JACKIE PHILLIPS (APPELLANT)

v.

ARCO LTD. (PHARMACOBIOLOGICAL INSTITUTE) (RESPONDENT)

(1971) All N.L.R. 302

Division: High Court of Lagos

Date of Judgment: 27th October, 1971

Case Number: SUIT NO. S.C. 149/1969

Before: Lewis, Udoma, Sowemimo, JJ.S.C.

Appeal from the High Court (Lagos).

HELD:

(1)     Novation is a form of assignment in which by the consent of all parties a new contract is substituted for an existing contract. For novation to ensure there must be not only the substitution of some other obligation for the original one, but also the intention or animus novandi.

(2)     As stated in exhibit 3, what was agreed was only that if the terms of the document were complied with then the mortgage deed would be reconveyed to the plaintiff. It was not envisaged that rights under the mortgage deed would not be exercised because the agreement exhibit 3 superseded the mortgage deed. It was contemplated that if the conditions were fulfilled then the mortgage deed (presumably in fact the mortgage property) would be reconveyed. The only inference to be drawn from this construction of exhibit 3 must be that if the conditions were not fulfilled the mortgage deed remained in existence and the defendants were not debarred from exercising their rights under it. In other words, exhibit 3 was not a novation but a collateral agreement as found by the trial Judge.

(3)     The doctrine of substantial performance turns upon whether in fact the contract concerned was an entire contract or not. The majority of the cases in which it occurs are for building of like work done and it is usually the person who has not fully performed an agreement who seeks part payment. Although a contract may have several terms, it must be the intention of the parties that determines whether it is to be treated as an entire contract or as a separate one.

(4)     In this case, notwithstanding that exhibits 4 and 5 show that the plaintiff not only asked to sell his shares and asked to resign as Director, as required by the conditions 1 and 3 in exhibit 3 and that they were accepted and acted upon by the Board of Directors of the defendants as shown by exhibit 6, nonetheless, as exhibit 3 did not supersede exhibit 2, it was a case where in order for the plaintiff to be entitled to have the mortgage deed (presumably property) reconveyed he must comply with all the terms of exhibit 3-it was in other words, an entire contract.

(5)     The trial Judge found that the plaintiff did not comply with the requirement that he hand over the defendants' keys and other properties and their being no appeal against the finding that concluded that issue. It was a clear case of substantial nonfeasance going to the root of the contract and the defendants were not accepting compliance with the conditions 1 and 3 as sufficient to amount to waiver of compliance with the remainder of the terms of the contract. They were dealing with the parts complied with on the assumption at that stage that the plaintiff would fully comply later with the remainder, and this he alone was found to have chosen not to do. He had not complied with one of the important terms of the entire contract (exhibit 3) and there had been no waiver of compliance, so the doctrine of substantial performance of the contract was not applicable here.

Appeal dismissed.

Cases referred to:

Banque Genevoise De Commerce Et De Credit v. Compania Maritima Di Isola Spetsai Ltd., (1964) 2 Lloyd's List L.R.

329: (1962) 1 All N.L.R. 570.

Morris v. Baron & Co., (1918) A.C. 1.

Scarf v. Jardine, (1882) 7 App. Cas. 345.

Wilson v. Lloyd. (1873) L.R. 16 Eq. 60.

Hoenig v. Isaacs, (1952) 2 All E.R. 176.

Vigers v. Cook, (1919) 2 K.B. 475.

Cutter v. Powell, (1795) 6 T.R. 320.

Act referred to:

Sale of Goods Act, (1893) s. 4.

APPEAL from the High Court (Lagos).

SUIT NO. S.C. 149/1969.

Cole for the Appellant.

Coker for the Respondent.

Lewis, J.S.C. (delivering the judgment of the court):-In Suit No. LD/142/68 the plaintiff's writ read:-"The plaintiff's claim against the defendants is for:-

(a)     A declaration that the mortgage subsisting between plaintiff and the defendants dated 29th June, 1964 and registered as No. 54 at page 54 in Volume 1225 of the Lands Registry in Lagos has been discharged.

(b)     An order compelling the defendants, their agent or servants to execute a re-conveyance of the property.

(c)     An injunction restraining the defendants, their agent or servants from selling the property the subject matter of the above mortgage."

Paragraphs 1-11 of his statement of claim read:-

"1.     The plaintiff is the owner in fee simple of the property known and situate at Onitiri village, Yaba Mainland, registered as No. 38 page 38 in Volume 1217 in the Lagos Lands Registry.

2.      Sometime in 1964, the plaintiff agreed with the defendants to form a company known as Nigerian Chemical and Pharmaceutical Company Limited (Nigarco) and that the plaintiff should have shares to the value of £5,000, which will be allocated in parts from time to time.

3.      In furtherance of this agreement, a mortgage was executed in favour of the defendants for the sum of £5,000 for the consideration of the above, although, no such amount was received by the plaintiff.

4.      Between the formation of the company and 21st September, 1964, 3,760 shares of £'1 each were credited to the plaintiff in the books of the company but no share certificate was issued.

5.      On the 22nd March, 1965 whilst in Milan, the plaintiff received a letter from the defendants requesting the plaintiff, to:-

(a)     ask for permission of 'Nigarco' to transfer his shares to the defendants;

(b)     to submit his resignation from the company;

(c)     to hand-over the company's properties in return for the re-conveyance of the mortgaged property.

6.      The plaintiff discussed the content of the letter of request with the defendants and having expressed his lack of control over one Mr Obi who was also asked to resign, the defendants asked the plaintiff to carry out his own side of this agreement which the plaintiff agreed to.

7.      On the 23rd March, 1965, the plaintiff addressed a letter of resignation to the company and asked for permission to transfer his shares to Industrial Chemical and Pharmaceutical Holdings Limited, (the nominee of the defendants) to which the shares were transferred.

8.      On the 25th March, 1965, the defendants' President acknowledged the resignation and transfer of shares to Industrial Chemical and Pharmaceutical Holdings Limited by a letter wrongly dated the 23rd March, 1964, and promised to have the mortgage deed reconveyed by their lawyers in Lagos after the handing over of the property of the company by the plaintiff.

9.      Before the plaintiff left Italy, the defendants sent a telegram to the plaintiff informing him that all the documents have been sent to Mr Bentley of Lagos.

10.     On arrival in Lagos, he contacted Mr Bentley who asked after a series of meetings that the inventory of the company's properties be taken for a handing over to him.

11.     The said inventory was taken and the plaintiff was prepared to hand-over to him when he received a letter from Mr Bentley saying that the offer of reconveyance has been withdrawn because plaintiff asked for his travelling expenses to Rome."

The plaintiff further averred in his statement of claim that the defendants failed to recovery the mortgaged property to him and indicated an intention to sell it.

In regard to the mortgage the defendants in paragraph 4 of their statement of defence pleaded:-

"4.     The plaintiff has never paid the said sum of £'5,000 or any part thereof and accordingly the defendants have sought to enforce the power of sale contained in the mortgage.",

they then admitted paragraphs 5 to 10 of the statement of claim and as to paragraph 11 of the statement of claim pleaded in paragraph 7 of the statement of defence:-

"7.     The defendants admit that the inventory was prepared as averred in paragraph 11 of the statement of claim and that it was agreed that the property should be handed over but the defendants say that when their agent Mr Bentley went to take over the same possession was refused unless in addition to what had been agreed the plaintiff was paid certain travelling expenses."

On the 31st January, 1969, Caxton-Martins J. gave judgment dismissing the plaintiff's claim and finding inter alia:-

"I am satisfied that the plaintiff was untruthful when he said he returned the properties to the defendants in compliance with exhibit 3. I believe the evidence of both 3rd and 4th defendants' witnesses. I find as a fact that the plaintiff retained the keys and did not deliver the defendants' properties to them until he, the plaintiff, arranged the delivery to the Official Receiver late in 1966."

Against that decision the plaintiff has appealed to this Court.

Now Mr Cole for the appellant did not in his argument attack the finding of the learned trial Judge, which we have quoted, that the plaintiff failed to hand-over the keys or otherwise return the properties of the defendants to them. He rested his case on some interesting points of law. He referred us to exhibit 3 which read:-

(EXHIBIT "3" BY PLAINTIFF)

Industtria Cemica E Farmaceutical Holding S. A. CF/LZ Lugano 3 Via Al Ponte 3 Telef. 25171.3 Switzerland.

Lugano, 22nd March, 1965.

Mr Jackie Phillips,

c/o Nigarco Limited,

P.O. Box 1229, Lagos,

Nigeria.

With reference to your letter of 26th January, 1965 and our talks with Mr L.O.V. Anionwu regarding your withdrawal from the company, we would appreciate to receive as soon as possible the following:-

(1)     You should send a registered letter to the registered office of Nigarco Limited, expressing your desire to sell your shares in the company and asking for sanction of the directors. Then kindly revert this letter to us.

(2)     The same should be carried out regarding Mr C. Obi.

(3)     Also by registered letter to the registered office of the company you should submit your resignation from the Board of Directors. This letter should also be reverted to us.

These documents will be sent to our lawyers in Lagos, who are authorised to settle this matter on our behalf.

After the handing over of all the company's belongings, stocks, seal, share certificates, bank account, cars, house, etc., our lawyers will convey to you the mortgage deeds.

Yours sincerely,

(Sgd). Camillo Ferrari."

Mr Cole then submitted that the intention of the parties to be inferred from the document set out above was not, as the learned trial Judge held, to make the document a collateral agreement to the earlier mortgage (exhibit 2) executed between the plaintiff and the defendants on the 28th June, 1964, but was to effect a novation of the original agreement evidenced in the mortgage (exhibit 2). He submitted further that, in order to determine whether there was novation one has to determine the intention of the parties from the document itself (exhibit 3) and that the words in the last paragraph thereof:-

"After the handing over of all the company's belongings, stocks, seal, share certificates, bank account, cars, house, etc., our lawyers will convey to you the mortgage deeds."

must be taken to mean that the earlier mortgage was entirely superseded by that document, which was accepted by the plaintiff, and that if there was a failure by the plaintiff to carry out any of the terms of exhibit 3 then the defendants must either sue for specific performance or for damages for non-performance and could not have recourse to any rights which might exist under the mortgage (exhibit 2) which had been superseded. He relied upon the decision of the Federal Supreme Court in Banque Genevoise De Commerce Et De Credit v. Compania Maritima Di Isola Spetsai Ltd. (The "Spetsai Patriot") (1964) 2 Lloyd's List L.R. 329 (hereinafter referred to as the "Spetsai Patriot") which was upheld in the Privy Council in (1964) 2 Lloyd's List L.R. 336, and he submitted that a similar agreement there was held to be a novation and to have debarred the mortgagee from exercising his right under an earlier mortgage.

Mr Coker for the respondents for his part submitted that exhibit 3 could not be treated as a novation because a novation could only occur when different parties to those in the original contract were included in the later agreement. However, he relied for that submission on Halsbury's Laws of England Third Edition Volume 8 page 262 which far from supporting his submission in our view shows quite the contrary.

It states:-

"460.MEANING OF NOVATION. Novation is, in effect, a form of assignment in which, by the consent of all parties, a new contract is substituted for an existing contract. Usually, but not necessarily, a new person becomes party to the new contract, and some person who was party to the old contract is discharged from further liability. The introduction of a new party prevents the new contract from being a mere accord without satisfaction, and thus affords a defence to any action upon the old contract. For novation to ensue there must be not only the substitution of some other obligation for the original one, but also the intention or animus novandi."

Moreover in the judgment of the Federal Supreme Court in Spetsai Patriot (supra) Brett F.J. said at page 335:-

"A number of authorities were cited to us by Mr Impey in support of the first three heads of his argument, but they are only material if his submission that accord and satisfaction was not properly pleaded is accepted, and as I do not regard the submission as well founded I need not mention them. I would however, refer again to the case of Morris v. Baron & Co. (1918) A.C. 1 not so much for what was actually decided in the House of Lords as for the approach of their Lordships to the legal issues involved, which has a distinct bearing on Mr Impey's submissions as to the issues open on the pleadings in this case. The actual decision, as summarized in the head note was that:-

"A contract for the sale of goods of more than £10 in value, evidenced in writing as required by s. 4 of the Sale of Goods Act, 1893, may be impliedly rescinded by a parole contract for the sale of goods, though unenforceable by reason of its non-compliance with the statute, where there is a clear intention to rescind as distinguished from an intention to vary'.

In the first place, although in coming to this decision a number of their Lordships referred to the doctrine of accord and satisfaction it does not appear that it was invoked in the pleadings and it is not mentioned in the summary of the submissions of Counsel. Secondly, I observe that Viscount Haldane, supra at page 17, refers to the second (and unenforceable) agreement between the same two parties as "the novation attempted to be effected by the final parole contract", which reinforces the statement made by Lord Selborne, L.C., in Scarf v. Jardine, (1882) 7 App. Cas. 345, at p. 351, that a fresh contract between the same parties may in some circumstances be a novation."

From the foregoing it seems clear that there can as a matter of law be a novation between the same parties. Nonetheless, as was stated in the passage from Halsbury's Laws of England that we have quoted, it is essential to find an "animus novandi." This point was brought out quite clearly by Bacon V.C. in Wilson v. Lloyd (1873) L.R. 16 Eq. 60 at page 74 when he said:-

"But that is not all that has been argued, and I think argued with a force which has not been answered-viz., that, by the application, not of any new law, but of a very old law, it is shown that by the bargain which was then made by the creditor (the oblige) with one person who was the obligor, and with another who was under no liability whatever, a novation (if I am obliged to use that word) has been completely effected. The Institutes-the oldest law upon the subject-have been referred to, and they say that two things must concur: there must be the animus novandi, and the substitution of some other thing for that original obligation out of which the debt arose."

It is also necessary here to look with very great care at the facts in the Epetsai Patriot upon which Mr Cole so much relied, because in coming to the conclusion that the parties intended a novation the Federal Supreme Court did not rely solely on the terms of article 5 of the later agreement, to which Mr Cole referred us, but also on the preamble to that agreement as is shown by Brett F.J. at page 334 of the report where he said:-

"I have already said that in my view the defendants sufficiently pleaded their reliance on the agreement to entitle the court to ascertain and enforce its true effect on the mortgage, whether novation, rescission or accord and satisfaction be the correct description of it.

The intention of the parties is to be gathered from the agreement to which they set their hands, and I would attach the greatest significance to the last paragraph of the preamble, in which, after setting out the previous dealings between the parties, and the litigation which was then pending, the parties say:-

At all events the contracting parties with a view to a definitive settlement of all the accounts and litigation between them, agree by these presents as follows...

There is also significance in the first sentence of art. 5:-

Promising good and faithful carrying out of the present settlement the parties reciprocally discharge each other for the balance of all accounts and of all claims and waive all civil or criminal procedure.

The natural interpretation of these passage seems to me to be that the parties intended to start afresh and to let their future relationships be governed by the agreement, not by any rights and obligations which they possessed immediately before the agreement so far as those rights or obligations might be inconsistent with the agreement."

Here to our mind exhibit 3, and in particular the last paragraph upon which Mr Cole replied, is in no way comparable with the terms of the preamble coupled with article 5 contained in the later agreement held to be a novation in the Spetsai Patriot (supra). As stated in exhibit 3, to our mind, what was agreed was only that if the terms of the document were complied with then the mortgage deed would be reconveyed to the plaintiff. It was not envisaged that rights under the mortgage deed would not be exercised because the agreement exhibit 3 superseded the mortgage deed. It was contemplated that if the conditions were fulfilled then the mortgage deed (presumably in fact the mortgage property) would be reconveyed. The only inference to be drawn from this construction of exhibit 3 must be that if the conditions were not fulfilled the mortgage deed remained in existence and the defendants were not debarred from exercising their rights under it. In other words, exhibit 3 was not, in our view, a novation but a collateral agreement as found by the learned trial Judge.

Mr Cole however argued in the alternative that the doctrine of substantial performance should apply so that if this Court held that the plaintiff had substantially complied with the terms of exhibit 3 then the defendants should not be allowed to go outside these terms and treat exhibit 3 as cancelled especially when they had accepted and benefited from the acts of the plaintiff in so far as he had actually complied with some of the terms of exhibit 3. Mr Cole referred us in this context to Hoenig v. Isaacs (1952) 2 All E.R. 176 and Cases on Contract by McGarvie, Pennam and Hocker p. 767. He also once again relied on the Spetsai Patriot (supra) in particular where at p. 335 Brett F.J. said:-

"Whatever breaches of the agreement CMIS may have been guilty of, I do not consider that the Bank, having taken advantage of, for example, the withdrawal of various lawsuits, can claim to treat the agreement as cancelled, as Mr Dubuis suggests."

To deal with this last point first, it is necessary to read the whole of the paragraph and not just one sentence to see to what Brett F.J. was referring as he there said:-

"In the circumstances I would hold that the agreement was a binding compromise of existing claims on each side and that although the mortgage to the bank remains in force for the time being the bank cannot do anything to enforce its rights under the mortgage which would be inconsistent with the terms of the agreement. Whatever breaches of the agreement CMIS may have been guilty of, I do not consider that the Bank, having taken advantage of, for example, the withdrawal of various lawsuits, can claim to treat the agreement as cancelled as Mr Dubuis suggests. I find it equally impossible to accept Mr Impey's submission that the agreement is in force, but nevertheless does not preclude the bank from suing for the full amount originally secured by the mortgage; the limitation of the amount of so secured to a maximum of £50,000 and the detailed arrangements for its assessment and payment are an essential part of the comprehensive settlement effected by the agreement and no grounds have been shown for holding that while the rest of the agreement became operative at once these provisions remain inoperative. The elements of the settlement are not severable, and the parties must either be bound by the agreement as a whole or not bound by it at all, and for the reasons which I have tried to state I am of the opinion that they are bound by the agreement as a whole."

The last sentence which we have quoted makes clear the context of the passage upon which Mr Cole relied and shows that as the new agreement superseded the earlier mortgage the bank could not when it had taken advantage of the terms of the new agreement then go behind it and seek to resuscitate rights under the earlier superseded mortgage. Here we have held that exhibit 3 is not to be treated as superseding by way of novation exhibit 2 but is, as the learned trial Judge found, collateral to it. The passage in the Spetsai Patriot does not accordingly in our view assist Mr Cole.

The doctrine of substantial performance turns upon whether in fact the contract concerned was an entire contract or not. The majority of the cases in which it occurs are for building or like work done and it is usually the person who has not fully performed an agreement who seeks part payment. (Compare Hoenig v. Isaacs (supra) cited by Mr Cole.) Although a contract may have several terms, it must be the intention of the parties that determines whether it is to be treated as an entire contract or as a separable one. Vigers v. Cook (1919) 2 K.B. 475 is but one example where the court found that the several terms implied in an agreement by an undertaker to conduct a funeral were not in fact separable but it was an entire contract. Chitty on Contracts Twenty-third Edition Vol. 1 at page 543 sets out the general position when it states:-

"THE DOCTRINE OF SUBSTANTIAL PERFORMANCE. The main exception to the principle that the partial performer of an entire contract cannot recover the agreed price is the doctrine of substantial performance; by this doctrine a failure to complete only in unimportant part of the plaintiff's obligation does not prevent his claim for the agreed price, subject to a counter-claim for damages which will go in diminution of the price. The doctrine of substantial performance may be excluded by an express provision in the contract, 'each case turns on the construction of the contract,' and 'it is always open to the parties by express words to make entire performance a condition precedent' (to payment). Thus it has been pointed out that Cutter v. Powell (1795) 6 T.R. 320 'did not decide that if he had completed the main purpose of the contract, namely, serving as mate for the whole voyage, the defendant could have repudiated his liability by establishing that in the course of the voyage the sailor had possibly through inadvertence, failed on some occasion in his duty as mate whereby some damage had been caused. What is substantial performance' will depend upon the nature of the contract and all the circumstances; if the contractor abandons performance, or does work entirely different in kind from that contracted for, it is clearly a case of substantial non-feasance, and he may recover nothing. Similarly, a builder who abandons work under a lump-sum contract can recover nothing; but if the work is substantially completed, and it is only in some minor details that the workmanship falls below the contractual specifications, the builder may recover the agreed price, less a deduction based on the cost of making good the defects or omissions. It is clear that the rule applies to unimportant matters of non-feasance as well as to unimportant matters of misfeasance."

To our mind here, notwithstanding that exhibits 4 and 5 show that the plaintiff not only asked to sell his shares and asked to resign as director as required by conditions 1 and 3 in exhibit 3 and that they were accepted and acted upon by the board of directors of the defendants as shown by exhibit 6, nonetheless, as exhibit 3 we have found did not supersede exhibit 2, it was a case where in order for the plaintiff to be entitled to have the mortgage deed (presumably property) reconveyed he must comply with all the terms of exhibit 3-it was in other words, in our view, an entire contract. The learned trial Judge found that he did not comply with the requirement that he hand-over the defendants' keys and other properties and there being no appeal against that finding that in our view concludes that issue. It was a clear case of substantial Non-feasance going to the root of the contract and we do not think that the defendants were accepting compliance with the conditions 1 and 3 as sufficient to amount to waiver of compliance with the remainder of the terms of the contract.

They were dealing with the parts complied with on the assumption at that stage that the plaintiff would fully comply later with the remainder, and this he alone was found to have chosen not to do. He had not complied with one of the important terms of the entire contract (exhibit 3) and there had been no waiver of compliance, so the doctrine of substantial performance of the contract is not applicable here.

We would only add that Mr Cole did originally argue a ground of appeal that read:-"6.         ALTERNATIVELY, if it is held that exhibit 2 still subsists the appellant contends that:-

(a)     The learned trial Judge failed to direct himself that the consideration for which the appellant executed exhibit 2 failed in that no share certificate for 5,000 shares or any number of shares allotted to the appellant was issued to the said appellant and consequently the respondents were not entitled to exercise the power of sale given to the said respondents under the mortgage deed.

(b)     In as much as the appellant transferred to the nominee of the respondent all the shares allotted to him in consideration of his execution of exhibit 2, the trial Court, on a proper direction, ought to have held the relevant mortgage deed discharged.",