MAY 2015 NEWS ALERT

FAILURE TO PAY FULL PURCHASE PRICE NULLIFIES A CONTRACT FOR SALE OF LAND:

THE CASE OF NIDOCCO LTD V GBAJABIAMILA REVIEWED

INTRODUCTION Under Nigerian Law, the principle has been long established that where there is an agreement for the sale of land and the full purchase price of the property has not been paid by the purchaser, there is no valid sale of that land1. Even where the purchaser, who has not paid the full purchase price is in possession of the property, there is no valid sale of that property as such possession cannot defeat the title of the vendor2. The parties to an agreement to sell a property are at liberty to decide whether the purchase price should be paid at once or by instalments. Where the parties agree to the time within which the full purchase price must be paid then the purchaser must comply with same and if no time was fixed by the parties, then the balance of the purchase price must be paid within a reasonable time. In any case, the purchase price is the consideration that flows from the purchaser to the vendor in order for the contract to be valid. The Supreme Court was faced with such a situation in the case under review and it seized the opportunity to reiterate the position of the law on the issue. THE FACTS: The Appellant, a limited liability company had three shareholders being the Respondent, the Respondent’s former husband (‘Mr. Gbajabiamila’) and one Mrs. Ebie. The Appellant was the registered owner of the property situate at 26, Sobo Arobiodu Street, G.R.A, Ikeja, Lagos State (“the Property”). Sometime in 1983, the Appellant was in financial difficulties and the board of directors passed a resolution to sell the Property. The Respondent and Mr. Gbajabiamila

1 Odusoga v Ricketts (1997) 7 NWLR (PT. 511) 1, 2 Odufoye v Jacob Fatoke (1977) 4 SC 11 and Manya v Idris (2001) 8 NWLR (PT. 716) 627

as directors in the Appellant offered to purchase the Property and their offer was accepted by the Appellant. Consequently, the Appellant as the vendor and the Respondent together with Mr. Gbajabiamila as purchasers executed a Deed of Assignment dated 21st June 1983 wherein the payment of the sum of N150,000.00 (One Hundred and Fifty Thousand Naira) as consideration was acknowledged (‘the First Deed’), although there was no evidence that the agreed purchase price was paid. The parties did not seek to obtain the Governors’ consent to the transaction because of the cost. The Respondent later persuaded Mr. Gbajabiamila to transfer his share in the Property to her and he agreed. To evade the costs of obtaining the Governor’s consent twice, first, to the transfer of the property by the Appellant to the Respondent and Mr. Gbajabiamila and, second, from Mr. Gbajabiamila to the Respondent, the parties agreed to transfer the Property directly from the Appellant to the Respondent alone notwithstanding the existence of the First Deed transferring the Property to the Respondent and Mr. Gbajabiamila jointly. In pursuit of this objective, the parties then executed another Deed of Assignment dated 5th December 1988 to transfer the Property from the Appellant to the Respondent (‘the Second Deed’). The Second Deed could not be tendered in evidence because Mr. Gbajabiamila gave evidence that he destroyed it because he did not receive any consideration from the Respondent for the transfer of his share in the Property. The Appellant approached the High Court for a declaration that it is entitled to the grant of a certificate of occupancy in respect of the Property and an order of injunction restraining the Respondent from further acts of trespass to the Property. The Respondent counterclaimed for a declaration that she is entitled to the grant of statutory right of occupancy in respect of the Property. After trial, the trial Court granted all the claims of the Appellant and dismissed the Respondent’s counterclaim. The Respondent’s appeal to the Court of Appeal was successful as the Court of Appeal set aside the judgment of the High Court by dismissing the Appellant’s claim and ordered the Respondent’s counterclaim to be tried afresh while joining Mr. Gbajabiamila as a defendant to the Counterclaim. The Appellant further appealed to the Supreme Court. DECISION OF THE SUPREME COURT At the Supreme Court, the Appellant argued that the First Deed was superseded by the Second Deed. The Appellant relied on the evidence of Mr. Gbajabiamila to argue that the purchase price was not paid in respect of the Second Deed and

argued that the Second Deed has been discharged by breach of the Respondent’s failure to pay the purchase price. The Appellant also contended that the First Deed was a registrable instrument under section 15 of the Land Registration Act of Lagos State and was not registered, hence the document was inchoate. Further that since the consent of the Governor was not sought and obtained in accordance with the provisions of section 26 of the Land Use Act, it was null and void and incapable of transferring the Property. The Appellant further argued that failure to pay the purchase price of the Property was a fundamental breach of the contract of sale. The Respondent also argued that the execution of the Second Deed meant that parties no longer relied on the First Deed. The Respondent contended that both the First Deed and Second Deed contained acknowledgment of consideration. She emphasized the fact that the First Deed shows that the sum of N150, 000.00 (One Hundred and Fifty Thousand Naira) was collected by the Appellant as consideration for the assignment of its interest in the Property. The Supreme Court in a unanimous decision allowed the Appellant’s appeal. The apex Court agreed with the Appellant and affirmed the decisions of the trial court while setting aside the decision of the Court of Appeal. The Supreme Court held that the Second Deed did not supersede, discredit and/ contradict the First Deed. The reason advanced by the Supreme Court was that the Second Deed by which Mr. Gbajabiamila purported to convey his interest in the Property to the Respondent has been breached by the Respondent for failure to pay the agreed purchase price. The Court found that there was indeed an uncontroverted evidence from Mr. Gbajabiamila that the Respondent failed to pay the purchase price of his share of the Property and he retrieved the Second Deed from the lawyer who prepared same and destroyed it. The Court held that had the Second Deed been in existence, same would have conveyed the Property direct from the Appellant to the Respondent since the First Deed was completely abandoned and discarded when parties agreed to execute the Second Deed. It held that the Second Deed was aborted when the Respondent breached its term by failure to pay the agreed sum to Mr. Gbajabiamila and that failure to pay the purchase price under a contract for the sale of land is a fundamental breach which goes to the root of the contract. It was also held that the First Deed having been abandoned had no binding effect on the parties. The Court then held that in view of the fact that the First Deed having been abandoned and the Second Deed having been breached by the Respondent and destroyed by Mr. Gbajabiamila, the parties returned to the

status quo before the execution of the First Deed. In effect, there was no sale of the Property by the Appellant to the Respondent and Mr. Gbajabiamila jointly or to the Respondent alone. COMMENT The decision has confirmed the position of Nigerian law on the effect of non-payment of the full purchase price in a contract for the sale of land and that same is a breach that goes to the root of the contract. Thus, where parties to a contract of sale of land have agreed that the purchase price be paid by instalment, the purchase price must be fully paid by the purchaser as at when due if time was agreed by the parties and/or within a reasonable time if no time limit was agreed by the parties. However, the reasoning by the Supreme Court in holding that the Property should revert to the Appellant company deserves further scrutiny. It could be argued that since there was no pronouncement by the Supreme Court on the effect of not obtaining Governor’s consent on validity of the First Deed, then the Property should have reverted to the Respondent and Mr. Gbajabiamila jointly when the sale evidenced by the Second Deed was held to have been breached by the Respondent. .This is more so when the Appellant has acknowledged receipt of the purchase price of N150, 000.00 (One Hundred and Fifty Thousand Naira) on the First Deed. The Supreme Court appeared to have relied on the evidence of both parties that they had agreed to execute the Second Deed and that same should supersede the First Deed in holding that the First Deed had been ‘abandoned’ and thus it has no binding effect. In effect, it appears that the Supreme Court has unwittingly permitted the appellant to benefit from reneging on the initial transaction evidenced by the First Deed for which it had received consideration while depriving the Respondent from the joint ownership under the First Deed without any compensation for her contribution in the consideration of N150, 000 paid for the joint purchase of the Property from the Appellant. An option in terms of reason for the decision which was open to the Supreme Court and which would have accorded more with the position of the law is to declare the First Deed void for lack of Governor’s consent. 3

3 See U.B.N. Plc v. Ayodare & Sons (Nig.) Ltd (2007) 13 NWLR (Pt.1052) 567

CITATION:

The case reviewed is reported as Nidocco Ltd v. Mrs. I.A Ggajabiamila (2013) 14 NWLR (Pt. 1374) 350. ________________________________________________________________ QUALIFICATIONS

The contents herein are meant for the general information of our clients and friends and do not amount to legal advice. Adepetun Caxton-Martins Agbor & Segun accepts no responsibility for any loss or damage that may arise from reliance on information contained in this publication. For further information on this subject or issues concerning transactions relating to property, please contact Funke Agbor (Mrs.) or Adetoyese Latilo of Adepetun Caxton-Martins Agbor & Segun by email (fagbor@acas-law.com; alatilo@acas-law.com). . Adepetun Caxton-Martins Agbor & Segun by telephone (+234 1 462 2094), fax (+234 01 461 3140) Copyright© 2015 Adepetun Caxton-Martins Agbor & Segun