Under Nigerian law, there is a long-established principle that where there is an agreement for the sale of land but the purchaser has not paid the full purchase price of the property, there is no valid sale of that land.(1) There is also no valid sale even if the purchaser is in possession of the property, as possession cannot defeat the title of the vendor.(2) The parties to an agreement to sell a property are free to decide whether the purchase price should be paid at once or instalments. Where the parties agree the period within which the full purchase price must be paid, the purchaser must comply; if no period is fixed by the parties, the balance of the purchase price must be paid within a reasonable time. In any case, the purchase price is the consideration that passes from the purchaser to the vendor in order for the contract to be valid.
In a recent case the Supreme Court dealt with such a situation and seized the opportunity to reiterate the legal position.
The appellant, a limited liability company, had three shareholders: the respondent, the respondent's former husband (Mr Gbajabiamila) and Mrs Ebie. The appellant was the registered owner of the property situated at 26 Sobo Arobiodu Street, GRA, Ikeja, Lagos State. In 1983 the appellant experienced financial difficulties and the board of directors passed a resolution to sell the property. The respondent and Gbajabiamila, as directors of the appellant, offered to purchase the property and their offer was accepted by the appellant. Consequently, on June 21 1983 the appellant as vendor and the respondent and Gbajabiamila as purchasers executed a deed of assignment in which the payment of N150,000 as consideration was acknowledged, although there was no evidence that the agreed purchase price had been paid. The parties did not seek to obtain the governor's consent to the transaction because of the cost.
The respondent later persuaded Gbajabiamila to transfer his share in the property to her, and he agreed. To avoid the costs of obtaining the governor's consent twice – first to the transfer of the property by the appellant to the respondent and Gbajabiamila, and second from 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 Gbajabiamila jointly. In pursuit of this objective, on December 5 1988 the parties executed another deed of assignment to transfer the property from the appellant to the respondent. The second deed could not be tendered in evidence because Gbajabiamila testified that he had destroyed it as he had received no consideration from the respondent for the transfer of his share in the property.
The appellant approached the High Court for a declaration that it was entitled to the grant of a certificate of occupancy in respect of the property and an injunction restraining the respondent from further acts of trespass on the property. The respondent counterclaimed for a declaration that she was entitled to the grant of a statutory right of occupancy in respect of the property. The trial court granted all of the appellant's claims and dismissed the respondent's counterclaim. The respondent successfully appealed to the Court of Appeal, which set aside the lower court's judgment by dismissing the appellant's claim and ordered the respondent's counterclaim to be tried anew, while joining Gbajabiamila as a defendant to the counterclaim. The appellant appealed to the Supreme Court.
Before the Supreme Court, the appellant argued that the first deed was superseded by the second deed. The appellant relied on Gbajabiamila's evidence to argue that the purchase price had not been paid in respect of the second deed and that the second deed had 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 had not been registered; hence, the document was inchoate. Further, since the consent of the governor was not sought and obtained in accordance with 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 execution of the second deed meant that the parties no longer relied on the first deed. The respondent contended that both the first deed and the second deed contained acknowledgment of consideration. She emphasised the fact that the first deed showed that the sum of N150,000 was collected by the appellant as consideration for the assignment of its interest in the property.
In a unanimous decision the Supreme Court allowed the appeal. It agreed with the appellant and affirmed the decision 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 on the grounds that the second deed – by which Gbajabiamila purported to convey his interest in the property to the respondent – had been breached by the respondent by her failure to pay the agreed purchase price. The court found that there was clear evidence from Gbajabiamila that the respondent had failed to pay the purchase price of his share of the property and that he had destroyed the second deed.
The court held that had the second deed been in existence, it would have conveyed the property directly from the appellant to the respondent, since the first deed had been abandoned and discarded when the parties agreed to execute the second deed. It held that the second deed was aborted when the respondent breached its terms by failing to pay the agreed sum to 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 also held that the first deed, having been abandoned, had no binding effect on the parties. The Supreme Court then held that in view of the fact that the first deed had been abandoned and the second deed had been breached by the respondent and destroyed by Gbajabiamila, the parties returned to the status quo before execution of the first deed. In effect, there was no sale of the property by the appellant to the respondent and Gbajabiamila jointly or to the respondent alone.
The Supreme Court's decision(3) confirms the position of Nigerian law on the effect of non-payment of the full purchase price in a contract for the sale of land: it constitutes a breach that goes to the root of the contract. Thus, where the parties to a contract of sale of land have agreed that the purchase price be paid in instalments, the purchase price must be fully paid by the purchaser when due if a time limit was agreed by the parties and/or within a reasonable time if no time limit has been agreed.
However, the Supreme Court's reasoning in holding that the property should revert to the appellant company deserves further scrutiny. It could be argued that since the Supreme Court did not pronounce on the effect of failing to obtain the governor's consent on the validity of the first deed, the property should have reverted to the respondent and Gbajabiamila jointly when the sale evidenced by the second deed was held to have been breached by the respondent. This is even more so since the appellant acknowledged receipt of the purchase price of N150,000 on the first deed. The Supreme Court appears to have relied on the evidence of both parties that they had agreed to execute the second deed and that such deed should supersede the first deed in holding that the first deed had been abandoned, and thus had no binding effect. In effect, it appears that the Supreme Court 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 compensation for her contribution to the N150,000 paid for the joint purchase of the property from the appellant. An alternative option, which was open to the Supreme Court and which would have accorded more with the legal position, would have been to declare the first deed void for lack of consenf from the governor.(4)
For further information on this topic please contact Funke Agbor or Adetoyese Latilo at ACAS - LAW by telephone (+234 1 462 2094) or email (email@example.com or firstname.lastname@example.org).The ACAS - LAW website can be accessed at www.acas-law.com.
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