“Considering the definition of MOU as contained in the Black’s Law Dictionary, the Court held that a Memorandum of Understanding or letter of intent, merely sets down in writing what the parties intend will eventually form the basis of a formal contract between them. Thus, taking into consideration the elements of a valid contract, the MOU is merely a representation of the intention of the parties, subject to the execution of a formal agreement”
In the Supreme Court of Nigeria
Holden at Abuja
On Friday the 27th Day of January, 2017
Before Their Lordships
Walter Samuel Nkannu Onnoghen, Acting CJN
Mary Ukaego Peter-Odili
Kumai Bayang Aka’ahs
Kudirat Motonmori Olatokunbo Kekere-Ekun
Justices, Supreme Court
BPS Construction & Engineering Co. Ltd…………….. Appellant
Federal Capital Development Authority………….Respondent
Lead Judgement delivered by Kudirat Motonmori Olatokunbo Kekere-Ekun, JSC
The Appellant carries on the business of civil, mechanical and electrical engineering and construction work. The Appellant approached the Respondent for the provision of infrastructural facilities at Mabushi and Katampe Districts of the Federal Capital Territory, Abuja. The Appellant’s proposal was approved at a meeting held between the parties on 6th July, 2004. A Memorandum of Understanding (MOU) was entered into by the parties.
The MOU was made subject to signing a formal agreement by the parties. By the agreement, the Appellant, an infrastructure developer, would raise funds for the project and recoup the costs, from the collection of development levies payable by allottees of plots, and from the sale of vacant plots in the two districts. The terms of the MOU were to the effect that the Respondent would provide the Appellant with the engineering designs, drawings and bill of quantities (BOQ), and any other document that would enable the Appellant complete its costs analysis of the project. The MOU also provided that within 14days of its execution, the parties shall enter into a formal agreement on terms to be mutually agreed on by the parties. In compliance with the MOU, the Respondent submitted the required documents to the Appellant.
The Appellant in turn submitted its Infrastructural Development Agreement to the Respondent for execution, along with evidence of its financial capacity to execute the contract. However, despite repeated reminders, the Respondent failed/refused to sign the agreement. In the meantime, the Appellant had incurred costs in terms of manpower and resources in the execution of the project based on “reliance on the promises, assurances and representations of the Respondent that a formal agreement will be executed in line with the MOU.”
When the Respondent persisted in its failure to execute the formal agreement, the Appellant instituted an action at the High Court of the Federal Capital Territory, Abuja seeking among others, (a) A declaration that the Defendant (Respondent) is duty bound to enter into a formal agreement with the Plaintiff (Appellant) in line with the MOU; (b) An Order compelling the Respondent to execute the formal agreement within a time stipulated by the Court; (c) An Order for the Respondent to pay the sum of N3,877,284,858.29 being cumulative costs for the efforts, services and work input which the Appellant already committed to the said project pursuant to the MOU or in the alternative, An Order for the Respondent to pay to the Appellant the sum of N10,000,000,000.00 being loss of anticipated profit by the Plaintiff in respect of the project.
The Respondent denied the claims of the Appellant. At the end of the trial, the Court found for the Appellant and awarded the sum of N10,000,000.00 as damages for the breach of contract and N2,000,000.00 as costs and legal expenses in the action. The Appellant was dissatisfied with the judgment and consequently, appealed against same to the Court of Appeal. The Respondent was also dissatisfied with part of the judgement and accordingly, filed a notice of cross-appeal. At the Court of Appeal, the main appeal was dismissed while the cross-appeal was allowed and the awards of damages by the trial Court were set aside. Displeased with the decision of the Court of Appeal, the Appellant further appealed to the Supreme Court.
Issues for Determination
At the Supreme Court, parties duly filed and exchanged briefs of argument wherein several issues were formulated for determination of the Court. The issues considered by the Court are: (i) Whether the Court of Appeal’s definition and application of the import and meaning of “memorandum” simpliciter in determining the contractual relationship between the parties … is not a misapprehension of the Appellant’s case which has occasioned a miscarriage of justice against the Appellant; (ii) Whether the Court below was right in holding that there was no valid and enforceable contract between the Appellant and the Respondent … thus reversing the decision of the learned trial Chief Judge …; (iii) Whether the Court below was right in failing to consider the promissory estoppel and estoppel by conduct arising from the promises, assurances and representations made by the Respondent to the Appellant which the Appellant believed and acted upon to its detriment.
Arguing the first issue, Counsel for the Appellant submitted that the Court of Appeal misunderstood its case as to the meaning and import of an MOU, which resulted in a miscarriage of justice. Employing the definition of MOU as found in the Black’s Law Dictionary, 8th Edition, he submitted that in certain circumstances, MOU could be held to contain a commitment which is binding and enforceable between parties thereto, as opposed to the meaning of MOU simpliciter, which misconstruction resulted in miscarriage of justice to the Appellant.
He argued that the MOU contained the required commitment necessary for a valid contract to wit: unequivocal offer, acceptance and consideration. Counsel for the Respondent submitted that MOU connotes an informal record. He referred to the definition in the dictionary relied on by the Appellant and stated that the definition includes a letter of intent which courts do not ordinarily enforce, but occasionally find that commitment has been made. He stated that Counsel for the Appellant placed reliance on the latter part of the definition – “but occasionally find that commitment has been made”, which is merely an exception and not the norm, as the issue before the Court does not involve one of those exceptional cases.
He submitted that the MOU is unambiguous that there was no contract in existence between the parties. On the second issue, learned Counsel for the Appellant contended that, contrary to the decision of the Court of Appeal, the terms of the agreement between parties were well set out in the MOU, and that the sanctions for any breach of the contract need not be spelt out in the MOU, as the implication of any breach is settled in law. He reiterated that the MOU contained all the valid elements of a contract and that parties having carried out their obligations as outlined in paragraph 3(1) of the MOU, they could be said to be in agreement, which constituted a binding and an enforceable contract, notwithstanding the expression – “subject to the signing of a formal agreement.”
On his part, learned Counsel for the Respondent submitted that the Court of Appeal rightly interpreted the meaning of the MOU and considered same in its entirety. He argued that a document which provides for the execution of an agreement in the future, is merely a preliminary move in negotiations which may or may not lead to a definite offer being made. He observed that Counsel for the Appellant failed to establish the elements of a valid contract before the trial court and thus, it was improper for Counsel to attempt doing this before the Supreme Court, without leave of court.
On the legal implication of the phrase – “subject to” – he referred to the cases of OKECHUKWU v ONUORAH (2000) 15 NWLR (PT. 691) 597 AT 614-615; UBA LTD v TEJUMOLA & SONS LTD (1988) 2 NWLR (PT. 79) 662 AT 688. With regard to the third issue, Counsel for the Appellant argued that the Court of Appeal ought to have considered the principles of promissory estoppel and estoppel by conduct arising from the promises, assurances and representations made by the Respondent upon which the Appellant acted to its detriment. He submitted that the Respondent could not resile from the assurances given by the Minister of the FCT, which modified the legal relationship between the parties. He referred to Section 151 of the Evidence Act on his position that the Respondent is caught by the doctrine of Estoppel by Conduct and Promissory Estoppel.
In reaction, Counsel for the Respondent faulted the submission on principles of Promissory Estoppel and Estoppel by Conduct being applicable to this case. He argued that the meetings relied on by Counsel held prior to the signing of the MOU, amounted to an invitation to treat. Counsel for the Appellant replied that the Estoppel relied on can arise in any relationship between parties, including preliminary negotiations provided that the elements of contract are complete.
Court’s Rationale and Judgement Deciding the first issue, the Apex Court identified the major submission of Counsel for the Appellant to be that the MOU represented a binding and enforceable contract between the parties. Differentiating what constitutes a valid contract in contrast to an invitation to treat, their Lordships called in aid the case of BILANTE INTERNATIONAL LTD. v NDIC (2011) 15 NWLR (PT. 1270) 407 AT 423. The Court held that a binding contract must contain the basic elements of offer, acceptance, consideration and capacity to contract or intention to create legal relationship, as opposed to an invitation to treat which is not an offer that can be accepted to lead to a contract. Considering the definition of MOU as contained in the Black’s Law Dictionary, the Court held that a Memorandum of Understanding or letter of intent, merely sets down in writing what the parties intend will eventually form the basis of a formal contract between them. Thus, taking into consideration the elements of a valid contract, the MOU is merely a representation of the intention of the parties, subject to the execution of a formal agreement.
The finding of the Court of Appeal on the issue cannot be faulted; hence, there was no miscarriage of justice occasioned by the finding of the Court. On the second issue, the Supreme Court reckoned that the contention of the Appellant is that the MOU falls within the exceptional circumstance where a Court finds that commitment has been made between parties, notwithstanding the general nature of MOU. The Apex Court reiterated the elements of a valid contract and relied on the dictum of IGUH JSC in ALFOTRIN LTD. v A-G FEDERATION & ORS. (1996) 9 NWLR (PT. 475) 634 at 656 to the effect that for there to be an enforceable contract, “there must be a concluded bargain which has settled all essential conditions that are necessary to be settled and leaves no vital term or condition unsettled.” For the avoidance of doubt, paragraph 5 of the MOU states that “This memorandum of understanding is subject to the signing of a formal agreement by the parties.” In this instance, since the MOU is subject to signing a formal agreement, it would not be correct to say that the terms are to be construed in a mandatory sense. The third issue is to the effect that the Court of Appeal was wrong to have relied solely on the MOU in reaching the conclusion that there was no binding agreement between parties. On this issue, the Supreme Court held that where a contract is made subject to the fulfilment of certain terms and conditions, the contract is inchoate and not binding until those terms and conditions are fulfilled.
The Court also relied on the case of TRANS BRIDGE CO. LTD v SURVEY INTERNATIONAL LTD. (1986) 4 NWLR (PT. 37) 576 AT 617 on the essential requirements for the operation of Promissory Estoppel. At page 618 (supra), it was stated that the doctrine of Promissory Estoppel does not create a new cause of action but only prevents a party from insisting on his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties.
The issue here is whether there were promises, assurances or representations made by the Respondent subsequent to the MOU which caused the Appellant to alter its position to its detriment, as found by the trial Judge. There was no evidence of modification of the agreement between the parties as contained in the MOU, which clearly stated that it was subject to signing a formal agreement by the parties. Therefore, though the Appellant had fulfilled its obligation under the MOU, such acts could not amount to a license to proceed to mobilise to the site and commit financial and manpower resources to the project, without the formal agreement being signed.
Representation: Chief Tochukwu Onwugbufor, SAN with H. Okhiria (Miss) and O. Onwugbufor (Miss) for the Appellant
M.N. Nunghe Esq. with Sylvester Ogbelu Esq., M.J. Numa Esq., E.O. Agi Esq. and M.T. Husseini Esq. for the Respondent
Reported by Optimum Publishers Limited (Publishers of Nigerian Monthly Law Reports (NMLR)