[PDF copy of this judgment can be sent to your email for N300 only. Just order through lawnigeria@gmail.com and info@lawnigeria.com or text 07067102097]





SUIT NO. LD/52/75


3PLR/1976/113  (HC)













Contract -Capacity of company not yet incorporated- Whether agent can contract on its behalf.

Assignment of lease to non-existing company—Effect of such deed of assignment. Tort—Deceit—Measure of damages.




The plaintiffs claim in this case is as follows:-

(1)     A declaration that the deed of assignment executed by the plaintiff in September 1972, in respect of his lease dated 1st December, 1966, in favour of the 2nd defendant, is void for fraudulent misrepresentation by the first defendant, for want of an assignee as the second defendant did not exist, and for failure of consideration and should be set aside accor-dingly.

(2)     An injunction to restrain both defendants and their servants or agents from entering, interfering and or trespassing on the plaintiff’s leasehold property at mile 91/2 Ikorodu Road, Lagos and,

(3)     N28,000 against first defendant only being balance of special and general damages for his fraudulent misrepresentation and deceit of the plaintiff. The writ was filed on the 1st of March 1975, and served on both defendants, on the 12th day of September 1975, at No. 13B Kingsway Road, Ikoyi, Lagos. Appearance was entered for both defendants by Mr. Azuka Obi of 1 Creek Road, Apapa, Lagos, on the 19th day of September 1975. Pleadings were filed and delivered.


The case of the plaintiff, Dr. Urhobo, a Legal Practitioner, is that he is owner of a leasehold property situate, lying, and being at Ikorodu Road, Onigbongbo, Ikeja district, covering an area of 46.93 acres. The lease is for a term of 99 years commencing from the 1st day of December 1966, at a yearly rent of £75 or N150. The gum of £1,000 or 142,000 being 13½ years rent was paid at the time of the execution of the deed of lease which was registered as No. 16, page 16 in Volume 964 in the Lands Registry in Ibadan (now Lagos). A certified true copy of the deed of lease is marked Exhibit “C” in these proceedings. Sometime in 1972, the 1st defendant approached the plaintiff that he had a company and wanted the plaintiff to assign the lease to his company. The 1 st defendant gave the name of the company as Gata and Taga (Nig) Ltd. The 1st defendant told the plaintiff that the company was already registered and that 1st defendant was a Director and shareholder of the company.

They both agreed on £20,000 or N40,000 to effect the assignment. According to the evidence of the plaintiff, he believed at that time that the company was in existence, and if he knew that the company was non-existent he would not have transferred his lease to a non-existent company. The deed of assignment was prepared by the Solicitor for the 1st defendant, Mr. A.O.O. Abudu. It was sent to the plaintiff in Nairobi, Kenya, for execution. Before he signed the deed he took a photostat copy of it. The photostat copy was tendered and marked Exhibit “D”. The deed of assignment (Exhibit “D”) recited that the 2nd defendant GATA and TAGA (Nigeria) Ltd., is a company incorporated under the Companies Decree 1968, and having its registered office at No. 13 McCarthy Street, Lagos. The plaintiff signed his own portion of the deed of assignment and sent it back to the 1st defendant’s Solicitor in Lagos.


In December 1972, the plaintiff returned to Nigeria from Nairobi. He made a search in the Lands Registry in Lagos and discovered that the deed of lease had not been registered. Later he discovered that the 2nd defendant was only incorporated on the 20th February, 1975. A certified true copy of the certificate of incorporation was tendered and marked Exhibit “A”. A certified true copy of the particulars of Directors was also tendered and marked Exhibit “B”. The 1st defendant was shown on Exhibit “B” as one of the Directors of the 2nd defendant company.


The 1st defendant had paid a total sum of N16,000 to the plaintiff, but the second defendant did not pay any sum of money to the plaintiff as it was not in existence in 1972. The plaintiff has not been paid the balance of N24,000 on the deed of assignment.


The defendants filed a Statement of Defence and counter-claimed for specific performance of the agreement to assign on the ground of part performance. In the alternative, they claim that they are entitled to a refund of the sum of N40,000 received by the plaintiff as money due to them as failure of consideration or in the alternative as money had and received to the use of the defendants.


When this case came up for hearing on the 26th of October 1976, the defendants were absent and were not represented by Counsel.

Order 32 rule 2 of the High Court of Lagos State (Civil Procedure) Rules 1972, provides as follows:

“If, when a trial is called or the plaintiff appears, and the defendant does not appear, then the plaintiff may prove his claim so far as the burden of proof lies upon him.”


Since the defendants did not appear, there is no evidence in proof of their counter-claim, but on the evidence of the plaintiff himself, I am satisfied that 1st defendant paid a total sum of N 16,000 to the plaintiff in 1972 in connection with the agreement to assign the lease to 2nd defendant.


The crucial point to decide in this case is what is the effect of the agreement to assign entered into by the plaintiff and the 1st defendant before the incorporation of the 2nd defendant company?


Since the defendants in their Statement of Defence admit the fact that the 2nd defendant company was only registered in February 1975, with the 1st defendant as director and one of the shareholders, then there is no issue joined on the question of fact as the non-existent of the 2nd defendant company at the date of the alleged contract in 1972, and the only question to be decided is on the law—see Pioneer Plastic Containers Ltd. v. Commissioners of Customs and Excise [1967] 1 All E.R. page 1053.


The law is that before its incorporation a company has no capacity to contract, consequently, in common law, nobody can contract for it as agent because an act which cannot be done by the principal himself cannot be done by him through an agent, nor can a pre-incorporation contract be ratified by the company, after its incorporation. If a pre-incorporation contract is purported to be made by a company which does not exist the contract is a nullity, and neither the company when formed, nor the promoter whose signature is added can sue or be sued on the contract—Palmer’s Company Law, 22nd Edition, Volume 1 page 271; see also Dalio Caligara v. Giovanni Sartori & Co. [1961] 1 All N.L.R. 534. To make a contract valid there must be parties existing at the time who are capable of contract-ing. Both upon principle and upon authority a non-existent company cannot be held liable under a contract entered into before its incorporation and it cannot take any benefit under it—see Kelner v. Baxter (1866) L.R. 2 C.P. 176. TAGA and GATA (Nig) Ltd., was not in existence when the agreement to assign the lease to the company was entered into between the plaintiff and Chief J.S. Tarka. That being so, the deed of assignment is a complete nullity—see Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 Q.B. 45.


The plaintiff also claims 1428,000 against the first defendant “being balance of special and general damages for his fraudulent misrepresentation and deceit of the plaintiff.”


The measure of damages in the tort of deceit was put very clearly by Collins, M.R. in McConnell v. Wright [1903] 1 Ch. 546, pp. 554-555.

“It is not an action for breach of contract, and, therefore, no damages in respect of prospective gains which the person contracting was entitled by his contract to expect to come in, but it is an action of tort—it is an action for a wrong done whereby the plaintiff was tricked out of certain money in his pocket; and therefore, prima facie, the highest limit of his damages is the whole extent of his loss and that loss is measured by the money which was in his pocket and is now in the pocket of the company. That is the ultimate, final, highest standard of his loss.”


The correct measure of damages in the tort of deceit is an award which serves to put the plaintiff into the position he would have been in if the representation had not been made to him. In other words, if the plaintiff had been induced by the deceit to conclude a contract, he is only entitled to recover any financial loss suffered by him as a result of the deceit.


Damages for deceit is to be based on the actual damage directly flowing from the fraudulent inducement Clark v. Urquhart [1930] A.C. p.28. There is no evidence the plaintiff suffered any pecuniary toss as a result of the 1st defendant’s deceit of misrepresentation. That being so, the claim for N28,000 for deceit must fail.


On the question of restitution, an innocent party could only rescind a contract if he could put the party in breach in status quo. This approach which is founded upon the principle of restitutio in integrum, appears still to be adopted in cases concerned with the sale or lease of land. It is now established that money paid under a contract later brought to an end is recoverable provided that the consideration for payment has wholly failed—see The Law of Restitution, by Goff and Jones, page 24; see Rose & Frank v. Crompton Bros [1925] A. C. 445; Jones v. Vernon Pools Ltd. 193812 All E.R. 626.


On the counter-claim by the defendants for refund of N40,000 being money received by the plaintiff on a consideration that has totally failed, I accept the evidence of the plaintiff, which remains uncontradicted, that the 1st defendant paid only N16,000 and not N40,000 to him. I hereby order that the plaintiff should refund the sum of N16,000 to the 1st defendant as on a consideration that has totally failed, due to the fact that the agreement upon which that amount was paid is a nullity.


On the question of specific performance, there can be no ratification by the person or a corporation not existing at the time the contract was entered into. If the 2nd defendant cannot ratify the agreement to assign, then it cannot counter-claim for specific performance of an agreement which is a nullity.


Section 5 (2) of the Law Reform (Contracts) Law, provides as follows:-”No contract to which this section applies should be enforceable by action unless the contract or some memorandum or note in respect thereof is in writing and is signed by the party to be charged therewith or by some other person lawfully authorised by him.”


The deed of assignment in this case, copy of which was put in evidence by the plaintiff, has not been executed by the 2nd defendant company, the patty to be charged, or by some other person lawfully authorized by the company. That being so, it seems to me that on that score alone, neither the plaintiff nor the defendants can institute any action to enforce the contract and therefore defendant’s counterclaim for specific performance of the contract must be and is hereby dismissed.

In a case of this nature, where a plaintiff adduces evidence which establishes his claim against the defendant in the terms of the writ and that evidence is not rebutted by the defence, the plaintiff is entitled to judgment—Nwaboku v. Onih [1961] 1 All N.L.R. page 487. The net result is that the purported deed of assignment executed by the plaintiff in 1972 in favour of the 2nd defendant company, which was non-existent in 1972, is void and of no effect. There would therefore be an order restraining the defendants, their servants or agents from entering, interfering or trespassing on the plaintiff s leasehold property described in the said deed of assignment.


The plaintiffs claim of N28,000 against 1st defendant, general and special damages for fraudulent misrepresentation and deceit of plaintiff, is hereby dismissed. The claim of N16,000 general damages is also dismissed.




error: Our Content is protected!! Contact us to get the resources...