This study, “AN APPRAISAL OF THE LIABILITIES OF A COMPANY FOR THE ACTS OF ITS DIRECTORS” contains concise information that will serve as a framework or guide for your project work. The project study is well-researched for academic purposes and are usually provided in complete chapters with adequate References.
Keywords: AN APPRAISAL OF THE LIABILITIES OF A COMPANY FOR THE ACTS OF ITS DIRECTORS
A company can be described as a legal entity or a body corporate, having perpetual succession and also a common seal, as well as the ability to sue and be sued in its own corporate name. Suffice to state, also that the company upon its incorporation can acquire property in its corporation name. This corporate personality, gives the company the status of a person; albeit artificial, having all the qualities of a normal human being.
It should be noted, that a company is by virtue of the celebrated case of Salomon V. Salomon & Co. (1897) A.C. 22, an entity separate from its members having the capacity to own assets, properties, liabilities, right and obligations incidental to the activities of the company done, giving it responsibilities for all its acts and not its members and/or officers.
The effect of this, is that the members or officers of the company are not in any way under any form of liability for acts done in course of discharging their duties but the company (a legal person) bears all such liability; even though its activities are carried out by human beings whose acts are of paramount importance to the company.
At this juncture, it would not be out of place to state with particular reference to this project work that the acts of directors as officers of the company are also accruable to the company. Be that as it may; the meaning and nature of a director is without a universally acceptable definition, neither could it lend itself an easy definition and a much easier understanding. However, directors can be defined as managers of the company. They are not employed by the company and as such cannot be said to be employees of the company, servants or members there to but they can be seen as officers of the company, for the purpose inter alia of making the company vicariously liable for their acts and omissions while engaged in the business of the company.
In essence, this project work has as its sole aim; the consideration of the liabilities of a company for the acts of its agents, with particular reference and emphasis on the director of a company and it shall also consider, the position of the law, as it relates to the above issue of liability of a director with reference to a company.
CHAPTER ONE GENERAL INTRODUCTION
The need to keep pace with the realities of commerce and industry and comply with the stipulations of the law may result in the carrying out of commercial activities or business ventures by more than one person. This, when done in the main with a view to profitability, which naturally results from the pulling together of resources; money or money‟s worth by investors, the creation of an entity, a vehicle called the company is underscored.
Although one person can profitably carry on business alone, it is however not guaranteed that the business would long continue especially if he becomes incapacitated or dies1. The threat to the continuity of even the most viable business in an economy as a result of death, inability to raise necessary funds, incapacity of mind or other frailties of the sole proprietor recommend the incorporation of a company which ensures ownership and participation in the management of the business by more than one person for mention. The reasons for the preference of a company to
1 On the contrary, the death, incapacity etc. of a company does not bring the company to an end. This is because it, among others, has perpetual succession.
other forms of business organizations hinge extensively on the fact that a company is an artificial person recognized by law. It is within the limits of law detached from those hinge extensively on the fact that a company is an artificial person recognized by law. It has its duties, rights and obligations, which it attends to, through the instrumentality of natural persons. To this end, the law recognizes any company formed in accordance with the law of the land.
Furthermore, it is essential to note that when a Director acts as an agent on behalf of a company, he is, like any other agent, not personally liable on the contract. This is an application of the general principle of agency. On the whole a company can only be liable for the acts of its Directors when he has duly acted on behalf of the company even if the company‟s failure to carry-out the contract is due to the fault of the Directors. The Directors may be liable personally where he contracts in such a way as to assume liability
The Companies and Allied Matters Act has commendable provisions on how accounts of the company are to be controlled as well as how Directors who manage the affairs could be controlled. Furthermore, liability and penalty have become enshrined statutorily as a means of checking erring directors and officers of a company.
Therefore, this long essay will address the liabilities of a company for the acts of its directors especially on issues relating to the Directors, in carrying out his duties and responsibilities as a company Director. 1.1.0: BACKGROUND TO THE STUDY A company, being a corporate entity, can sue and be sued in its corporate name. As a matter of law, it has separate existence, identity from the brains, minds, and hands operating it to commercial functionality. The law therefore draws a clear cleavage between the company as the artificial person and the natural persons with life and limb who can operate it.
This is because a company, being an artificial person, can only act through its human agents and officers. This position was adopted in Lennnard’s Carrying Co v. Asiastic Petroleum Co Ltd by Lord Viscount Haldane2 in a passage quoted with approval by Aniagolu, J.S.C in Trenco (Nigeria) Ltd. v. African Real Estate Ltd3 where he said, inter alia „…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 for some purpose may be called an agent but who really is
2 A.C.705 3 1L.R.N.146
the directing mind and will of the corporation, the very ego and center of the personality of the corporation…‟
In Bolton (engineering) Co Ltd v. Graham and sons4, Denning, LJ characterized the position as follows A company may in many ways be likened to a human body.it has a brain and nerve center which controls what it does.it also has hands which hold the tools and act in accordance with directions from the center. Some of the people in the company are mere servants and agents who are nothing more than hands to the work and cannot be said to represent the directing mind and will of the company, and control what it does
in Delta Steel (Nigeria) Ltd v. American Computer Technology Inc,5Aderemi,JCA, referring to acts imputed to the company, explained as follows „In cases where the law requires the personal acts or faults of an individual so as to make a legal fiction like a company to be liable, the directors, the manager or the managing director are, in the eyes of the law, the directing mind and the will of the company; they control what the company does; the state of mind of this special class of employees is the state of mind of the company‟.
4  1 QB 159 5  4 NWLR (Pt. 597)53 at 66.
Also clear distinctions between company as the artificial person and the natural person are mentioned in the case of Adeniji v. The State6 and also in James v. Mid motors7,
1.2.0 OBJECTIVES OF THE STUDY
The objectives of this essay is to extensively discuss the duty and study the position of the law as stated in the Companies Allied Matters Acts,2004 on the powers and the proceedings of Directors and their personal liabilities. The duties and responsibilities of directors etc, would be discussed, with a view to letting the directors know the extent to which the company can be liable. This project work would also aim at ensuring that the company is liable for the acts of its directors during the operation of carrying out duties. Furthermore, it is also aims at ensuring the position of CAMA, 2004 as it relates to when the company would be liable for the acts of its Director and why?
6 (2001) 4 NWLR 248 7 11and12 S.C.31
1.3.0: FOCUS OF THE STUDY
This long essay will focus very importantly on the liabilities of a company for the acts of its officers and agents for acting on its behalf, and also instances when the company will not be liable for such acts of its agents and officers.
1.4.0: SCOPE OF THE STUDY
The long essay will give account of the origin of company law, definition of a company, types, formation and the sources of powers of a company. Reference will also be made to the study of directors of a company, their types, appointment, powers, proceedings as well as their liabilities. Not leaving out the main purpose of the study which is the liabilities of a company on the acts of its directors (both civil and criminal liabilities).
This write up, which has its motivation mostly from lectures delivered by my lecturer on company law as well as the personal interest of the writer, It will be based on primary and secondary sources. The primary source will include the Companies And Allied Matters Act Cap 20 LFN 2004.The secondary source which would include
lecture notes, journals and relevant law reports on the subject matter and issues to be addressed in the course of completing the project work.
1.6.0: LITERATURE REVIEW
The essence and needfulness of the project work is to examine the liabilities of a company for the acts of its directors. It should be noted that various views of various authors such as E.O.Akanki, J.Olakunle Orojo, Robert.R.Pennington etc. will be put into consideration amongst many others. According to E.O.Akanki on Essays on Company Law, he is of the view that the law regulating the liability of the company for the acts of the various organs of the company and the agents and the officers of such company is divided into two
(a) The acts of the primary organ of the company i.e. The general meeting and the board of directors which are regarded as the acts of the company itself, and
(b) Those acts of its agent and officers, duly authorized, in respect of which the company is liable on the basis of respondent superior.
Also, J.Olakunle Orojo8; is of the view that when a director contracts as agent on behalf of the company, like any other agent, he is not personally liable on the
8 Orojo J.O, „Company Law & Practice in Nigeria‟ 5th Ed. (Interpak Books Pietermaritburg 2008)
contract. This is the application of the general principle of agency. So also under those principles, the director may be personally liable where he contracts in such a manner as to assume personal liability. Where the director expressly makes himself liable, no difficulty arises, but he may be liable without express assumption of liability as where he contracts in his own name without disclosing that he is acting for a principal, in which case, he is personally liable to third parties on the contract as in the case of Elkington and Co v. Hunter9. Even where he contracts as a director but without using words that bind the company, he will be personally liable.
Furthermore, Pennington’s Company Law by Robert.R.Pennington10 is of the view that the company will be liable for the acts of its agents and officers if their acts are in utmost good faith i.e. in the benefit of the company and not in the officer‟s interest then the liability will be that of the company‟s.
1.7.0: DEFINITION OF TERMS
Considering the fact that the main focus of this essay is company law; it is trite at this time to define the following viz. company, liability, director, act etc.
Pg 247 9 2 Ch.452 10 Quoting with approval Pennington‟s ‘Company law’ (7th Ed,Butterworths,London,1995). Pg.247
The word “Company” is generally used to refer to a body or an association of persons with distinct legal personality. Sometimes, however, it is used to refer to a body without legal personality such as a partnership. Therefore, Lord Justice James defines a Company as an association of persons formed for a common object. Lord Lindley in his own contribution defines a company as a voluntary association or an organization of many persons who contribute money or money‟s worth to a common stock and employ it in some trade or business and who shares profit or loss arising therefrom.
Felix C. Amadi11 defines company as a business entity with clear objects made up of a body or association of persons who contribute to the capital of the business with a view to, generally speaking, making profit or in rare cases, where they so choose, pursuing only the promotion of the objects but in whichever case sharing in the loss of the organization.
11 Amadi F.C. ‘Fundamentals of Company Law &Practice in Nigeria’ 1st Ed. (Rodi Printing & Publishing Company, Rivers State 2004)
Learners Dictionary12 simply defines a company as “A number of persons united for business or commerce whose partners are not named in the title”. Black’s Law Dictionary further puts it as a „Joint stock union or association of persons for carrying on a commercial or industrial enterprise, a partner‟s corporation, association or company‟.
Company according to L.C.B.Gower13 implies an association of a number of people for some common objects the number need not be more than two and the interest of one need not be more than nominal as in the so called one man company.
Liability can be described according to the Osborn’s Concise Law Dictionary14 defines liability as subjection to a legal obligation; or the obligation itself. The person who commits a wrong or breaks a contract or trust is said to be liable or responsible for it. Liability is civil or criminal according to whether it is enforced by the civil or criminal courts.
The term director does not have a precise and accurate definition owing to complexities of legal definitions. However, owing to various definitions given to a
12 6th Ed. Pg.226.(2000) 13 “Gower ‘Principles Of Modern Company Law’ 6th Ed. 14 9th London Sweet &Maxwell 2001
director, it becomes therefore pertinent to examine this term under three heads, broadly grouped thus by the courts, by statutes and the legal writers.
CHARLSWORTH AND CAIN15 states that since a company has no physical but only a legal existence, it becomes imperative to entrust the management of its affairs to human instrument who are called “directors”, whose exact position in relation to the company is rather hard to define. Furthermore, they asserted that directors are not servants of the company, but that they are rather managers who in some certain circumstances may be said to be in a position of quasi trustees and agent of the company. To buttress this point Lord Johnstone’s dictum was cited in Milintock v. Campbell16 where he stated that, “the directors‟ functions are in one vein those of an agent and in another, those of a trustee” but the former predominates over the latter.
Vincent Power and Smith17 hold the view that a director, as the name implies, is one who directs. Although, they used short Oxford dictionary as basis of their definition offered therein is a member of a board appointed to direct the affairs of a commercial corporation.
15 Charlsworth and Cain ‘Company Law’ 10th ed. P.260 16  S.C 960 at 980 17 Henry C. Black‟s Law Dictionary 5th ed. 1979 p.414
Blackburn18 defined director as a person appointed, elected according to law. Authorized to manage and direct the affairs of a corporation or company. On the other hand Orojo defined directors simply as those who direct the affairs of the company. Almost all the case law definitions of director tends to say the same thing put in different ways, but the following dicta embrace almost all the principles to be derived from others:
Lord Cranworth L.C. in Aberdeen Railway Company v. Blaike Bros.19 stated thus, the directors are a body to whom is delegated the duty of managing the general affairs of the company. However, the most instructive definition of director is one offered by Sir Jessel M.R. in Re Forest of Dean Coal Mining Company20 thus Directors have sometimes been called trustees or commercial trustees and sometimes they have been called managing partners. It does not matter what you call them so long as you understand what their true position is, that they are commercial men managing a trade for the benefit of themselves and all other shareholders of the company.
18 Orojo J.O. ‘Nigerian Company Law & Practice’ p. 243 19  IMACQ 461-471-472(SC) 20 10 Ch.450
According to the Osborn’s Concise Law Dictionary21, a director is a person charged with the management of a company‟s money and property, and having fiduciary position. Statutory definition on the other hand tends to adopt the same approach in dealing with the above questions Section 650 of the Act defines „Director‟ as including „Any person occupying the position of the director by whatever name called.‟
Section 244(1) provides that „Directors of a company registered under the Act are persons duly appointed by this company to direct and manage the business of the company‟22. Where a person is not duly appointed a director as such, his acts do not bind the company. But where the company describes a person as a director, there is in favor of any dealing with the company, a rebuttable presumption that all persons, who are described as directors, whether as sales, executive or otherwise, have been duly appointed23
A conglomeration of all the above definitions shows that the directors maintain quite a unique and enviable position in the company and are to be regarded as the framework within which the company stands. Company directors are in a privileged
21 9th London Sweet & Maxwell (2001) 22 Section 244(1)Company & Allied Matters Act 2004 23 Section 244(2)CAMA 2004
position within the companies, the reasons being that they have numerous and wide powers of management of the companies.24
The law recognizes that although a company is a living person, it has no natural body or organs, thus, an artificial person. As an artificial person, a company can only act through the instrumentality of human beings who constitute the organs, officers and agents of the company. In Trenco (Nigeria) Ltd v. African Real Estate Ltd25, The Supreme Court recognized this position by observing „…a company, although having a corporate personality is deemed to have human personality through its officers and agents.‟ It is no doubt therefore, that for the company to carry out its activities, it needs a living person to act on its behalf. The acts of such persons during the operation of carry out its functions or duties, where liability comes to play such company would be liable for the act as if he carried out the act himself. As long as the person i.e. director can prove the act was done in the process of carry out his duty.
24 Oladeje Akani; Abuse of Power & Breach of Duty by Company‟s Directors, Nigeria Journal Of Contemporary Law,Unilag.1975.Vol No. 1&2 Pg.1 25 1 LNR 146
Keywords: AN APPRAISAL OF THE LIABILITIES OF A COMPANY FOR THE ACTS OF ITS DIRECTORS