PAPER SERIES III – COMPANY’S CONTRACT, AUTHENTICATION AND SERVICE OF DOCUMENTS ON A COMPANY

11/04/2020

 I. Introduction

Corporate finance and securities transactions are carried out predominantly by non-natural juristic persons, corporate and sovereign owned entities. Considering that they are not natural persons with legal capacity, a lot depends on their legal status and constituting documents.

The Companies and Allied Matters Act (the 'CAMA') 2020 confers every company with the powers of a natural person of full capacity for the furtherance of its business or objects, except to the extent that the company's memorandum or any enactment otherwise provides.[1] A company is prohibited from carrying on any business expressly prohibited by its memorandum and shall not exceed the powers conferred upon it by its memorandum or the Act.[2]

Whether it is a loan facility transaction, or an equity/debt capital markets offerings or even derivatives transactions entered into by a company, the capacity of a company to enter into that transaction, the authentication of the transactional documents and the service or exchange of relevant transaction documents on a company or between the parties are pivotal to the completion of the transaction, its validity and sustainability and performance afterwards.

A properly conducted legal audit would in most cases take care of some of the nuances of a company's contract(s), authentication and service of documents or exchange of duly executed contracts and even the authorization to enter into the contract or transaction. This Paper Series III will examine the all-encompassing legal and statutory premises for a company's contract, authentication, and service or exchange of documents.

II· Forms of Company's Contract

The Companies and Allied Matters Act, 2020 (the Act)[3] states that contracts on behalf of a company may be made, varied, or discharged as follows:

  • any contract which if made between individuals would be by law required to be by deed, or which would be varied, or discharged only by deed in the name or on behalf of the company.
  • any contract which if made between individuals 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 by writing or written evidence signed by the parties to be charged, may be made, varied or discharged, as the case may be, in writing signed on the name or behalf of the company; and
  • any contract which if made between individuals would be valid although made orally only and not reduced into writing or which could be varied or discharged, as the case may be, orally on behalf of the company.

Any 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; and may be varied or discharged in the same manner in which it is authorised by this section to be made.[4]

Except in transactions where it is statutorily or legally stated that it should be by deed or in writing,[5] the form of a contract does not affect its validity and effect. However, due to concerns of fraud and unscrupulous parties pursuing false or groundless claims where the contract is oral, it is highly desirous that a company enters into a written contract through its authorised officers or representatives.

In a contract required to be made under seal especially the company's articles, the attestation clause should be that the seal of the company is affixed in the presence of the witness. Without the 'common seal' being affixed, there is nothing to witness and the Director and Secretary signing as a witness as it appears on the document, have in fact and in law witnessed nothing in the absence of the seal.[6]

For a contract that is required or intended to be in writing without seal, a contract between two companies or with an individual can be executed with the signature of duly authorised representative or director(s) or director and secretary without seal. The law is that if a document is signed by the alter ego of a company, sealing is no longer a sine qua non to the validity of the same document since its purpose is to ensure that the right person enters into the agreement on behalf of the company.[7]

Though legally permissible, the third form of company contract viva voce (oral) is not always encouraged. It is advisable that parties should put down the contract in writing. A typical form of viva voce contract is when a party deals with the managing director or director or any officer of the company who on some occasion would make certain oral representations that may have induced the party into entering the contract.[8] In the event, the contract is breached, or its validity denied by the company, the non-breaching party may experience challenge enforcing the oral contract. It should be noted that in the event there is a dispute over the existence of an oral contract; performance (full or part), agency and previous dealings in the same mode or means can be called to aid, by the non-breaching party to establish the existence of the oral contract.

Contract Under Seal

Unlike the previous requirement under the repealed Companies and Allied Matters Act, that a company shall have a common seal the use of which shall be regulated by its articles, Section 98 of the Act, states that a company may have a common seal, but need not have one and where a company has a common seal, the design and use of that seal shall be regulated by the company's articles and it shall have its name engraved in legible character on the seal.

A company whose object require or comprise the transaction of business in a foreign country may, if authorised by its articles, have for use in any territory district, or place outside Nigeria, an official seal, the design and use which shall be regulated by the company's articles and shall indicate on its face of the name of every territory, district, or place where it is to be used.[9] The law also recognises the right of a company having such an official seal to authorise any person or agent appointed for the purpose in any territory, district, or place outside Nigeria to affix the same to any deed or other document to which the company is a party in that territory, district or place.

The authority of any such agent shall as between the company and any person dealing with the agent, continue during the period, mentioned in the instrument conferring the authority but if no period is stated until a notice of the revocation or determination of the agent's authority has been given to the person dealing with him.[10] Further, an official seal if duly affixed shall bind the company as if it has been sealed with the common seal of the company.[11]

There is a recognition of the right of a company, to by deed empowers any person either generally or in respect of any specified matter, as its attorney, to execute deeds on its behalf in any place within or outside Nigeria.[12] A deed signed by a person empowered as provided in Section 100(1) of the Act shall bind the company and have the same effect as it would have if it were a deed signed by the company.[13]

III· Authentication and Service of Documents

A document or proceeding requiring authentication by a company may be signed by a director, secretary or any other authorised officer of the company and need not be signed as a deed unless otherwise so required by the Act. Importantly, an electronic signature is deemed to satisfy the requirement for signing under the Act.[14]

A document is validly executed by a company as a deed for the purpose of the Act if it is duly executed by the company and it is delivered as a deed. A company may execute a document described or expressed as a deed without affixing a common seal on the document by signature on behalf of the company by (a) a director of the company and the secretary of the company; (b) at least two directors of the company; or (c) a director of the company in the presence of at least one witness who shall attest the signature.[15] A document that is signed on behalf of the company in accordance with Section 102 the Act has the same effect as if the document was executed under the common seal of the company. [16]

Where any written law or rule of law requires any document to be under or executed under the common seal of a company or provides for a consequence for not sealing, the document is deemed to have satisfied the provisions of that written law or rule of law if the document is signed in the manner set out in the Act.[17]

IV· Conclusion

In every corporate securities or finance transactions by a company, it is important to bear in mind that a company being an artificial person must act through its agents, usually members in a general meeting or the board of director. Therefore, it is important that in addition to confirming that its MEMART allows the company to proceed with the transaction, there should also be a confirmation that appropriate shareholders' or/and board resolutions are obtained, depending on the provision of the Company's articles. This is important, where there will be a variation (increase or decrease) of the share capital, borrowing funds above a stated threshold in the articles, an offering of equity or debt securities or a transaction involving an arrangement or compromise that will eventually affect the structure of the company.

One significant provision of the new Act is that a company having a common seal is no longer mandatory. The implication of Sections 98 and 103 of the Act, is that it is no longer mandatory for a company to have a common seal; and while it could have been a nullity for a company to enter into a contract that requires sealing, the law now makes it legal for the execution of such a contract to be in accordance with Sections 101 and 102 of the Act for it to be valid.[18]

Author: Ikemefuna Stephen Nwoye. LL.B (ESUT) 2010, B.L (NLS, Lagos) 2011, LL.M in International Business Regulation, Litigation and Arbitration (NYU, New York) 2014. A Barrister and Solicitor of the Supreme Court of Nigeria with expertise in the areas of dispute resolution, banking and finance, capital markets, mergers and acquisitions. This paper should not in anyway serve as a substitute for legal advice or opinion. The views expressed are personal to the author and do not necessarily reflect the views of any organisation or person that the author is or might have been affiliated to. 

[1] Section 43 (1) of the Act, 2020.

[2] Section 44 (1) of the Act,2020.

[3] Section 95 of the Act, 2020.

[4] Section 95(2) of the Act, 2020.

[5] Section 4 of the English Statutes of Fraud of 1677 being applicable in Nigeria by virtue of being a Statute of General Application enacted before January 1, 1990 provides for six categories of contracts that will not be enforceable unless they were in writing or there was a written memorandum or note of them in writing, and signed by the party to be charged. The six categories of contract to be in writing: (i) a promise by an administrator or executors of a deceased person's estate, to be personally liable for the estate's liabilities; (ii) a promise to answer for the debt, default or miscarriage of another person; (iii) an agreement made upon consideration of marriage; (iv) an agreement for the sale of land or the transfer of any interest in land; (v) an agreement that is not to be performed within one year of its being made; (vi) sale of goods for the price of 10 pounds or more. It is important to point out that the position of the law has changed in England and in some parts of Nigeria such as Lagos, Ogun, Oyo, Osun, Ondo, Ekiti, Edo and Delta States by the virtue of legislations. In these jurisdictions only two categories are required to be in writing. These are (i) a contract to answer for the debt, default, or miscarriage of another person; and (ii) a contract for the sale of land or of an interest in land.

[6] Hassan v. Vixen Ent (Nig) Ltd & Anor (2015) LPELR -40357 (CA).

[7] SPDC (Nig) Ltd v. Allaputa (2005) 9 NWLR (pt. 1931) 475 @pp.514 - 515.

[8] Ifeanyi E. Okonkwo, Forms and Validity of a Company's Contract in Nigeria: A Critical Re-evaluation (2013) available at https://unzik-edu.academia.edu/EmmanuelOkonkwo and https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3483610

[9] Section 99 (1) of the Act, 2020.

[10] Section 99 (3) of the Act,2020.

[11] Section 99 (5) of the Act, 2020.

[12] Section 100 (1) of the Act,2020

[13] Section 100 (2) of the Act,2020

[14] Section 101 of the Act,2020

[15] Section 102 (1) and (2) of the Act, 2020.

[16] Section 102 (3) of the Act.

[17] Section 103 of the Act

[18] See the decision of the Court of Appeal in the case of Hassan v. Vixen Ent (Nig) Ltd & Anor (supra at footnote 6) which has now been overridden by these express statutory provisions.