that a contract for the sale of shares not readily available in the market such as government stock may be enforced by an order of specific performance – See Duncuft vs. Albrecht 1841 Simon’s Reports, Chancery, Vols 1-17 (1826-1852). As it has been concisely put by the learned authors of Halsbury’s Laws of England, 3rd Edition, Vol. 6 paragraph 430, at page 210 – “Specific performance of an agreement to take and pay for shares or to allot shares may be obtained.”

The following statement of law by the learned authors of Gore- Browne On Companies (New Edition) at page 370 thereof is additional authority in support of the earlier proposition:

“Once the shares have been specified (whether it be by contract, or subsequently) the contract becomes enforceable by specific performance, and the court will order the transferor or transferee to execute the transfer and/or to do any other acts required to complete the transfer, even (it seems) when the directors have the power to refuse to register it. Moreover, whilst the vendor re-mains the holder of the legal title to the shares, and is treated by the company as the owner thereof, the beneficial ownership passes to the purchaser, even though the sale is in breach of a pre-emption clause in the articles. Once the beneficial ownership thus passes, a number of consequences ensue. In the absence of express provision in the contract, the purchaser becomes entitled as against the vendor to any dividends subsequently declared in respect of the shares, even if such dividend relates back wholly or partly to a period prior to the passing of beneficial ownership (Italics ours)

As to whether there was a concluded agreement for the allotment of 53,500 shares in the respondents’ company, we cannot but agree with the reasoning leading to, and the finding of the learned trial judge in the case in hand, which finding, incidentally, is not now being challenged on appeal.

The learned trial judge dealt with this aspect of the case in the following manner:-

“Can paragraph one of exhibit “F” quoted above be taken to be acceptance of offer contained in exhibit “E” in view of the fact that 55,000 shares were offered and 53,500 accepted? The law is that a counter offer destroys the earlier one and it is not acceptance of it, this has been decided as early as 1840 in the case of Hyde v. Wrerich (1840) 3 Bear. 334. But on the facts of this case, I am pre-pared to say that the figure 53,500 shares was not necessarily a new offer, be-cause the witness for the plaintiff said that during negotiation, they were talking in respect of percentage of 30% to 35% and the two figures were within the percentage range. If I am wrong in this view, there was uncontradicted evidence from the plaintiff that the new offer of 53,500 shares was accepted by him to Mr. Jarman through telephone on receipt of exhibit ‘F’. I hold therefore that the effect of exhibit “F and the telephone conversation between plaintiffs witness and Mr. Jarman on receipt of it was that the offer contained in exhibit “E” was accepted by the defendant.       The defendant accepted, in addition to selling 53,500 shares at N10 per share to the plaintiff, the terms of payment for these shares contained In exhibit “E”.

It will be noted also that from exhibit “F” it was not only the defendant who accepted the terms contained in exhibit “E” but the terms were also accepted by the Board of the holding company (STEVIN). The mode of payment as contained in exhibit “E” was that failing to secure a bank loan, the plaintiff would pay N20,000 while the defendant’s holding company (STEVIN) would advance the plaintiff the balance at current bank Interest. The defendant more dearly showed that they were accepting the offer of the plaintiff contained in exhibit “E” by their subsequent letter, exhibit “H” dated 29th June, 1973. Paragraph one of the letter reads thus:-

“On reading through the typed version of my letter of 22nd June, 1973, conveying the Holding Company’s acceptances of the African Continental seaways offer of the 20th June, 1973, I think there is little to add by way of detail or explanation.” By this, I take it that the defendant was re-affirming that the offer has been accepted unreservedly ……………………………………………………………… This reasoning accord with the one in the case of Branco vs. Cobarro – (1947) 2 A.E.R. p. 101 where the Court of Appeal held that a clause inserted In an agreement saying:-

‘This is a provisional agreement until a fully legalised agreement drawn up by a solicitor and embodying all the conditions herewith stated is signed.” meant that the agreement was valid immediately. In this case the defendant did not put forward any evidence of objection of his solicitor or auditors which could invalidate the agreement accepted in exhibit “F’. I therefore hold that there was a valid agreement between the plaintiff and the defendant as from the 22nd of June, 1973. The agreement between the parties is that:

(a)     the defendant would sell to the plaintiff 53,500 shares at N10.00 per share in the defendant’s company;

(b)     the plaintiff would pay for these shares either by loan it would obtain from a bank or by paying down N20,000 and paying the balance through a loan to be obtained from the defendant’s holding company.

The defendant was to perform condition (a) above while the plaintiff was to per-form condition (b):’ (italics ours)

As we had indicated earlier on in this judgment, we find little that calls for criticism in the above reasoning of the learned trial judge. We were, however, amazed that learned counsel appearing on behalf of the respondents had sought by an application to vary the judgment, by which we understood him to mean that the judgment should be supported on grounds other than those shown by the court of trial, that the finding as to the existence of a contract should be set aside. We would like to say here, as we have done in many cases coming before us in this Court that, a party seeking to set aside a finding which is crucial and fundamental to a case can only do so through a substantive cross-appeal and not by an application to vary.

Was the learned trial judge right in deciding the case on the issue of a disclosed principal of an agent? We think that he was wrong to do so, as this was not an issue raised in the pleadings.

While it is common ground that the respondents were but a subsidiary of the holding company (STEVIN), the shares that were being offered for sale were those of the respondents. It is clearly a necessary incident of company law that the concurrence of a holding company is a sine-qua non to the acquisition of shares in its subsidiary, since in every case, by the share – structure, the board of directors of the subsidiary would be under the control of the holding company (See also ‘ section 144 of the Companies Decree No. 51 of 1968).

We note that the respondents gave no evidence at the hearing, quite apart from tendering exhibit O (the Memorandum and Articles of Association).

We note also that the main plank of their defence was that there had been no concluded agreement, or that any agreement such as there might have been was of an inchoate character as there were other terms as yet to be agreed and worked out.

This contention is brought out very dearly in paragraph 20 of the statement of defence which reads:-

‘The defendant denies that there was any agreement between the parties al-ready concluded and states that, in the alternative, the steps to conclude an agreement between the parties were being actively frustrated by refusal of the plaintiff to reply to essential financial matters which were an essential substratum to any such agreement.”

We should like to emphasize here again the need for all courts of trial to limit themselves severely to the issues raised by the parties in their pleadings and no more. To do otherwise, might well result in a denial of justice to one or the other of the two contesting parties. See N. I. P. C. Ltd. AND ANOTHER vs. Bank of West Africa (1962) 1 A.N.L.R. (Part 4) at p. 559; Kallo AND OTHERS v. Kalio (1975) 2 S.C. p.15; N. I .P. C. Ltd. v. Thompson Organisation AND OTHERS (1969) A.N.L.R. p.138, George AND OTHERS v. Dominion Flour Mills Ltd (1963) 1 A.N.L.R. p.71 and Metalimpex v. A.G. Leventis AND Co. Ltd. (1976) 2 S.C. p.91. The above are but a few of the decisions of this Court which have from time to time enshrined the view that, in our adversary sys-tem of civil proceedings the parties are to be held bound by their pleadings and that evidence given on any matter not pleaded should be ignored, as such evidence would go to no issue.

Similarly, a defendant is not entitled to rely upon a defence, which is based upon a fact or facts not stated in the statement of claim, unless he alleges such fact or facts specifically in his pleadings by way of Special Defence. See N. I. P. C. Ltd. v. Bank of West Africa (Ante).

Before bringing our commentary on pleadings to a dose we should like to re-call the following statement by the learned authors of Bullen AND Leake on Precedents of Pleading – 12th Edition p.8 –

‘The function of pleadings has been described as a reflection of the role of the court and as an aspect of the adversary system of civil proceedings:

“As the parties are adversaries, it is left to each of them to formulate his case in his own way, subject to the basic rules of pleadings …………………… For the sake of certainty and finality, each party is bound by his own pleading and cannot be allowed to raise a different or fresh case without (due amendment properly made). Each party thus knows the case he has to meet and cannot be taken by surprise at the trial.

The court itself is as much bound by the pleadings of the parties as they are themselves. It is no part of the duty or function of the court to enter upon any inquiry into the case before it other than to adjudicate upon the specific matters in dispute which the parties themselves have raised by their pleadings. Indeed, the court would be acting contrary to its own character and nature M it were to pronounce upon any claim or defence not made by the parties. To do so would be to enter the realms of speculation….. Moreover, in such event, the parties themselves, or at any rate one of them, might well feel aggrieved; for a decision given on a claim or defence not made, or raised, by or against a party is equivalent to not hearing him at all and may thus be a denial of justice.”

In our view, the learned trial judge was clearly in error to have decided this case on the issue of the agent of a disclosed principal, an issue not raised or relied upon by either party in the pleadings.

In any case, there was no evidence to support the contention that the respondents were agents of the holding company or that they acted as such. A holding company is no more than a controlling share-holder of its subsidiary. In the absence of dear evidence to that effect, and there is none, that fact does not make it the principal of its subsidiary, particularly in a transaction such as the one under consideration In the case in hand. Moreover, a mere agreement by one share-holder (even if it is a holding company) in a company to lend money to a prospective shareholder to enable it to buy shares in that company does not make that shareholder (even If it is a holding company) the principal (for the purpose of the transaction) of the company whose shares are being offered for sale.

Similarly, the finding by the learned trial judge that the contract is ultra vires the respondents and illegal under Section 55 of the Companies Decree (1968) is clearly untenable. This must be so, in view of the earlier finding by the court that the contract was to be performed in one of two ways, namely – either by a bank loan in full payment for the shares or N20,000 down and the balance by means of a loan from the respondents’ holding company. There was unchallenged evidence which the court accepted that the respondents only rejected that latter mode of payment. The agreement as to the former mode of payment still subsists.

In the result the appeal succeeds and it is allowed. The decision of the Federal Revenue Court in these proceedings dated 30th October, 1974 including the order as to costs is set aside. We accordingly –

(a)     decree and declare that there is a valid and subsisting agreement as from 22nd June, 1973 between the appellants and the respondents whereby the appellants are entitled to purchase 53,500 shares in the respondents’ company; and

(b)     order specific performance of the said agreement by the execution of a for-mal deed of transfer of the shares to the appellants. PROVIDED THAT THE SAID SHARES ARE FIRST PAID FOR IN FULL ON OR BEFORE 31ST AUGUST, 1977 by the appellants.

The above shall be the judgment of the Court.

The injunction sought is misconceived in these circumstances and the decision of the learned trial judge refusing to grant it is affirmed. The appellants are allowed costs assessed at N100 in the court below and N200 in this Court.

Appeal allowed.


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