ORAL AGREEMENT OF THE DIRECTORS OF A COMPANY TO SHARE THE PROFITS WITH AND MAKE A PERSON A DIRECTOR OF THE SERVICE PROVIDED BY THE PERSON: IMPLICATIONS OF BREACH OF SUCH AGREEMENT UNDER THE LAWS IN NIGERIA.
SCRIPT
A (Managing Director) and B were the only registered directors and shareholders of a Nigerian company. The company decided to increase its business prospects, especially in the public sector, by involving C, who was expected to use both his experience and political connections to gain business advantages and expansion for the company. A and B verbally agreed with C that the profits made by the company would be shared equally with C and that C would become a director of the company. On the basis of that agreement, C was instrumental in securing a contract for the company that caused A to praise C’s efforts in a letter.
Consequently, C was appointed and instructed to act as the Business Development Director (DBD) of the company and further efforts were initiated to ensure that C was appointed a director of the company as agreed verbally by all parties. But no written resolution was ever passed to make C a director, nor was the company’s board of directors changed.
Consequently, the company obtained a contract in which it made a total profit of N60,000,000 (only sixty million naira). Surprisingly, A and B had refused to share such benefits with C.
INTRODUCTION
The scope of this article is: to identify the concomitant legal problems that arise from the scenario; and evaluate the legal issues identified in light of current legal principles (statutory and judicial). In addition, a brief attempt will be made to advise C on the strength or otherwise of his case.
LEGAL MATTERS
1. If C was the company’s legal advisor.
2. If it can be said that C is a partner of A and B.
3. If C was an employee or worker of the company.
4. If C has the right to participate in the income obtained by the company.
LEGAL POSITION ON ISSUES
1. If C was the company’s legal advisor:
Generally, the question of who is a director of a company is more a question of law than of fact. Article 244 of the Companies and Related Affairs Law (CAMA) describes that “a director of a company registered under this law is a person duly appointed by the company to direct and manage the business of the company.” Without a doubt, the role of directors is as fundamental to the well-being of a company as blood is to the survival of the human body. Perhaps that is why company statutes around the world make special provisions on the procedures for appointing and removing a director.
In light of the above, it can be safely said that C was not a director of the company because he was never validly appointed as such. However, C was appointed as the company’s Business Development Director (DBD), but nothing was done to modify the company’s necessary records in the Corporate Affairs (CAC) registry. In other words, the designation of C as a DBD without submitting the necessary changes in the company’s directors’ register was a mere expression of intent that was never perfected in law.
2. If it can be said that C is a partner of A and B:
According to article 3 of the Law of Companies of the State of Lagos, the company is the relationship that subsists between people who carry out a business in common in order to obtain benefits. From the legal definition above, it can be said that a partner is a person who conducts business with those other partners. It is imperative to examine the various statutory rules that determine the nature of society. Article 4 of the Companies Law establishes the following:
(a) ” Joint tenure, common tenure, joint property, common property, or partial property does not in itself create a partnership as to anything owned or owned, whether tenants or owners whether or not they share the profits obtained from its use. .
(b) Participation in gross returns does not in itself create a partnership, regardless of whether or not the persons sharing such returns have a joint or common right or interest in any property from which or from the use of which they are derived. returns.
(c) The receipt by a person of a portion of the earnings of a business is prima facie evidence that they are a partner in the business, but receipt of such participation or a payment depends on it varying with the earnings of a company does not make you a partner in business; and in particular –
(I) the receipt by a person of a debt or other amount settled in installments or otherwise from the increased profits of a business does not make him or herself a partner in the business or responsible as such;
(ii) a contract for the remuneration of a servant or agent of a person engaged in a business for a portion of the profits of the business does not in itself make the servant or agent a partner of the business or responsible as such; … ”
From the foregoing, it is clear that the association is a matter of express agreement between the partners because the law will not ordinarily presume the existence of an association between persons doing business together. Suffice it to say then that: a mere contract entered into with a servant or person in exchange for remuneration or participation in the profits of the company does not ipso facto convert said servant or person into a partner.
It is worth noting that the case of C falls within the contemplation of Section 4 (c) (ii). The legal implication of this is that C was a servant of the company who had the right to share in the income of the company. But he was not a partner in the strict legal sense.
3. If C was an employee or worker of the company:
It is imperative to first examine the Labor Law angle of the relationship that existed between the company and C before considering the strictly contractual aspect of the relationship. Accordingly, Section 91 of the Labor Law, ’employment contract’ means an ” agreement, whether oral or written, express or implied, by which one person agrees to employ another as a worker and that other person agrees to serve. to the employer as a social worker. worker. ”
Along the same lines, the Law defines worker as ” any person who has entered into or works under a contract with an employer, whether the contract is for manual or office work or is express or implicit or oral or written, and if It is a service contract or a contract personally to perform any work or work … ”
In the case of Iyere v. Bendel Feed & Flour Mill Ltd., the Supreme Court of Nigeria described an employment contract as follows:
“… an employment contract connotes a service or apprenticeship contract, whether express or implicit, and if it is express, either oral or written.”
Therefore, C was a worker or an employee of the company because he was actually working for the company. In other words, enough instructions and directions were given to C that point to the fact that C was working for and on behalf of the company when he was working as the company’s DBD.
From another point of view, the facts in question can also be approached from the strict sense of a contractual agreement. It is trivial in law that the parties are bound by the terms of their agreement. In the case of Akanmu v. Olugbode, the Court held the following:
“ The elements of a valid contract are offer, acceptance, consideration and intention to enter into legal relationships … Once the offer is accepted unconditionally, a valid contract has come into existence. ”
Furthermore, in the case of Dragetanos Const. (Nig.) Ltd. v. FMV Ltd & Ors., The Court of Appeal ruled as follows:
” … it is appropriate and necessary to reaffirm the principle enshrined and rooted in the Contract Law that ‘pacta conventa quae neque contra leges neque dolo malo inita sunt, omni modo obsevanda servanda sunt’, in order words, contractual agreements that have not been celebrated fraudulently or illegally by the parties, must be observed or enforced in all respects. ”
Furthermore, in the case of Nicon Hotels Ltd. v. Nene Dental Clinic Ltd, the Court of Appeal ruled as follows:
” An agreement entered into voluntarily must be carried out in good faith. Equity looks at the intention and not the forms and will always impute the intention to fulfill an obligation ”
In light of the above, it is safe to say that a contract can be established between the company and C, as evidenced by the various instructions given to C by A, the managing director of the company. Of course, the actions of the parties clearly show that there was offer, acceptance, consideration and intention to create a legal relationship between all parties. Therefore, the company’s decision and subsequent joint efforts by all parties to secure a contract constitute an enduring and enforceable contract between the parties.
4. If C was entitled to participate in the income obtained by the company:
This question deals primarily with the determination of C’s remuneration. Although the oral friendly understanding between the parties on profit sharing was not contained in any written ‘Profit Sharing Agreement’, the profits will be shared equitably because the parties they had verbally agreed to do so. shared. However, it should be noted that an evidentiary problem can arise if A and B deny their verbal agreement. It is also imperative to add that: assuming without granting that there was no agreement (oral or written) between A, B and C, the equity will still allow C to share in the winnings based on C’s sweat equity.
Therefore, it is safe to say that C is entitled to his own share of the company’s income because of his sweat capital (he actively contributed to the contract from which the company made N60m). In fact, it was incorrect for A and B to convert only all the income earned by the company.
TIPS FOR C
In light of the above, C can sue for breach of employment contract, or breach of contract simpliciter that can be deduced from the circumstances of both the actions and the relationship of the parties. As the above legal provisions answer, the question of what constitutes an employment contract is a matter of law. Of course, the exact remuneration of C is equal proportion with A and C of the total profits obtained by the company from the contract entered into by A, B and C.
Conclution
It is imperative to state that C’s case is on a very weak basis in company law, but it is possible that he has a remedy for breach of the employment contract because there was indeed a job. More specifically, as noted above, C can sue for breach of the simpliciter contract because there was indeed a subsisting contact between the parties.
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