TRENCO (NIG) LTD v AFRICAN REAL ESTATE AND INVESTMENT CO. LTD. AND Another (SC.206/76) [1978] NGSC 16 (14 April 1978)

Reported

IN THE SUPREME COURT OF NIGERIA

On Friday, the 14th day of April 1978

SC.206/76

Between

TRENCO (NIG) LTD ........................................ APPELLANT

And

AFRICAN REAL ESTATE AND INVESTMENT CO. LTD. & ANOR. ............................. REPONDENT

 

The plaintiff/appellant a limited liability company were engaged by the 1st Defendant/1st respondent to erect for them a hotel which was to be ready by 1st October, 1960 in anticipation of influx of foreign visitors to Nigeria for the Independence celebrations. The plaintiff/appellant were requested "to work round the clock" in order to ensure that the hotel was ready for that date. There was no contract signed by both parties but after discussions between the plaintiff/appellant and the Managing Director (Dr Mbanugo) of the 1st defendent/1st respondent and who was also director of 2nd defendant/2nd respondent wrote a letter (Exhibit 1) addressed to the 2nd respondent informing the 2nd respondent that a contract has been awarded to the appellant and that the 2nd respondent should make available to them the sum of N10,000 pounds out of their funds lodged with the 2nd respondent.

Armed with this letter the appellant were yet working on the job when they were instructed by the 1st respondent to stop work because there was doubt as to the genuiness of the title to the land.

In the meantime the 2nd respondent proceeded to treat the monies given to the appellant as loans to the appellant and to debit their account with the loans and the interests thereon. The appellant then sued the respondents asking for a declaration that the total payments of £12,710.3s.2d, by the 2nd defendant/respondent bank to the plaintiff/appellant plus bank charges and interest thereon were payment made on behalf, of the 1st defendant to the plaintiff/appellant and not loans or advances made to the plaintiff/appellant as customer of the said bank. The plaintiff/appellant also claimed against the 1st defendant/respondent the sum of £10,000 being the estimated profit from the said contract. These claims the trial Judge dismissed having found that there was no formal agreement signed by the appellant and the 1st respondent which amounted to a contract.

The appellant appealed against this decision contending that the 2nd respondents were not entitled to saddle them with the liability for those advances and the advances were properly chargeable to the account of the 1st respondents in the 2nd respondents bank. The 1st respondent in their case denied any liability to the appellant contending that they did not enter into any contract with the appellant and did not authorise any monies to be paid out by the 2nd respondent from the 1st respondent's account in the 2nd respondent's bank.

 

HELD

 

(1)     It is clear on evidence that the 2nd respondent bank acted on the instruction contained in Exhibit 1 and advanced monies to the appellant on the clear understanding that the monies were being advanced by the 1st respondent in accordance with the tenor of their chairman's letter Exhibit 1.

 

(2)     There is no doubt that there was no valid contract "strictissimi juris", between the appellant and the 1st respondent on the strength of Exhibit 1.

 

(3)     "Section 32 (1) of the Companies Decree 1968 has laid down the principles governing the forms of contracts to be entered into by companies. The effect of this is that a company contracts orally or in writing or by deed in the cases in which an individual can do so... Exhibit 1 was not signed by the 1st respondents at all, not to talk of whether the seal of the company was affixed, which was not."

 

(4)     A Company, although a legal person, in an artificial one which can only act through its human agents or officers. It follows that a company although having a corporate personality is deemed to have human personality through its officers and agents and will therefore speaking generally, contract like an individual.

 

(5) Dr Mbanugo was a director of both the 1st and 2nd respondent and in addition was the chairman of the 1st respondent company. He had therefore a high status in both companies and so could represent the company.

 

(6)     "Although Exhibit 1 is not properly a contract between the appellant and the 1st respondent the matter must not rest as that." On the strength of Exhibit 1, the appellant had proceeded with work and expended money and in the circumstances certain equities must ensure to the benefit of the appellant.

 

(7)     Normally true agency arises by agreement only but there are circumstances in which the law recognises agency by estoppel in which case the principal is estopped from denying that another is his agent and his relationship with 3rd parties may be affected by the acts of that other.

 

(8)     The appellant were entitled to take the chairman seriously in the discussions they had resulting in his issuing of Exhibit 1 and that they were entitled to presume that everything was regular.

 

(9)     The appellant can hardly be expected to bear the financial burdens of undertaking a construction which was commissioned by the chairman of the 1st respondent company when there was nothing on the face of it to indicate to either that the chairman had not the authority to commission them to carry on the irregularity in his so doing.

 

(10) Although Exhibit 1 cannot be held to be a binding contract it can be held to be evidence of an existing contract.

 

(11) For an appellant to succeed in its claim for estimated loss of profit it must establish an enforceable contract and its breach. This the appellant has not been able to do even though the 1st respondent is estopped from denying the contract mentioned in Exhibit 1 and so their claim must be dismissed.

 

Appeal allowed but claim for £10,000 being the estimated profit from contract dismissed.

 

Mr Lander for the Appellants.

 

Mr Ikokwu for the 1st Respondents.

 

Mr Sotubo for the 2nd Respondents.

 

Cases referred to:

 

Bolton (Engineering) Co. Ltd. Vs. Graham & Sons (1957) 1 Q.B. 159.

 

Ferguson Vs. Wilson (1866) L.R. 2Ch. 77.

 

Lennards Carrying Co. Vs. Asiatic Petroleum Co. Ltd. (1915) A.C. 705.

 

Mahony Vs. East Holyford Mining Co. (1875) L.R. 7.

 

Montaignac Vs. Shitta (1890) 15 A. C. 357.

 

Nocton Vs. Lord Ashburton (1914) A.C. 932.

 

Royal British Bank Vs. Turquand (1856) 6E & B 327.

 

Statute referred to:

 

The Companies Act, 1968.

 

Aniagolu, J.S.C.-This is an appeal from the judgment of Kassim, J., sitting in the High Court of Lagos, in a suit commenced since June, 1966, in which the plaintiff company claimed variously as follows:

 

"The Plaintiff seeks as against both defendants jointly and severally an order of declaration that the total payments of £12,710.3.2d by the 2nd defendant Bank to the plaintiff plus bank charges and interest thereon were payment made on behalf of the 1st defendant to the plaintiff and not loan or advances made to plaintiff as customer of the said Bank and the said sums are therefore not recoverable from the plaintiff.

Pursuant to a building contract between the plaintiff and the 1st defendant, the 2nd defendant paid the plaintiff a total sum of £12,710.3.2d from the funds of the 1st defendant deposited with the 2nd defendant.

The 1st defendant has now committed breach of the said contract, 2nd defendant now threatens to treat the said sums as loan made to the plaintiff, whereas the payments were made to plaintiff on behalf of the 2nd defendant and on its account. Alternatively the plaintiff claims against the 1st defendant the sum of £12,710.3.2d plus interest payable thereon, being general and special damages for breach of the said contract.

Lastly the plaintiff further claims against the 1st defendant the sum of £10,000 (Ten thousand pounds) sterling, being the estimated profit from the said contract.

Dated this 20th day of June, 1966."

 

Counsel for appellant, Mr Lardner, in the course of the hearing of this appeal limited the amount he claimed to £10,000 instead of £12,710.3.2d as claimed in the writ.

 

Pleadings were filed following the order of the court. Series of applications for amendments to their pleadings were made by the parties and were granted by court resulting in amendments to the statement of claim and defence and a reply filed to the amended statement of defence.

 

From the pleadings and the evidence the gist of the case of the plaintiffs, a limited liability company with their headquarters in Lagos, was that the 1st defendants in April 1960, engaged them to erect for them "a substantial building" on a piece of land situate at King George Avenue, Yaba, on "agreed contract price" of £60,000.00. It was an oral agreement. The said building to be erected was to be a Hotel which was to be got ready by the plaintiffs against the anticipated influx of foreign visitors to Nigeria for the 1st October 1960 Independence celebrations. The plaintiffs were requested "to work round the clock" in order to ensure the Hotel was ready for that date. After the discussions between the plaintiffs and the Chairman of the Board of Directors of the 1st defendants, DR. GODWIN CHINWENDU MBANUGO who was at the same time a Director of the 2nd defendant - Bank, DR. MBANUGO wrote the letter Exhibit 1, addressed to the General Manager (Frederick Sigismund McEwen) of the 2nd defendants who were bankers to the 1st defendants. He handed the letter to the Managing Director of the plaintiff company, Alhaji Awesu Atanda Adeyemi, for him to deliver to Mr McEwen. This letter (Exhibit 1) dated 12th April 1960, was the hub around which the case of the plaintiffs and the arguments of the parties hinged. For its importance we reproduce the letter hereunder:

 

"AFRICAN REAL ESTATE AND INVESTMENT CO. LTD.

A.C.B. Building

P.O. Box 171

ENUGU

12th April, 1960

Directors

Godwin Chinwendu Mbanugo

Moses Onuorah Balonwu

John Aka Egwu

Mary Nwametu Nzimiro

 

 

F.S. McEwen, Esq.

General Manager

African Continental Bank Ltd.

YABA.

 

 

Dear Sir,

 

I wish to inform you that the contract for the construction of the new Ambassador Hotel in Yaba has been awarded to Trenco (Nigeria) Ltd., following detailed discussions held at Enugu between the Managing Director of that company, Mr A.A. Adeyemi and my Board. The contract price has been agreed at £60,000 and a condition of the contract is that the keys for the building should be delivered to my Company on or before 25th September, 1960.

In order to effect this, Mr Adeyemi has agreed to work virtually round the clock and the Board have agreed to grant him such facilities as he may require to purchase necessary construction materials, and it is mainly for this reason that this letter is being addressed to you. As a first step, therefore, will you please make available to Mr Adeyemi, the sum of £10,000, out of the Company's funds now lodged with you. Normally Trenco (Nigeria) Ltd would have received only 10% of the contract price at each stage of the work, but bearing in mind the extreme urgency of the matter it has been decided to meet Trenco's immediate financial requirements.

The other matter which should be considered "simultaneously is the question of the Architects and the Structural Engineers. I understand that Gregg Smith and Associates of 6 Aje Street, Yaba drew the plans of the proposed hotel and they would have carried out the supervision of the construction at all stages, including the issue of certificates of work done to enable the contractor to be paid. I also understand that the structural Engineers would have checked the strength of steel structures before concrete is fed.

The point I am trying to convey is that Mr Rossek should normally have paid the Architect's fees before the building plans and specifications were surrendered to him and it is considered that if my company should pay any fees to the Architects to complete their duties, this should be for account of Mr Rossek. The position of the Structural Engineers is probably not identical, and I should be grateful if you would investigate it and do what you consider necessary.

I do not remember if the plans contain provision for the telephone in all suites and for electric bell switches in all bathrooms and bedrooms. Trenco should make provision for this in their construction. With regard to the provision for the two lifts, I understand from Mr Adeyemi that these would cost £4,048 from U.T.C. These lifts are to be provided by my company and I shall be grateful if you will deal with this aspect of the matter by including with the amount payable to the Contractors, one third of the cost of the lift to enable U.T.C. to place the order for them.

 

Yours faithfully,

(Sgd.) G.C. Mbanugo Chairman"

 

It was agreed by the parties, although it is of little moment on the issue between the plaintiffs and the defendants, that the said property at King George Avenue, Yaba, on which the plaintiffs were to erect the building for the 1st defendants was in the occupation of one Anthony Rossek, a Lebanese, who had, and was running, a hotel called Ambassador Hotel at the place. He had wanted to reconstruct the hotel and engaged the plaintiffs in 1959, to carry out the reconstruction. Apparently as the October 1st 1960 Independent celebrations were drawing close he was prepared to sell the property to the 1st defendants. At that stage he had completed the foundations of the reconstruction. It was he who recommended the plaintiffs to the 1st defendants leading to the discussions at Enugu between Dr Mbanugo and Alhaji Awesu Adeyemi as a result of which Exhibit 1 was written by Dr Mbanugo.

 

Armed with the letter, Exhibit 1, Alhaji Adeyemi returned to Lagos and met Mr McEwen and delivered the letter to him. Mr McEwen promptly acted on the letter and allowed the plaintiffs to draw monies, with which he commenced the job, from the 2nd defendants. The plaintiffs got on with the job, assembling at the site different categories of workers and materials. Initially there was no question of the plaintiffs being debited with the withdrawals made on the basis of Exhibit 1. At that stage it was a straightforward transaction in which Mr McEwen acted on the strength of the letter, Exhibit 1. We shall later deal with how the mater transformed from its natural simplicity to the apparently confused state into which it later fell.

 

The plaintiffs were yet working on the job when Mr McEwen instructed the Managing Director of the plaintiff company, on behalf of the 1st defendants, to stop work because the 1st defendants

 

"were not wishing to go on with the contract because there was doubt as to the genuiness of title to the land."

 

The plaintiffs, accordingly, stopped work.

 

In the meantime the 2nd defendants had proceeded to treat the monies given to the plaintiffs for the execution of the work following the letter Exhibit 1, as loans to the plaintiffs and to debit their account with the loans and the interests thereon. The plaintiffs contended that the 2nd defendants were not entitled to saddle them with the liability for those advances and that the advances were properly chargeable to the account of the 1st defendants in the 2nd defendants' bank.

 

The 1st defendants in their case denied any liability to the plaintiffs contending they did not enter into any contract with the plaintiff and did not authorise any monies to be paid out by the 2nd defendants from the 1st defendants' account in the 2nd defendants' bank. They did not instruct the plaintiffs to stop any work at the site; they did not instruct anyone to contract with the plaintiffs on their behalf and the plaintiffs did not do any work for them. They had made approaches for the purchase of the former Ambassador Hotel, Yaba, from one Rossek at a price of £55,000.00. The purchase was subject to an inspection of title deeds and valid transfer being assured by the 1st defendants' Solicitors. No agreement was reached and negotiations broke down.

 

For the 2nd defendants, their case was that the plaintiffs were ordinarily customers of the Bank. The plaintiffs applied for advances, loans, and overdrafts from time to time and were granted. The 2nd defendants did not act for the 1st defendants in the building by the plaintiffs of the Ambassador Hotel. They did not give the plaintiffs monies totalling £12,000.00 or at all, on behalf of the 1st defendants. What happened, they contended, was that the plaintiffs, ordinarily as customers, applied for loans and got the loans. The plaintiffs had a number of jobs they were executing and were drawing monies from the Bank to finance those job. There were no separate accounts in the books of the defendants Bank appropriating specific withdrawals to specific jobs. For example, contended the 2nd defendants, as at the date 24th February, 1961 when the demand letter (Exhibit 70) was written to the plaintiffs drawing their attention to the state of their account, their indebtedness to the Bank stood at £19,153.1.7d; as at 28th March, 1964 the account was £22,597.14s.6d debit or overdrawn. It was therefore the 2nd defendant's case that there could be no question of the plaintiffs extracting £12,000.00 out of their debit balance and affixing liability for it to either of the defendants.

 

It is necessary before dealing with the issues of law which naturally arise from, or which were raised in, this appeal, to return to Exhibit 1. We had stated that the letter was initially treated simply for what it was, namely, an instruction that the plaintiffs be advanced monies from the account of the 1st defendants in the 2nd defendants Bank with which to execute, expeditiously, the job to be done at the site of the Ambassador Hotel, Yaba, Mr McEwen to whom the letter was addressed testified in evidence-in-chief that:

 

"After reading the letter, I gave instructions for Messrs Trenco, the Plaintiffs, to be advanced money in accordance with the request of the letter. To my knowledge work was done by the Plaintiff. I don't know if he worked round the clock. A Hotel was to be got ready for the Independence Celebration."

 

Witness admitted that the correct thing he would have done on receipt of Exhibit 1 was to advance the £10,000.00 to the plaintiffs and debit the account of the 1st defendant company. He swore in evidence:

 

"The correct thing I should have done was to give "plaintiff company £10,000.00 and debit the account of first defendant company; but before you can debit the account of a company the instruction for payment ought to have been signed by the signatories to their account. Dr Mbanugo is the Chairman of first defendant company and also a Director of 2nd defendant bank. Exhibit "1" is a letter of instruction. It is not a letter of intention. I gave advances to the plaintiff as for Exhibit 1, debit their account with them and changed their interest as they were overdrafts. When I called upon the first defendant to have their request properly signed in order that their account might be debited, they refused to comply."

 

Under cross-examination of Mr Balogun for the plaintiffs Mr McEwen answered:

 

"On the receipt of Exhibit 1 I directed that money be advanced to the plaintiff company."

 

Further on, he replied to Mr Balogun:

 

"When Alhaji Adeyemi brought Exhibit 1 from Dr Mbanugo he did not specifically ask for an overdraft."

 

It was clear on the evidence.

 

1.      that the 2nd defendant Bank acted on the instruction contained in Exhibit 1 and advanced monies to the plaintiffs on the clear understanding that the monies were being advanced by the 1st defendants in accordance with the tenor of their Chairman's letter, Exhibit 1;

 

2.      that Alhaji Adeyemi, the Managing Director of the plaintiff company received the advances on the clear understanding that they were being given to the plaintiff company by the 1st defendants pursuant to the discussion he had, and the agreement he arrived at, with Dr Mbanugo, the Chairman of the 1st defendant company;

 

3.      that the question of debiting the account of the plaintiffs in respect of the monies advanced for that Ambassador Hotel project following the letter Exhibit 1, arose only when the 2nd defendants failed to get the 1st defendants, a limited liability company, to execute necessary documents, in accordance with the law, for the purpose of properly debiting the account of the company with the monies advanced to the plaintiffs. The 1st defendants having refused to execute the documents, the 2nd defendants, in order not to carry the liability themselves seized the opportunity of the plaintiffs having an account with them and debited them with the withdrawals.

 

The inference to be drawn from all the evidence was that the 2nd defendants found themselves in desperate circumstances and debited the plaintiffs in desperation. The 1st defendants would not carry the liability even though their Chairman wrote the letter; the 2nd defendants equally would not either, even though the writer of Exhibit 1 was a Director of the 2nd defendant Bank. Having taken umbrage under the technicalities of the law the defendants have shited the burden to the plaintiffs. The 1st defendants have, rightly we think, claimed that they did not enter into any contract in accordance with the law since the letter Exhibit 1 cannot constitute a contract binding on them. The 2nd defendants equally cannot in law bind the 1st defendants on the strength of Exhibit 1 and therefore cannot make them incur financial liability by debiting their account on the strength of that Exhibit. That they have done in effect is:

 

"Plaintiffs, you took the advances from us, you have to bear the liability. We shall debit you. You may go and sort things out the best you can with the 1st defendants."

 

Mr Ikokwu who appeared for the 1st respondents, while agreeing that there was a negotiation between Dr Mbanugo and Alhaji Awesu Adeyemi for a contract, contended that a proper contract had not been entered. He conceded that Mr McEwen must have agreed to make the advance of £10,000.00 to the plaintiffs on the strength of Exhibit 1, but submitted that the Bank (2nd Respondents) could not debit the account of the 1st Respondents unless proper banking requirements were complied with. Mr Ikokwu further conceded that there was no question of any charge of fraud or dishonesty being made against Alhaji Adeyemi or the plaintiff company in the entire transaction. That he charged was that they were "not prudent" and were "overzealous."

 

The case of the 1st Respondents is further more clearly brought out by paragraphs 9, 10 and 11 of the amended statement of defence which read:

 

"9.     The 1st defendant states that although it has made approaches for the purchase of the former Ambassador Hotel at Yaba, Lagos from one Mr A. Rossek at a price of £85,000, the purchase was subject to an inspection of title deeds and valid transfer being assured by the 1st defendant's Solicitors.

 

10.     The 1st defendant further states that no agreement was reached as negotiations for the purchase broke down. No contract was therefore signed between the owner vendor and the 1st defendant.

 

11.     The 1st defendant did not take possession of the premises and was not in a position to authorise anyone to build on its behalf."

 

Mr Ikokwu submitted that equity could not aid the plaintiffs on the representation of Exhibit 1 which, although intended by the maker that it should be acted upon, yet it was an invalid mandate as between the 1st and 2nd Respondents in their relationship of Customer and Banker. If the mandate was not complete, such as the 1st Respondents' signatories to the account, he submitted, 2nd Respondents could not debit the account of the 1st Respondents.

 

There is no doubt that there was not valid contract, strictissimi juris, between the plaintiffs and the 1st Respondents on the strength of Exhibit 1. 1st Respondents were a limited liability company. Section 32(1) of the Companies Decree 1968 has laid down the principles governing the forms of contracts to be entered into by companies. It provides:

 

"32.- (1)     Contracts on behalf of a company may be made as follows:

 

(a)     any contract which if made between private persons would be by law required to be in writing under seal, or which could be varied, or discharged only by writing under seal, may be made, varied or discharged, as the case may be, on behalf of the company in writing under the common seal of the company;

 

(b)     any contract which if made between private persons would be by law required to be in writing, signed by the parties to be charged therewith, or which could be varied or discharged only in writing signed by the parties to be charged, may be made, varied, or discharged, as the case may be, on behalf of the company in writing signed in the name or on behalf of the company by any person acting under its authority, express or implied;

 

(c)     any contract which if made between private persons would by law be valid although made by parol only and not reduced into writing or which could be varied or discharged by parol, may be made, varied or discharged, as the case may be, by parol on behalf of the company by any person acting under its authority, express or implied."

 

Sub-section 2 provides:

 

"(2)    A contract made according to this section shall be effectual in law, and shall bind the company and its successors and all other parties thereto, their heirs, executors, or administrators as the case may be."

 

The effect of this is that a company contracts orally or in writing or by deed in the cases in which an individual can do so. Exhibit 1 was not signed by the 1st Respondents at all, not to talk of whether the seal of the company was affixed, which was not.

 

But a company, although a legal person, is an artificial one which can only act through its human agents and officers. Viscount Haldane L.C. in Lennard's Carrying Co. Vs. Asiatic Petroleum Co. Ltd. (1915) A.C. 705 stated:

 

"My Lords, a corporation is an abstraction, it has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purpose may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation..."

 

This human personification of a company was clearly brought out by Denning L.J. in Bolton (Engineering) Co. Ltd. Vs. Graham & Sons (1957) 1 Q.B. 159 t.p. 172-173 where he said:

 

"A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of those managers is the state of mind of the company and is treated by law as such..."

 

It follows that a company although having a corporate personality is deemed to have human personality through its officers and agents and will therefore, speaking generally, contract like an individual.

 

It was admitted on all sides that Dr Mbanugo was both a Director of both the 1st and 2nd Respondent companies. In additio

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