Corporate Liability in Civil Matters (NG)

N.B. This article is particular to Nigeria

Corporate Liability in Civil Matters

The liability of a corporate entity in a civil matter can be easily determined, as this is not as stringent as in criminal proceedings.

The burden of proof in a civil matter is on the basis of probability. But the guilt of an accused in a criminal proceeding must be proven beyond all reasonable doubt. ‘Private’ wrongs, are different from ‘public’ crimes.

Simply, the liabilities of a civil matter involving a corporate entity falls on the company, and not on its owners or director. In Yesufu and Another V. Kuppa International N.V ., the Supreme court held that where a director enters into a contract in the name of a company, or purporting to bind the company, it is the company, the principal, which is liable on it, not the director – the agent.

Clearly, the relationship that exists among a company, its capable official, and a third party, in the administration of contractual rights and liabilities is that of a principal, agent, and another. Wrapped in the Latin maxim, qui facit per alim facit per se – the acts of the agent (a director), within the scope of his authority, is directly that of the principal (the company). The agent cannot be held responsible for the actions which he does for the principal. The contract is essentially between the principal and the third party.

In similar vein, Tobi JCA (as he then was) in Kurubo v. Zach-Motison (Nigeria) Ltd, opined as follows:
“ In view of the fact that an artificial person or company vested with legal or juristic personality lacks the natural or physical capacity to function as a human being, those who work in it do all things for and on behalf of it…It is therefore the law and the tradition for the human beings authorized to negotiate agreement for and on behalf of the company. Where an agreement is so executed by a person in authority, the company is liable or deemed to be liable for the act or acts of the person.”

According to Section 276 of CAMA, 2020, anyone that acts for a company on the mere disguise of being its director, shall be personally liable for such unauthorized act, unless the company hold him up as being one.

Like an agent to his principal, the acts of the director that are without his scope of authority attracts personal liability. That is to say, the director of a company may become personally liable for his actions which are not within his scope of employment. He may also become personally liable if he contracted in his own name.

According to Section 94 (CAMA), a company shall be exempted from liability springing from the acts of an official or agent and a third party where there was collusion between them. Otherwise, the company will be liable, even where the act of the official or agent is fraudulent.

Notably, a company will also be exempted from civil liability where the third party had the knowledge (actual or constructive) that the general meeting, board of directors, or managing directors had no power to act in such a manner, or acted ultra vires or in an irregular manner of its powers. In other words, the law will not pat the back of a negligent third party, who knew of the unlawfulness of the actions of the directors, or should reasonably have known, as the case may be.

Again, there is no tight corner – so to speak- in liabilities of civil matters as they relate to corporate entities. It is largely a case of principal and agent relationship, with vicarious liability.

A Company as a Legal entity (NG)

N.B. This article is particular to Nigeria

A Company as a Legal entity

In modern times, the concept of ‘a person’ has gone beyond the gender classification of male, female, or groups of any other biological or scientific identity. The conduct of commercial transactions and its resultant effects have produced an expediency for the existence of a body distinct from these.

A company is capable, under law, of being regarded as a personality by incorporation. In other words, an entity made of no flesh and blood, intellect nor reasoning, without natural or material existence, that may not be touched, felt or seen, becomes a person under law.

This personality produced by law is capable of engaging in commercial transactions, like a natural person can. Certainly, natural men are the brain behind the formation of any corporate personality. However, the directors of this corporate entity are distinct from it in the eye of the law. These available legal capacities of an incorporated company have made possible the complexities involved in the conduct of modern business.

The case of Salomon v. Salomon & Co. Ltd [1897] AC 22 is generally recognized as the cornerstone of company law. This case established the principle that a company is distinct from its shareholders and would be treated as an independent entity with perpetual succession. A company has the right to sue and could be sued, in its acquisition of rights and dispositions of liabilities.

In the aforementioned case, Salomon transferred his boot making business, which he owned has a sole proprietor, to Salomon Ltd. (a company which comprised himself and his family as members). He was paid the price for the transfer by way of shares, and debentures having a floating charge on the company’s asset.

Later, the company failed and went into liquidation. Salmon’s right against debentures stood above the claims of unsecured creditors. If things were to be legally done, the other creditors would have recovered nothing from the liquidation process. Therefore, to avoid alleged exclusion, the unsecured creditors, through the liquidator, alleged that the company was nothing but an agent of Salomon. And therefore, Salomon, being the principal, should be personally liable for its debt. Evidently, the claim of the creditors has not recognized the company (Salomon Ltd.) has a separate legal personality from Salomon himself.

The Court of Appeal ruled in favour of the other creditors, declaring the company to be a myth. The court reasoned that Salomon incorporated the company in contradiction to the true intent of the Companies Act, 1862. Salomon should therefore be responsible for the debt, because the company had merely conducted business as his agent.

However, on appeal, the House of Lords reversed the above judgement, unanimously holding that since the company had been rightly incorporated, the motive of those who participated in its promotion is irrelevant. Therefore, the company is an independent legal personality with its rights and liabilities appropriate to itself. Therefore, the principle of ‘corporate veil’ between a company and its owners was firmly created by Salomon’s case.

It is now a recognized principle of company law that a company is responsible for its act, irrespective of the fact that those acts were performed through human instrumentation. The capacities of companies to sue and be sued presupposes that they could be sued for both civil and criminal liabilities. A company can also sue for both civil and criminal rights.

Domestically strengthening the foregoing, section 89 of the Companies and Allied Matters Act (CAMA) provides that “Any act of the members in general meeting, the board of directors, or a managing director while carrying on in the usual way the business of the company, shall be treated as the act of the company itself and the company is criminally and civilly liable to the same extent as if it were a natural person:’

As provided, the doctrine of ‘Separate Legal Entity’ is locally recognized and entrenched in the Nigerian Law, differentiating owners of a company from the corporate entity itself.