VERBAL AGREEMENT BY DIRECTORS OF AN ORGANIZATION TO SHARE PROFITS WITH AND MAKE A MAN A DIRECTOR FOR THE SERVICE RENDERED BY THE MAN: IMPLICATIONS OF THE FIRM’S FAILURE TO FULFILL THE SAID AGREEMENT UNDER THE EXTANT LAWS IN NIGERIA
A (Managing Director) and B were the only registered managers and stockholders of a Nigerian Company. By involving C who was expected to use both his expertise and political contacts to gain business advantage and growth for the company the firm determined to increase its business prospects notably in the public sector. B and a orally agreed that C would be made a director of the business and that gains made by the business shall be shared evenly with C. On the basis of the said agreement, C given considerably in securing a contract for the business which made A commend C’s effort vide a letter.
Therefore, C was designated and instructed to act as the Director of Business Development (DBD) of the firm and other efforts were started to ensure that C was made a director of the business as orally agreed by all the parties. But there was never any written resolution passed to make C a director was the register of directors of the firm amended.
Therefore, the company secured a contract where it made a total profits of N60,000,000 (Sixty Million Naira only). Shockingly, B and A had refused to share the gains that were said with C.
Additionally, a brief effort will be made to guide C on the strength or otherwise of his case.
1. Whether C was in law a manager of the company.
2. Whether C can be said to be a partner with An and B.
3. Whether C was an employee or worker in the firm.
4. Whether C is eligible for share in the income made by the business
LEGAL POSITION ON ISSUES
1. Whether C was in law a director of the firm:
Usually, the issue of: who’s a director of a business is more of a question of law than fact. Section 244 of the Companies and Allied Matters Act (CAMA) describes ‘a manager of a firm registered under this Act is a person duly made by the company to direct and manage the business of the firm’. Undoubtedly, the managers’ roles are as fundamental to the wellbeing of a business just as blood is to the survival of the human body. Perhaps, for this reason special provisions are all throughout the world made by business statutes about the processes of appointment and removal of a manager.
In the light of the foregoing, it’s possible to safely say because he was never validly appointed so that C wasn’t a director of the firm. Though, C was designated as a Manager of Business Development (DBD) of the business but nothing was done to amend the necessary registers of the company at the Corporate Affairs (CAC) registry. In other words, the appointment of C as the DBD without filing crucial amendments in the company’s register of managers was a mere expression of goal that was never perfected in law.
2. Whether C can be said to be a partner with An and B:
From your foregoing statutory definition, you can say a partner is someone who carries on business with other partners that are such. It’s critical to analyze the various statutory rules that determine the nature of partnership. Section 4 of the Partnership Law provides so:
(a) ”Joint tenancy, tenancy in common, joint property, common property or part ownership doesn’t of itself create a partnership as to anything so held or owned whether the tenants or owners do or don’t share any profits made by use thereof.
(I) the receipt by a man of debt or other liquidated amount by payments or otherwise out of the accruing profits of a company doesn’t of itself make him a partner available or liable as such;
(ii) a contract for the remuneration of a servant or representative of a man engaged in a business by a share of the gain of the company does not of itself make the servant or agent a partner in the business or liable as such;… ”
From the foregoing, it really is clear that partnership is a question of express agreement between the associates because the law will not normally presume the existence of partnership between individuals doing business together. It then suffices to say that: a simple contract made with person or a servant for remuneration or sharing of business’s profits doesn’t ipso facto make such servant or man a partner.
It really is noteworthy to state that C’s case falls within the contemplation of Section 4 (c) (ii). The legal consequence of that is that C was a servant of the company who was entitled to share from the income of the company. But he wasn’t a partner in the strict legal sense.
3. Whether C was an employee or worker in the company:
It is critical to examine the Labour Law angle before contemplating the strict contractual aspect of the relationship of the relationship that existed between C and the company. Consequently, Section 91 of the Labour Act, ‘contract of employment’ means an ”understanding, whether oral or written, express or implied, whereby one person agrees to employ another as a worker and that other individual consents to serve the company as a worker”.
”… a contract of employment connotes a contract of service or apprenticeship, whether express, or implied, and if it is express, whether it’s verbal or in writing”.
Consequently, C was a worker or an employee of the company because he was indeed working for the company. To put it differently, there were enough instructions and directions given to C which point to the fact that C was working for and on behalf of the company when he worked as the DBD of the business.
From another perspective, the facts at hand can also be addressed in the strict contractual agreement sense. It truly is trite in law that parties are bound by the conditions of their deal. In the case of Akanmu v. Olugbode, the Court held as follows:
Once the offer is unconditionally accepted, a valid contract has come into existence”.
Additionally, in the instance of of Dragetanos Const. (Nig.) Ltd. v. F.M.V. Ltd & Ors., the Court of Appeal held as follows:
Additionally, in the case of Nicon Hotels Ltd. v. Nene Dental Clinic Ltd, the Court of Appeal held as follows:
” An arrangement entered into must be honoured in good faith. Equity will always impute an aim to satisfy an obligation and looks at the fixed and not forms”
In the light of the foregoing, it’s not dangerous to claim that a contract can be established between the business and C as clear in the various instructions given to C by A, the Managing Director of the firm. Of course, the activities of the parties demonstrate clearly that there were offer, acceptance, consideration and aim to create a legal relation among all the parties. Consequently, the selection of the subsequently combined efforts made by all the parties in securing a contract and the company establish a subsisting and enforceable contract among the parties.
This issue deals chiefly with the determination of remuneration of C. Though, the favorable verbal understanding between the parties about profit sharing had not been comprised in any written ‘Profit Sharing Agreement’, gains shall be shared equally because parties had orally agreed it to be shared. However, it is to be noted if An and B deny their oral agreement that there may appear an evidential dilemma. It’s also imperative to add that: assuming without conceding that there was no understanding (oral or written) among A, B and C, equity will still allow C to share in the gains based on C’s sweat equity.
It was indeed wrong for An and B to completely convert all the income made by the firm.
ADVICE FOR C
In the light of the foregoing, C can sue for breach of contract of employment, or breach of contract simpliciter which can be deduced from relationship of the parties and the circumstances of the actions. As answered by the statutory provisions above, the issue of what constitutes a contract of employment is a question of law. Of course, the precise remuneration of C is equal percentage of the total gains made by the company from the contract completed by A, B and C. with C and A
It is imperative to say that C’s case is standing on a very weak basis in partnership law, but he may have a remedy for breach of contract of employment because there was truly an employment. Because there was indeed a subsisting contact on the list of parties more specifically as noted above, C can sue for breach of contract simpliciter,.