Wakilii

Green Land Bank Ltd (In Liquidation) v Express Sports Club Ltd (HCT-00-CC-CS 232 of 2006)

High Court · [2007] UGCOMMC 56 · 2007 Preliminary Objection Upheld AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Preliminary objection to reject plaint for non-disclosure of cause of action
Decision
Plaint rejected for non-disclosure of cause of action

Observed later treatment

No later-treatment classification is recorded for this judgment.

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AI-generated summary. This summary was generated by AI from the full text of the judgment. It may contain errors or omissions—always read the source judgment before relying on it.

Holding

A company incorporated after a loan transaction cannot be held liable for debts incurred before its incorporation unless there is a new agreement ratifying the pre-incorporation contract. A memorandum and articles of association do not constitute such ratification. The plaint was rejected for failing to disclose a cause of action against the incorporated defendant company for pre-incorporation debts.

Outcome

Plaint rejected for non-disclosure of cause of action

Facts

Greenland Bank Ltd (in liquidation) sued Express Sports Club Ltd to recover Shs. 7,374,982 overdrawn on account No. 01-523693. The account showed a closure balance of Shs. 3,686,229 on 31 March 1999. The Defendant Company was incorporated on 30 November 1999. At the scheduling conference, the Defendant raised a preliminary objection that the plaint failed to disclose a cause of action because the debt arose from transactions before the Defendant Company's incorporation. The Plaintiff argued that the pre-incorporation promoters were the same as the current officials, and that the Defendant's memorandum of association ratified the pre-incorporation liabilities.

Issues

  1. Whether the plaint disclosed a cause of action against the Defendant Company.
  2. Whether a company is liable for debts incurred by its pre-incorporation entity.
  3. Whether the Defendant Company ratified the pre-incorporation loan agreement through its memorandum and articles of association.

Orders

  • Preliminary objection upheld.
  • Plaint rejected under Order 7 rule 11(a) of the Civil Procedure Rules.
  • Costs awarded to the Defendant.

Rules and key headnotes

Company Law — Separate Legal Personality — Pre-incorporation Contracts — Liability
A company is not liable for debts or obligations incurred before its incorporation, as it is a separate legal entity distinct from its promoters and only comes into existence upon registration.
Company Law — Pre-incorporation Contracts — Ratification — Memorandum and Articles of Association
A memorandum and articles of association do not constitute an agreement between the company and a third party and cannot ratify a pre-incorporation contract; ratification requires a new contract between the company and the third party after incorporation.
Company Law — Memorandum and Articles — Contractual Effect — Section 21(1) Companies Act
Under section 21(1) of the Companies Act, the memorandum and articles bind the company and its members as shareholders, but do not create a contract enforceable by or against a non-member third party.
Civil Procedure — Pleadings — Rejection of Plaint — Order 7 Rule 11(a) — Cause of Action
A plaint must disclose a cause of action by showing that the plaintiff enjoyed a right, that the right was violated, and that the defendant is liable; if any essential element is missing, the plaint is a nullity and must be rejected under Order 7 rule 11(a) of the Civil Procedure Rules.

Legislation cited (2)

Cases cited (5)

  • Auto Garage & Others v Motokov (No. 3) [1971] EA 514
  • Salomon v Salomon & Co Ltd [1897] AC 22
  • Sentamu v Uganda Commercial Bank & Anor (1983) HCB 61
  • The New Vision Printing & Publishing Co. Ltd & Other v Peter Kaggwa (HCT-00-CC-MA-0127 of 2006)
  • Phonogram Ltd v Lane [1981] 3 All ER 182

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Green Land Bank Ltd (In Liquidation) v Express Sports Club Ltd (HCT-00-CC-CS 232 of 2006) [2007] UGCommC 56 (31 May 2007)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.