Course Outlines

Business Law is divided into several branches namely:

1. Nigerian Legal System
2. Agency
3. Alternative Dispute Resolution
4. Banking Law
5. Company Law
6. Contract
7. Economic Torts
8. Hire Purchase
9. Intellectual Property
11. Partnership
12. Sale of Goods

For the purpose of this programme. Business Law will be divided into 2. Business Law 1&
Business Law 2. Business Law 1 will feature Nigerian Legal System, Classification of Business
Law, Contract and Company Law.

SUMMARY OF BUSINESS LAW 1

1.0 The Nature of Law

Law can be defined as a body of rules and regulations which regulate conducts in a
society. Various views have been expressed about law by various scholars, writers and jurists.
Based on their views, these writers have been categorised into several schools of jurisprudence.
There are six schools of conventional jurisprudence namely: Natural Law School, Legal
Positivism, Historical School, Sociological School, Realists School and Marxists School.

1.1 Natural Law School

The idea of natural law is that certain moral principles are standard and universal and are
discoverable by man through the exercise of his faculty of reasoning. These principles soon
consolidated into a system of law which is considered to be superior to man made law. This
system is called natural law.
1.2 Legal Positivism
Law is a command issued by a sovereign and backed by a sanction. The sovereign is a
determinate human superior who in any political society who receives habitual obedience from
the bulk of the people. He gives orders to all but receives orders from none. Thus he is an
uncommanded commander. The power of the sovereign is therefore absolute, inalienable,
permanent and indivisible.
The nature of any particular law is a reflection of the spirit of the people who evolved it.
Thus law grows with the growth of the people and any legal reform must be preceded by a deep
study of the history of the legal system. The question being to what extent the ought's of
contemporary laws had been fashioned by the past. The source of the law is not the command of
the sovereign, not even the habits of a community, but the instinctive sense of right possessed by
every race. Custom may be evidence of law, but its real source lies deeper in the minds of men.
The living law is the secret of its validity. In those matters with which he is directly concerned,
every member of the community has an instinctive sense as to what is right and proper, although
naturally he will have no views on matters which are beyond his experience. Legislation can
succeed only if it is in harmony with the internal convictions of the race to which it is addressed.
If it goes further, it is doomed to failure.

1.3 Sociological School

This school is concerned with the role of law in the society and how it can be made to be
more functional or effective. The role of law is likened to social engineering. The law making
process must seek to identify and appreciate the conflicting values and needs of the people. The
interpretation and the application of law must be done in such manner as to achieve balance of
conflicting interest so as to secure satisfaction of the maximum of wants with the minimum of
frictions. Law in essence is a mechanism for balancing the conflicting interest in the society.

1.4 Realists School

The genesis of this school can be traced to the famous lecture delivered by Justice
Holmes in 1897 where he said that the prophecies of what the courts will do infact and nothing
more pretentious are what he meant by the law.

1.5 Marxists School

The Marxists school of Jurisprudence adopted an economic interpretation of the nature of
law. Accordingly the content of law is a reflection of economic substrate. According to the
Marxists, Law is an instrument by which the capitalists (the minority) exploit and oppress the
proletariats (workers).
2.0 Sources of Nigerian Law
Basically there are six sources of Nigerian Law namely: Customary Law; Received
English Law ; Nigerian Local Legislation including Delegated Legislation; Judicial Precedents;
Law reports and Textbooks.
2.1 Customary Law
Custom in law is the established pattern of behavior that can be objectively verified
within a particular social setting.
Customary law exists where a certain legal practice is observed and the relevant actors consider
it to be law.
For any customary rule to have the force of law, it must not be repugnant to natural
justice, equity and good conscience. In the case of Edet v Essien where a Benin custom
encourage that the first person that first paid dowry on a lady will be the biological father and
husband of the children and wife born by another man who paid the second dowry, the court
held that such principle of customary law was repugnant to the principle of natural justice,
equity and good conscience and shall not be enforced.
Secondly such rule must not be incompatible either directly or by implication with any
law for the time being in force. Finally, it must be the existing native law or custom and not the
native law and custom of ancient time.
Customary law has to be proved to be in existence in any society before non- customary
courts. This may be done either through the testimony of witnesses who are considered versed in
that area or through the use of books and manuscripts. But the need for proof of a particular
custom by evidence can be dispensed with if judicial notice has been taken of the particular
custom. The Evidence Act provides for circumstances in which the court may take judicial notice
of a rule of customary law.
2.2 Received English Law
The English laws so received in the country consist of three branches: The Common Law
of England ; The doctrines of Equity ; The Statute of General Application in force in England on
the 1st of January 1890 and Statute and Subsidiary Legislation on specified matters.

2.3 Nigerian Legislation

These refer to the laws made by any legislative authority in Nigeria. Names given to
these laws depend on the level of authority that made them and the type of government in power.

2.4 Judicial Precedent

The idea is that the principle of law on which a court based its decision in relation to the material
fact before it must be followed by a court below it in the judicial hierarchy.
Specifically what constitute a precedent for later judgment is the raio decidendi i.e. the
reason for the decision. Such statement made by the judge in passing or by the way in the course
of delivering his judgment and which is not strictly relevant to the issue before him is an obiter
dictum. This has no binding effect but may be of persuasive authority. And where a decision or
judgment of a court of law is arrived at by mistake or oversight of the law, such decision or
judgment is said to be given per incuriam
2.5 Law Reports
Law reporting is essential for the growth of case law system.

2.6 Textbooks
On points of law, especially where such points have not been previously decided in the
court or where the position of the law on the point in not clear, courts may turn to textbooks by
notable authors for assistance and guidance.
3.0 Divisions of Nigerian Law
The Nigerian law may be divided into criminal and civil law.

3.1 Criminal Law

This pertains to crime and the administration of penal justice.
Criminal law defines those conducts which are forbidden by the state and prescribes punishment
for the breaches. Its principal arms are: (a) to preserve public order and decency; (b) to protect
the citizens from what is offensive and injurious; (c) to provide sufficient safeguards against the
exploitation and corruption of the more vulnerable members of the society. Offences may be
felonies, misdemeanor or simple offences. A felony is an offence declared by law to be a felony,
or is punishable without proof of previous conviction with death or by imprisonment for three
years or more.
A misdemeanour is an offence which is declared by law to be a misemeanour or is
punishable by imprisonment for not less than six months but less than three years. An offences is
a simple offence if it is neither, a felony nor a misdemeanour. This distinction between felony
and other offences is important in relations to power of arrest and bail.
3.2 Civil Law
This is the law governing conducts which are generally not punishment by the state. Civil
law may be classified as Public Law, Private Law, and Business Law etc. These classifications
however overlap as for example, Agency and Company law are Business law subjects and are at
the same classified as Private law. Public law is that part of the civil law which primarily
focuses on the state, its organs, institutions and relationship with the individuals. Private law is
the law which deals generally with the relationship between individuals. Business law is the
generic name for the legal subjects which regulate business and commercial transactions between
two or more parties.

4.0 What is a Company?

Generally the word company is used to refer to any association of two or more persons
whether incorporated or unincorporated formed to pursue some common object(s) which may be
political, economic, social, religious, educational etc. A company may be unincorporated or
incorporated Viewed the word embraces partnership and company properly and strictly so called.
A company properly so called is also known as a corporation.

4.1 Classification of Companies

Corporations are either corporation sole, or corporation aggregate. A corporation sole is
one having only one member at any time. A corporation aggregate is composed of at least two
members, and is created by, by a special Act of the legislative arm of government, or by
registration as a Company under the Companies Act for the time being in force, or as a Building
Society or Industrial or Provident Society under the Acts relating to such Societies. A
corporation may be classified as chartered, statutory or registered corporations.
4.2 Differences Between Registered Company and Partnership
A registered company is a corporation i.e. a separate legal person distinct from the
members whereas a partnership is merely the aggregate of the partners. Consequently:

a. The debts and contracts of a registered company are those of the company and not those
of the members whereas in the case of a partnership firm, every partner is jointly and
severally liable with the other partners for all the firm’s debts and obligations incurred
while he is a partner.
b. Unless liquidated, a registered company continues in existence so that it is not affected by
the death, bankruptcy, mental disorder or retirement of any of its members.
c. While the property of a partnership belongs to the partners, that of a registered company
belongs to and is vested in the company.
d. While a partner cannot contract with the partnership property, that of a registered
company belongs to and is vested in the company.
e. The liability of a member of a registered company to contribute to its assets may be, and
is usually limited by shares, to the amount if any, remaining unpaid in respect of shares
allotted to him.
f. A further advantage is that there is separation of a management function. Management of
a company is in the hands of elected directors.
4.3 Limited and Unlimited Company
A limited company may be classified as limited by shares, guarantee or unlimited. A
company is limited by shares if the liability of a member to contribute to the company’s assets is
limited to the amount, if any, remaining unpaid on his shares. A company limited by guarantee is
that in which the members’ liability is limited to the amount which he has undertaken to
contribute in the event of its being wound up.

4.4 Unlimited Liability Company

A member’s liability is unlimited in an unlimited liability company. This form of
incorporation is particularly advantageous to family estate companies because it enables property
and income to be divided among members of the family.
4.5 Distinction between Private Company and Public Company
A private company under S. 22 of CAMA is one which is stated in its memorandum to be a
private company, which by its articles restrict the transfer of its shares; whose membership does
not exceed 50 and which cannot unless authorized by law, invite the public to subscribe for its
shares or debentures. From the above it is thus clear that the status of private company is
established by the terms of its Articles. In relation to public companies, private companies
privileges can be stated as follows:

(a) The minimum membership is two, whereas a public company must have at least seven
members. A private company may continue with one member for six months before that
member assumes unlimited liability.
(b) Shares may be allotted immediately the certificate of incorporation is received; a public
company may not do so until it has received the minimum subscription.
(c) A private company it does not have to file a statement in lieu of prospectus before
allotment.
(d) It may commence business immediately upon incorporation without the statutory
formalities required of a public company.
(e) There is no requirement to hold a Statutory Meeting or file a Statutory Report.
(f) It need have only one director, but that director may not also be the secretary.
(g) Separate resolutions are not demanded if more than one director is to be appointed at the
same time.
(h) The age limit regarding directors imposed by the Act is not applicable to a private
company.
(i) Subject to the articles, a quorum at a meeting is two
5.0 Incorporation of Companies / Corporate Affairs Commission
In the formation of registered companies in Nigeria the Corporate Affairs Commission
and the promoters play very active role. Part one of CAMA establishes a statutory or corporate
body known as the Corporate Affairs Commission as a body corporate with perpetual succession
and a common seal; capable of suing and being sued in its corporate name; and capable of
acquiring, holding or disposing of any property, movable or immovable, for the purpose of
carrying out its functions.” With headquarters in Abuja, the Commission is charged with
responsibility of administering and enforcing the provisions of the Companies and Allied Matters
Act including the regulation and supervision of the formation, incorporation, registration,
management, and winding up of companies in accordance with the provisions of the Act.
The membership consists of permanent and part-time members. The Registrar – General
of the Commission is the only permanent member.
6.0 Promoters
The promotion of a company is the process by which a company is incorporated by
registration under the Companies and Allied matters Act and established financially as a going
concern.

Under section 61 of the Act, a promoter is:

Any person who undertakes to take part in forming a company with reference to a given
project and to set it going and who takes the necessary steps to accomplish that purpose.

Among the decisions to be taken by the promoters at the initial stage of forming a company are:
(i) What type of company should be formed and should it be a limited or unlimited
company? a private or public company? If limited should it be one limited by shares or by
guarantee?
(ii) What should be the capital base of the company? That is how much is available or can be
raised to start off the company.
(iii) What should be the name of the company and where should it be located
(iv) What should be its main object
Having taken decisions on these they proceed to prepare necessary incorporation papers
6.1 Promoter’s Liability to the Company
A promoter, stands in a fiduciary position towards the company from the moment he acts
with the company

6.2 Promoter’s Remuneration

As regards his services, a promoter, unless there is a valid contract, enabling him to do
so, cannot recover any remuneration from the company for promotion services.
Pre incorporation Contract
Formerly as a general rule, if before the formation of a company, some persons purport to
make a contract on its behalf, or as trustees for it, such contracts are not binding on the company
when it is formed, even if the company takes the benefit of the contract.
The position now under section 72 CAMA is that such contract, notwithstanding the
terminology employed i.e. whether purportedly made by or on behalf of a company may be
ratified by the company after its formation and become bound by and entitled to its benefits.

6.3 Incorporation Procedures

The incorporation of a company is carried out by the completion of certain formalities by
the promoters. These involve the preparation and delivery to the Corporate Affairs Commission
under S. 35 of CAMA, certain documents listed below:
(a) The memorandum of association stating the objects of the company, the limited liability
status of the company i.e. that the company is a limited company with a share capital, the
amount of share capital with which the company wishes to be registered and its division into
shares of definite amount.
(b) The articles of association stating the rules for the internal workings of the company
covering such matters like transfer of shares, conduct of general meetings, board of
directors’ powers and extent to which such powers may be delegated to the executive
directors and payment of dividends.
(c) Notice of address of the registered office of the company and the head office if different
from the registered office;
A statement in the prescribed form containing the list and particulars together with the consent of
the persons who have agreed to be the first directors of the company;
(e) A statement of its authorized share capital signed by at least one director and any other
document required by the Commission to satisfy the requirements of any Law relating to the
formation of a company.
(f) Return of allotment of nominal share capital.
(g) Particulars of the Secretary, where he is mentioned in the articles of association.
(h) A statutory declaration in the prescribed form by a legal practitioner that these
requirements of the Act for the registration of a company have been complied with.
6.4 Presentation
All the above must be presented to the Commission which may accept the declaration as
sufficient evidence of compliance. By virtue of section 36 CAMA, the Commission shall register
the memorandum and articles of association unless in its opinion:
(a) They do not comply with the provisions of the Act or;
(b) The business or object of the proposed company is illegal or;
(c) Any of the subscribers is incompetent or disqualified or;
(d) There has been non compliance with the requirements of any other law on registration or;
(e) The proposed name conflicts or is likely to conflict with an existing trade mark or
business name registered in Nigeria.
6.5 Memorandum of Association of a Company
The Memorandum and Articles of Association together form the constitution of a
company. The Memorandum states the company’s objects, defines the limits of its powers and its
relationship to the outside world. The memorandum contains: (a) The company’s name, (b)
Object clause. (c) Limited liability clause, (d) Capital clause, (e) Registered office clause, and
(f) Association clause and subscription.
6.6 Articles of Association:
The Articles contain rules and regulations governing the internal management of the
company. These are subordinate to and controlled by the Memorandum
The article of association, being one of the documents required to be filed on incorporation must
state the following:
(a) Classes of shares to be issued; rights attached to each class, variation, restriction and
forfeiture of shares;
(b) Alteration of share capital;
(c) Meetings;
(d) Directors appointments, removal, powers and duties and those of other officers of the
company;
(e) Company’s seal;
(f) Dividend declaration and payments, accounts and audits etc;
(g) Liquidation process etc.

7.0 Consequences of Incorporation

As earlier mentioned, certain attributes necessarily flow from incorporation, but the
fundamental attribute of corporate personality from which indeed all others flow is that the
corporation is a legal entity distinct from its members. The implication of this corporate
personality were not fully appreciated even by courts until the celebrated case of Salomon v.
Salomon & Co1897 A. C 22. At the end of the 19th century. The case may be summarized as
follows: Salomon was in business as a boot manufacturer for many years. He later converted his
business into a private company limited by shares. This was done at a time when the business
was solvent. Himself, the wife and five children were the subscribers of the company. The
business was sold to the company at a price of £39,000, £9,000 was paid cash. Salomon was
allotted £ 20,000 fully paid shares of £ 1 each. His wife and children held one share each and
Salomon held 20,001 shares. Salomon left the rest of the price on loan to the company and for
this sum of £10,000 he was given debentures secured by a charge on the company’s assets. The
company later went into liquidation. Its remaining assets were enough to pay Salomon £10,000
secured debt only. The unsecured creditors who were owed £7,000 through the liquidator sued,
claiming that Salomon & Co. Ltd was a mere sham or alias or agent of Salomon who was the
company and thus cannot own himself. That being the case, the unsecured creditors should be
paid first. The trial and the appeal courts agreed with the liquidator. The House of Lords
unanimously reversed the two by holding that Salomon was a different, separate and distinct
person from Salomon & Co. Ltd. That being the case, he was justified in being paid first being
the secured creditor.
The principle laid down by the House of Lords in that case is that a company which has been
validly constituted under the Companies Acts is a legal person distinct from its members, and for
this purpose it is immaterial whether any member has a large or small proportion of the shares,
and whether he holds those shares beneficially or as a bare trustee.
8.0 Lifting the Veil of Incorporation of a Company
Under certain instances, the court will disregard the principle of separateness and attach liability
to the actual personalities behind the company. The companies’ Act also made provisions for
situations when the veil of incorporation will be lifted. These circumstances are :

a. Where the Company is incorporated to Perpetrate Fraud

b. Where the Company Carried on business for more than six month after Membership
reduction .
c. Where the number of directors fall below two
d. Where a Subsidiary Company is being used for Illegal or Improper Purpose.
e. Where the Business of a Company has been Operated Recklessly
f. Where a Company was formed for Illegal purpose.
h Where a Company Shares are held upon Trusts.
i Where a Company is Formed to Evade Tax

9.0 The Rule in Foss v. Harbottle

The rule in Foss v. Harbottle is that of a majority rule. It state that, the proper plaintiff in
an action to redress an alleged wrong to a company on the part of any one, whether the director,
member or outsider, or to recover money or damages alleged to be due to it is prima facie the
company and where the alleged wrong is any irregularity which might be made binding on the
company by a simple majority of members no individual member can bring an action in respect
of it. The appropriate agency to start an action on the company’s behalf is the board of directors
to whom such power is delegated as an incident of management.
The rule in Foss v. Harbottle(1843) 2 Ha. 461. greatly strengthens the majority, and to
mitigate its harshness on the minority a suit by even a shareholder instead of the company can be
allowed under certain circumstances.
A. When the Company is Acting or is about to Act Ultr
b. When the Act though not Ultra Vires could only be Resolved by Three- Quarters
Majority
c. Where a Shareholder Alleged that his Personal Rights have been Infringed or about to be
Infringed
d. Where the Interest of Justice Requires
10.0 Section 299 of CAMA restates the classical rule in Foss v. Harbottle.
S.300 of the same Act empowered court by injunction or declaration, on the application
of any member to restrain the company from:
a. entering into illegal or ultra vires transaction,
b. doing by ordinary resolution what is by its constitution or the Act required to be done by
special resolution,
c. doing any act or making omission affecting the applicant individual rights as a member,
d. committing fraud on the company or the minority shareholders.

11.0 Corporate Organs

Theoretically, the control of a company is divided between two bodies: the board of
directors, and the shareholders in general meeting.

11.1 General Meeting

The General Meeting is the means by which the investors can exercise control over the
company by attending and voting at its meetings even though there are legal limitations on the
powers of those meetings. Most of the powers of the company are vested in the Board of
Directors which exercises them directly or indirectly. The General Meeting may be annual,
extra-ordinary or statutory.
11.2 Annual General Meeting
S. 213 of CAMA requires every company to hold an annual general meeting, specified as
such in the notice calling it every year, with an interval of not more than 15 months between one
annual general meeting of the company and the next.
The usual business at the annual general meeting are;

a. The declaration of dividends;

b. The consideration of the accounts, balance sheets and the report of the directors and
auditors
c. The election of directors in place of those retiring, and
d. The appointment of, and the fixing of the remuneration of the auditors.
If default is made in holding the meeting, the Registrar-General may, on the application
of any member call or, direct the calling of the meeting and may give such ancillary directions
as he may deem necessary.
11.3 Extraordinary General Meeting
General meeting other than the annual general meeting must be convened by the directors
on the requisition of the holders of not less than 1/20 of the paid-up capital of the company
carrying the right of voting at general meeting or if the company has no share capital, of
members representing not less than 1/10 of the total voting rights.
11.4 Statutory Meeting
Statutory meeting is a general meeting of a public company limited by shares or by guarantee
which must be held within six months from the date of its incorporation.

12.0 Board of Directors

A board of directors is a group of people elected by the owners of a business entity who have
decision-making authority, voting authority, and specific responsibilities which in each case is
separate and distinct from the authority and responsibilities of owners and managers of the
business entity.
12.1 Exercise of Powers
The exercise by the Board of directors of its powers usually occurs in meetings. Most
legal systems provide that sufficient notice has to be given to all directors of these meetings, and
that a quorum must be present before any business may be conducted.

12.2 The Nature and Implication of the Fiduciary Duties of a Director

It was natural for the courts to describe the directors as trustees even though the
description is not totally correct.
The duties imposed upon directors are fiduciary duties, similar in nature to those that the
law imposes on those in similar positions of trust: agents and trustees.
As regards fiduciary duties, it should be pointed out that whereas the authority of the directors to
bind the company as its agents normally depends on their acting collectively as a board, their
duties of good faith are owed by each director individually.

12.3 Bonafide
Directors must act honestly and bona fide ("in good faith"). The test is a subjective one.
The directors must act in “good faith in what they consider—not what the court may consider is
in the interests of the company..."
12.4 Proper Purpose
Directors must exercise their powers for a proper purpose.

12.5 Unfettered Discretion

Directors cannot, without the consent of the company, fetter their discretion in relation to
the exercise of their powers, and cannot bind themselves to vote in a particular way at future
board meetings.

12.6 Conflict of Duty and Interest

As fiduciaries, the directors may not put themselves in a position where their interests
and duties conflict with the duties that they owe to the company.

12.7 The Directors Duty of Care and Skill under CAMA

In Nigeria section 282 of CAMA states that every director must exercise the powers and
discharge the duties of his office honestly in good faith and in the best interest of the company
and shall exercise the Degree Of Care, Diligence and Skill which a reasonably prudent director
would exercise in comparable circumstances. A breach by a director of his duties may lead to an
order for injunction, damages, compensation, restoration of the company’s property if traceable,
rescission of a contract, account of profits and summary dismissal.
12.8 The Appointment, Election and Removal of Directors
In Nigeria by virtue of section 246 CAMA, all registered companies must have directors
and normally there must be at least 2 directors.
A director can be removed by ordinary resolution at any time before the expiration of his
period of office notwithstanding any provision in the articles or in an agreement between the
company and the director
As for Remuneration unless a company agrees to pay, it is not bound to pay remuneration
to its directors. And where it so agrees, they shall be paid such remuneration by the company as
determined from time to time by the general meeting.
13.0 The Company Secretary
A company secretary is a senior position in a private companyor public organisation,
normally in the form of a managerial position or above. In the United States it is known as a
corporate secretary.

While generally, the secretary is expected to have the knowledge and experience
necessary for the discharge of his functions, he is, in the case of public company expected to be a
member of either:

a. The institute of Chartered Secretaries and Administrators of Nigeria

b. The institute of Chartered Accountants of Nigeria or other bodies of accountants
established by an Act or Decree or
c. A legal practitioner or
d. Any person who has occupied the office of the secretary of a public company for at least
3 years of the 5 years immediately preceding his appointment in a public company; or
e. A body corporate or firm consisting of members enumerated above.
Under section 289 CAMA the duties of the Secretary have been stated to include;
a. attendance of meetings of the company, Board of directors and its committees and
rendering all necessary secretarial services in respect thereof and advising on compliance
by the meetings with the applicable rules and regulations;
b. Maintaining the registers and other records required to be maintained by the company
under CAMA;
c. Rendering proper returns and giving notification to the commission as required by
CAMA; and
d. Carrying out such administrative and other secretarial duties as directed by the
director or the company.
13.1 Merger, Acquisition or Takeover
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things. A merger happens
when two firms, often of about the same size, agree to go forward as a single new company
rather than remain separately owned and operated. This kind of action is more precisely referred
to as a "merger of equals". In practice, however, actual mergers of equals don't happen very
often. Usually, one company will buy another and, as part of the deal's terms, simply allow the
acquired firm to proclaim that the action is a merger of equals, even if it is technically an
acquisition.
Under the Companies and Allied Matters Act 1990 (CAMA), merger is defined to mean
any amalgamation of the undertakings or any part of the undertakings of one or more companies
and one or more bodies corporate.
Takeover under ISA means the acquisition by one company of sufficient shares in another
company as to give the acquiring company control over the other company. An essential
difference therefore between a merger and an acquisition is that unlike acquisition, in the
absence of any dissenting shareholder there is no dis-investment of the shareholders of the
amalgamating companies.
Acquisition or take over happens when one company takes over another and clearly
established itself as the new owner, the purchase is called an acquisition.

13.2 Categories of Mergers and Acquisitions

Mergers, takeovers or acquisitions may be categorized as horizontal, vertical or
conglomerate. They may also be classified according to the degree of co-operation between the
boards of directors of the companies concerned.

a. A horizontal merger is one that takes place between two or more firms in the same line of
business, producing essentially the same products or services, which compete directly
with each other.
b. A vertical merger involves companies in related lines of business whereby one of the two
companies is an actual or potential supplier of goods or services to the other, so that
the two companies are both engaged in the manufacture or provision of the same goods or
services but at different stages in the supply route. The basic objectives of vertical merger are
to have a steady supply of input or outlet for products or services.
c. A conglomerate merger and acquisition involves companies in unrelated lines of
business. types of conglomerate mergers have also been distinguished namely:
i. product extension mergers,
ii. geographical market extension mergers and
iii. pure conglomerate mergers.
13.3 The Primary Motives for Mergers and Acquisitions
The primary motives for mergers and acquisitions include synergy, economic
restructuring, economy of scale, corporate growth, cost saving, revenue enhancement, guide
against possible business failure.

14.0 Corporate Insolvency and Winding Up

Insolvency or Bankruptcy is a legal status of an insovlent organisation or a person, that is,
one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by
a court order, often initiated by the debtor.

14.1 Specific Objectives of Corporate Insolvency Law

Corporate insolvency law has five overriding objectives;
a. to restore the debtor company to profitable trading where this is practicable,
b. to maximise the returns to creditors as a whole where the company itself can not be
saved, to establish a fair and equitable system for the ranking of claims and the distribution
of assets among creditors involving a limited redistribution of rights and
c. to provide a mechanism by which the causes of failure can be identified and those guilty
of mismanagement brought to book and where appropriate, deprived of the right to be
involved in the management of other companies.
d. Corporate insolvency laws play a pivotal role in the positive improvement of corporate
governance and ethics by providing checks on owners and managers of businesses to
avoid recklessness in running the affairs of corporate bodies. They also provide an opportunity
for private creditors to replace the management of financially troubled companies thus
creating incentives for prudence in running corporations.
14.2 Winding Up or Liquidation of a Company
Winding up or liquidation is a process by which the life of a company is ended and its
property administered for the benefit of its creditors and members.

Liquidation may either be compulsory (sometimes referred to as a creditors' liquidation)

or voluntary (sometimes referred to as a shareholders' liquidation, although some voluntary
liquidations are controlled by the creditors).
Compulsory Liquidation or Winding Up by the Court

The parties who are entitled by law to petition for the compulsory liquidation of a company vary
from jurisdiction to jurisdiction, but generally, a petition may be lodged with the court for the
compulsory liquidation of a company by the company itself any Creditor who establishes a
prima facie case, contributories, the Secretary of State (or equivalent) and the Official Receiver.
14.3 Order of Priority of Claims on a Liquidate Company’s Assets
The main purpose of a liquidation where the company is insolvent is to collect in the
company's assets, determine the outstanding claims against the company, and satisfy those
claims in the manner and order prescribed by law.

14.4 Compulsory Winding up of a Company by the Court in Nigeria

Section 407 CAMA vested the power to wind up a company on the Federal High Court
within which area of jurisdiction the registered office or head office of the company is situated.
Under section 408 CAMA, a company may be wound up by the court if;

a. The company has passed a special resolution for compulsory winding up;
b. Default is made in delivering the statutory report or in holding the statutory
meeting;
c. The company does not commence business within a year from its incorporation or
suspends business for a whole year;
d. The number of members is reduced below two;
e. The company is unable to pay its debts;
f. The court is of the opinion that it is just and equitable that the company be wound up.

14.5 Winding Up Petition under CAMA

Under section 410 CAMA, winding up petition may be made by either:
a. the company;
b. a creditors – including contingent or prospective;
c. the official receiver;
d. a contributory;
e. a trustee in bankruptcy to or representative of a creditor or contributory;
f. the Corporate Affairs Commission under section 323 of the Act; and
g. a receiver authorized by the instrument of his appointment or by all or any of those
parties together or separately.

14.6 Voluntary Liquidation

Voluntary liquidation occurs when the members of the company resolve to voluntarily
wind-up the affairs of the company and dissolve.

In Nigeria Under section 457 CAMA, a company may be wound up voluntarily

a. when the period if any fixed for the duration of the company by its articles expires or
b. the event, if any, occurs, the occurrence of which the articles provided that the company
is to be dissolved and the general meeting approved a resolution for its voluntary wound-
up;
c. if the company resolves by special resolution to voluntarily wind up. A company
under section 460 CAMA, must cease to carry on its business once the voluntary winding up is
commenced except in so far as may be required for the benefit of winding up.

There are basically three types of voluntary winding up namely:

i. A members’ voluntary winding up
ii. Creditors’ voluntary winding up.
Iii. Voluntary winding up under court supervision

14.7 Members’ Voluntary Winding Up

A members’ voluntary winding up takes place only when the company is solvent. It is
entirely managed by the members who appoints the liquidator. No meeting of the creditors is
held and no liquidation committee is appointed. To obtain the benefit of this form of winding up
a declaration of solvency must be filed.
Creditors Voluntary Winding Up
A winding up in any case, where a declaration has not been made and delivered as
aforementioned is referred to as creditors voluntary winding up and the directors must make a
financial report to the creditors who shall then have the final choice on who shall be the
liquidator if they choose and can appoint a committee or inspectors to assist and supervise him.

The directors prefer a members winding –up because through their defacto control, their
nominee is likely to be appointed who will not seriously investigate their past conduct. It is as a
result of the reckless manner of making the statutory declaration that penalties have been
imposed.

14.8 Voluntary Winding Up under Court’s Supervision

As for winding up under court’s supervision, section 486 CAMA provides that if a
company passes a resolution for voluntary winding up, the court may on petition order that the
voluntary winding up should continue but subject to such supervision of the court and with such
liberty for creditors, contributories or others to apply to the court and generally on such terms
and conditions as the court thinks just.

The Consequences of the Making of a Winding Up Order

The consequences of the winding up order are:
a. Any disposition of the property of the company and any transfer of shares or alteration in
 the status of the members after the commencement of the winding up, is void unless the
court otherwise orders. The company is divested of beneficial ownership of its asset.
b. After a winding up order has been made or a provisional liquidator has been appointed,
no action can be proceeded with or commenced against the company except by leave of
the court.
c. The powers of the directors cease and are assumed by the liquidator, so also are some of
their duties except the duty not to disclose confidential information.
d. The employees are ipso facto dismissed and may be able to sue for damages for breach of
contract. An employee who continues to discharge the same duties and receive the same
wages as before may be held to have entered into a contract of service with the liquidator.
What is a Contract?
A contract is an agreement whether written or unwritten, entered into by two or more
parties with the intention of creating a legal obligation between them, the primary remedy for
breach of which can be "damages" or compensation of money.

The Elements of a Contract

Offer
An offer is a definite, precise, unequivocal undertaking or promise which is made by
one party to the other party with the mind that it would be binding on the maker as soon as it is
accepted by the party it is addressed. The person making the undertaking is the offeror while the
persons to whom it is made is the offeree. As a rule, there is no limit to the number of persons an
offer can be made to. It can in fact be made to the whole world. But a contract is made only
between the offeror and the person or persons who responded to the offer by accepting it based
on the exact terms of the offer. This was the principle in Carbolic Smoke Ball Co. v Carlil. (1893)
2 QB 256

An offer is different from an invitation to treat which involves preliminary moves in

negotiations which may lead to a contract. It involves an offer to negotiate or issue advertisement
which are no more than offer to receive offers. Not being an offer, it is not capable of been
accepted.
Termination of an Offer
There are several ways by which an offer can be terminated. These are:

1. If it is not accepted within the stipulated period.

2. By the death of the offeror or the offeree
3. By Rejection

Acceptance
Acceptance is the final and unqualified expression of assent to the terms of an offer. It is
the reciprocal act or action of the offeree to the offer wherein he indicates his agreement to the
terms of the offer as conveyed to him by the offeror.
Acceptance must be communicated to the offeror. Mere intention to accept or silence is not
enough. Thus in Felthouse v Bindley, (1862) 7 LT 835
Invalid Acceptance
In a number of cases where the offeree have claimed that they have accepted the offer
made to them courts have held that such purported acceptance is invalid. These situations
include:

1. Counter offer,
2. Conditional acceptance such as acceptance subject to contract and provisional
acceptance,
3. Cross offers,
4. Acceptance in ignorance of offer and
5. Acceptance of tenders.

Consideration
 Consideration is something of value given by the promisee to the promisor in exchange for
something of value given by the promisor to a promisee.
Consideration must be sufficient, but courts will not weigh the adequacy of consideration. For
instance, agreeing to sell a car for a penny may constitute a binding contract. All that must be
shown is that the seller actually wanted the penny.

Intention to be Legally Bound

As a general rule under English law, an agreement, though supported by consideration, is not
binding as a contract, if it was made without any intention of creating legal relations. Intention of
creating legal relations is presumed in commercial agreements so that parties intend to be legally
bound (unless the parties expressly state that they do not want to be bound. Such intention is not
presumed in many kinds of domestic and social agreements and as such are unenforceable on the
basis of public policy. Such domestic agreements include for instance agreements between
children and parents as well as between husband and wife.

Contractual Terms
A contractual term is "any provision forming part of a contract".

Contractual terms may be classified as:

1. Condition,
2. Warranty,
3. Innominate term and
4. Fundamental terms.

Conditions
Conditions are terms which go to the very root of a contract. Breach of these terms
repudiates the contract, allowing the other party to discharge the contract or claim damages.

Warranty
A warranty is not so imperative so the contract will subsist after a warranty breach. A
warranty is a stipulation in a contract the breach of which may give rise to a claim for damages
but not to a right to reject the contract and treat as repudiated.

Innominate Term
Lord Diplock, in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, [1962] 1
All ER 474 created the concept of an innominate term, breach of which may or may not go to the
root of the contract depending upon the nature of the breach. Breach of these terms, as with all
terms, will give rise to damages. Whether or not it repudiates the contract depends upon whether
the legal benefit of the contract has been removed from the innocent party.

Fundamental Term
A fundamental term is something which underlies the whole contract so that if not complied
with, the performance becomes totally different from that which the contract contemplates.
Express and Implied Term
 A term may either be express or implied. An express term is stated by the parties during
negotiation or written in a contractual document. Examples of express terms are exemption
clauses, liquidated damages clauses and price variation clauses
Implied terms are not stated but nevertheless form a provision of the contract. Terms may
be implied in fact, in law and by custom a trade.

Classification of Contracts
Contracts have been classified as Formal and Simple Contracts, Express and Implied
Contract as well as Unilateral and Bilateral Contracts.

Formal and Simple Contracts

A formal contract is a contract made by deed or under seal. A simple contract is a
contract no made by deed or under seal, whether written or unwritten.
Express and Implied Contract
As for express and implied contract, where all the terms of a contract are clearly stated
and the parties entered into it based on these terms, then the contract is said to be express.
However where the terms or some of them are not expressly stated and the court is compelled to
imply the existence of a contract from the conduct of the parties outside their words or
correspondence, then there is an implied contract.
A bilateral contract is an agreement in which each of the parties to the contract makes a
promise or set of promises to the other party or parties.
In unilateral contracts, the requirement that acceptance be communicated to the offeror is waived
unless otherwise stated in the offer.

Contracts Required to be in Writing

Originally under English law six categories of contract were required to be in writing if
they were to be enforceable. The idea behind this was to prevent fraud. The six categories of
contract so required under the English Statute of Frauds of 1677 are:

1. A promise by an administrator or executor of a deceased person’s estate, to be

personally liable for the estate’s liabilities;
2. A promise to answer for the debt, default or miscarriage of another person;
3. An agreement made upon consideration of marriage;
4. An agreement for the sale of land or the transfer of any interest in land;
5. An agreement that is not to be performed within one year of its being made;
6. Sale of goods for the price of 10 pound or more.

In the 8 states carved out of the old western region of Nigeria provision of the 1954 English
Law Reform (Enforcement of Contracts) apply by virtue of local legislation meaning that only
two of the six categories are required to be in writing. These two are:

1. Contract of guarantee and

2. Contract for the sale of land or of an interest in land.

Contractual Capacity
 Contractual capacity is the minimum mental capacity required by law for a party who
enters into a contractual agreement to be bound by it. Common law recognizes three classes of
persons who are generally not considered to have sufficient capacity to be bound by their
contracts. These are:
1. Minor or infant
2. Insane or mentally impaired persons.
3. Intoxicated persons

Duress & Undue Influence,

Duress
Duress is a "threat of harm made to compel a person to do something against his or her will
or judgment; esp., a wrongful threat made by one person to compel a manifestation of seeming
assent by another person to a transaction without real volition.
Duress in the context of contract law is a common law defense, and if one is successful in
proving that the contract is vitiated by duress, the contract may be rescinded, since it is then
voidable. In Kaufman v Gerson (1904) 1 KB 591 a wife entered into a contract abroad to save
her husband from a threatened prosecution: the contract was held to be voidable.

For duress to qualify as a defense, four requirements must be met:

1. The threat must be of serious bodily harm or death.

2. The threatened harm must be greater than the harm caused by the crime.
3. The threat must be immediate and inescapable.
4. The defendant must have become involved in the situation through no fault of his or her
own.

There are three types of Duress in contract law. i.e:

1. Duress to the person,
2. Duress to goods and
3. Economic duress.

Undue Influence
Undue influence is wider than duress because it does not require physical violence or threat of it.
As an equitable doctrine it covers a situation where a relationship exists between the parties in
such a way that one occupies a position of dominance and influence over the other and such a
person by reason of the confidence placed in him is able to take unfair advantage of the other.

There are two categories of undue influence, that is: Presumed undue influence and Actual undue
influence

Misrepresentation
Misrepresentation is a false statement of fact made by one party to another party and
which has the effect of inducing that party into the contract.
 For an action to be successful, some criteria must be met in order to prove a
misrepresentation. These are:

A false statement of material fact (as opposed to statement of law, intention, opinion) has been
made, whether orally, written or by conduct.

1. The statement was directed at the suing party before the contract was concluded to
induce the other party to enter into the contract and

The statement had acted to induce the suing party to contract. If the plaintiff is shown to known
that the statement was false and would have entered into the contract notwithstanding the false
statement then he can not avoid the contract on ground of misrepresentation.

Four types of misrepresentations are identified with different remedies available. These are:

1. Fraudulent misrepresentation,
2. Negligent misrepresentation,
3. Statutory negligent misrepresentation and
4. Innocent misrepresentation.
Mistake
Mistake in contract is a situation where one or both parties to a contract enter into it under
some misunderstanding, misapprehension or erroneous beliefs regarding certain issue(s) or
subject(s) fundamental to the contract. It can also be defined as a situation where a contract is
made on the basis of a fundamental assumption which turns out to be false.

The various forms of mistake in the law of contract are:

1. Unilateral Mistake
2. Mutual Mistake
3. Common Mistake
4. Mistake of Identity
5. Document Mistakenly Signed

A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-
matter contained in a contract.

A mistake is said to be “mutual” where the parties misunderstand each other's intentions and are
at cross-purposes.

A common mistake is where both parties hold the same mistaken belief of the facts.

Categories of Common Mistake include:

 1. Mistake as to the Existence of the Subject Matter (Res extincta)
2. Mistake as to Title (Res sua)
3. Mistake as to Quality

Illegal, Void, Voidable & Unenforceable Contracts

Illegal Contract
An illegal contract is a contract which the law forbids, the making of which in most cases
attracts some form of sanction or punishment. Law in this sense can be common law or statute.

Where a contract is illegal by statute or at common law the exturpi causa rule applies. The
contract is wholly void and neither party can enforce it. Therefore, neither party can claim, e.g.
damages, amounts due under the contract, specific performance, injunction.
Void Contract
A void contract is a contract which the law disregards or does not recognize as capable of giving
rise to rights. An example of a void contract is a contract that is made ultra vires.

The various heads under which a contract would be void at common law on grounds of public
policy include:

1. Contract in Restraint on trade.

2. Contract to Oust jurisdiction of the court.
3. Contract that are sexually immoral.
4. Contract void at common law on ground of public policy by offending a statute.

Voidable Contract
A voidable contract, unlike a void contract, is a valid contract. At most, one party to the contract
is bound. The unbound party may repudiate the contract, at which time the contract is void.
Contract Illegal as Formed or Performed
A contract may be expressly prohibited by statute as formed or performed e.g. Contracts
entered into for the capture of stray dogs are prohibited in the absence of the catcher possessing a
current licence.

Unenforceable Contract
An unenforceable contract or transaction is one that is valid, but which the court will not
enforce. Unenforceable is usually used in contradistinction to void (or void abinitio) and
voidable. If the parties perform the agreement, it will be valid, but the court will not compel them
if they do not.

Privity of Contract
Privity of contract occurs only between the parties to the contract, most commonly
contract of sale of goods or services.

Exceptions to the Doctrine of Privity of Contract

The doctrine of privity would, if inflexibly applied, give rise to considerable injustice and
inconvenience. Many exceptions to it have therefore been developed enabling in third party to
enjoy any benefit he is entitled to under a contract. Some of the exceptions to the doctrine of
privity of contract are stated below:

1. Agency
2. Assignment of Choses in action and Novation
3. Bill of Lading
4. Covenant running with land
5. Covenant in marriage settlement
6. Collateral Contracts,
7. Trusts,
8. Insurance,
9. Statutory Exceptions

Discharge of Contract
Discharge of a valid contract involves the process under which the primary (performance)
obligations come to an end.

Discharge of contract can come about as a result of:

1. Breach,
2. performance and
3. Frustration.
4. Agreement

Discharge by Breach
A breach of contract is committed when a party without lawful excuse fails or refuses to perform
what is due from him under the contract to performs the contract defectively or incapacitates
himself from performing it.

Discharge by Performance
A party who completely performs a contract in accordance with its terms is thereby discharged
from his obligations under it.

There are four exceptions to the rule that unless there is complete performance a contractor
can not claim remuneration. These are:

1. The doctrine of substantial performance

2. Acceptance of partial performance by the injured party
3. Prevention of full performance by the other party
4. Tender of performance.

Discharge by Frustration
Under the doctrine of frustration a contract may be discharged if after its formation events occur
making its performance physically, legally or commercially impossible.
Courts have held the following situations or events to constitute frustrating events or situations
namely:

1. Subsequent legal changes;

2. Outbreak of war;
3. Destruction of the subject – matter of the contract;
4. Government requisition of the subject –mater of the contract;
5. Cancellation of an expected event: the coronation cases; Krell v. Henry (1930) 2 K. B
740
6. Miscellaneous events. Hare v Murphy Brother Ltd (1974) I. C. R 603

Discharge by Agreement
Since whatever has been done by agreement can also by agreement be undone by agreement a
contract between parties can be terminated by agreement by the same parties.

Remedies
Where an action for breach of contract is commenced within the time stipulated and the
court found in favour of the plaintiff, depending on the nature of the breach, relief for contract
breaches can come in two forms: legal damages, which are the monetary awards, and equitable
remedies. Equitable remedies are awarded when monetary damages will not properly remedy the
situation. The remedies may be subject to reduction or modification if the injured party has also
breached the contract. Courts are now empowered to award damages in addition to or in
substitution for specific performance and injunction provided there was application for specific
relief.

Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss
or injury. There are several types of damages such as compensatory damages, expectation
damages, consequential damages, liquidation damages, punitive damages, nominal damages and
restitutionary damages.

Equitable Remedies
Relief for contract breaches can come in two forms: legal damages, which are the
monetary awards and equitable remedies. Equitable remedies are rendered when monetary
damages will not properly remedy the situation. They involve the court ordering the parties to
take or refrain from some sort of action. These equitable remedies are examined below.

Specific Performance
Specific Performance is basically a decree or order requiring the breaching party to perform his
part of the bargain in the contract.

An order of specific performance would not be granted in the following circumstances.

1. Specific performance would cause severe hardship to the defendant

2. The contract was unconscionable
3. The claimant has misbehaved (no clean hands)
 4. Specific performance is impossible
5. Performance consists of a personal service
6. The contract is too vague to be enforced
7. The contract was terminable at will (meaning either party can renege without notice)
8. The contract required constant supervision
9. Mutuality was lacking in the initial agreement of the contract
10. The contract was made for no consideration.

Injunction
An Injunction is an equitable remedy in the form of a court order that requires a party to
do or refrain from doing certain acts. Where it requires a party to do something it is mandatory
injunction in that it orders an already committed breach to be undone.

Where it restrains a party from doing an act which going by the negative stipulation in the
contract would amount to breach if done, then the injunction is a prohibitory injunction.

Rescission
In contract law, rescission has been defined as the unmaking of a contract between
parties. Abdallah, Inc. v. Martin, 242 Minn. 416, 420, 65 N.W.2d 641, 644 (1954). Rescission is the
unwinding of a transaction. This is done to bring the parties, as far as possible, back to the
position in which they were before they entered into a contract. Rescission may be granted where
a contract was entered into as a result of fraud, mistake, misrepresentation or breach of condition
provided that the party seeking the remedy is not a fault and that justice can be done to the other
party. A good case in this regard is the case of Gist v Barley. (1967) Ch. 532,

Reformation or Rectification
In contract reformation the former contract is rewritten with the new contract reflecting the
parties’ true intent. Before the court in its equitable jurisdiction can rectify a contract so as to be
in accord with the real agreement intended by the parties, the party alleging that what was
produced as a contract was different from what they intended when they were entering into it
must prove the terms actually agreed upon and that these terms remained unchanged when they
are being put into writing and that the written agreement fails to reflect the terms.

Quantum Meruit
In the context of contract law, this means something along the lines of "reasonable value
of services". Quantum meruit is the measure of damages where an express contract is mutually
modified by the implied agreement of the parties, or not completed. Where one person has
expressly or impliedly requested to render him a service without specifying any remuneration,
but the circumstance of the request imply that the service is to be paid for, there is implied a
promise to pay quantum meruit, i.e. so much as the party doing the service deserved.