Wakilii

Punjani Motors Limited v Pabari Properties Limited (Miscellaneous Application 1080 of 1998)

High Court · [1998] UGHC 23 · 1998 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for removal of a caveat lodged against property comprised in LRV 483 FOLIO 24 PLOT 32 JINJA ROAD
Decision
Caveat removed and plaint struck out on the ground that the underlying contract was a void pre-incorporation contract

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that a contract made on 20 August 1994, two days before the plaintiff company was incorporated on 22 August 1994, was null and void as a pre-incorporation contract. The plaintiff could not contract before it came into existence. The parties' subsequent conduct—occupation of premises and modified payment arrangements—did not amount to novation or creation of a new contract, but were actions taken pursuant to the void pre-incorporation agreement under a mistaken belief of its validity. The caveat based on the void contract could not stand and was ordered removed. The plaint was struck out with costs.

Outcome

Caveat removed and plaint struck out on the ground that the underlying contract was a void pre-incorporation contract

Facts

On 20 August 1994, the defendant Punjani Motors Limited and the plaintiff Pabari Properties Limited entered into a sale agreement for part of Plot 32 Jinja Road, Kampala. The purchase price was US$500,000, payable in instalments. The plaintiff was incorporated on 22 August 1994, two days after the agreement was signed. The plaintiff took occupation of the premises in September 1994 and made partial payments. The defendant subdivided the plot into Plots 32A and 32B (later renamed Plot 95 Kitante Road). The plaintiff disputed the subdivision and lodged a caveat on 26 July 1995, claiming the property was not subdivided according to instructions. US$100,000 of the purchase price remained unpaid. The defendant applied for removal of the caveat on the ground that the underlying contract was void as a pre-incorporation contract.

Issues

  1. Whether a pre-incorporation contract entered into before a company's incorporation is valid and enforceable.
  2. Whether the parties' subsequent conduct (occupation of premises and payment modifications) created a new contract adopting the terms of the pre-incorporation agreement.
  3. Whether the caveat lodged by the plaintiff/respondent on the basis of the pre-incorporation contract should be removed.

Orders

  • The caveat lodged as Instrument No. 272417 on 26 July 1995 is removed.
  • The plaint is struck out.
  • Costs of the application awarded to the applicant/defendant.
  • Parties to address court on further orders on 15 January 1999 at 3:00 p.m.

Rules and key headnotes

Company Law — Pre-incorporation Contracts — Validity and Enforceability
A contract made before a company is formed cannot bind the company formed afterwards. A company cannot by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before it came into existence. A new contract must be made with the company after its incorporation on the terms of the old contract.
Company Law — Pre-incorporation Contracts — Adoption by Subsequent Conduct
For a company to be bound by agreements entered into before its incorporation, there must be a new contract to the effect of the previous agreement. This new contract may be inferred from the acts of the company when incorporated, except where such acts are done in the mistaken belief that the agreement is binding.
Contract Law — Pre-incorporation Contracts — Occupation and Payment Not Amounting to Novation
Where parties act under a mistaken belief that a pre-incorporation contract is valid, the taking of occupation of premises and acceptance of modified payment terms pursuant to the pre-incorporation agreement does not constitute novation or creation of a new contract where the parties never intended to re-enact the original agreement after incorporation.
Land & Property — Caveats — Removal Where Based on Void Contract
A caveat lodged on the basis of a void pre-incorporation contract cannot stand, as there is no valid contract that could legally have given rise to a caveatable interest.
Civil Procedure — Striking Out — Plaint Based on Void Contract
Where a plaint is based on a pre-incorporation contract that is null and void on the face of the record, the court may use its inherent powers to strike out the plaint, as no amount of amendment can remedy the defect.

Legislation cited (2)

Cases cited (8)

  • Kenner v Baxter [1886] LR 2 CP 174
  • Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45
  • Trevor Price and Another v Raymond Kelsel [1957] EA 752
  • National Enterprises Corporation and 2 Others v Nile Bank (Civil Appeal No. 17 of 1994)
  • Touche v Metropolitan Railway Warehousing Co [1870] 6 Ch App 671
  • Colonisation Co Ltd V [1888] 38 CR D. 156
  • Pauline and Colliery Syndicate [1904] A.C 120
  • H.M.B. Kayondo v Attorney General [1988-1990] HCB 127

Full judgment

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Punjani Motors Limited v Pabari Properties Limited (Miscellaneous Application 1080 of 1998) [1998] UGHC 23 (9 December 1998)
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.