Wakilii

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

High Court · [1998] UGHC 54 · 1998 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for removal of caveat lodged by respondent over property subject to disputed sale agreement
Decision
Caveat removed; plaint struck out; plaintiff cannot proceed on the basis of the pre-incorporation contract

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that a contract entered into on 20 August 1994 by a company that was not incorporated until 22 August 1994 is null and void as a pre-incorporation contract. Neither occupation of the premises nor payment modifications constituted novation or creation of a new contract. A caveat cannot be sustained where the underlying agreement is void. The plaint was struck out and the caveat removed with costs.

Outcome

Caveat removed; plaint struck out; plaintiff cannot proceed on the basis of the pre-incorporation contract

Facts

On 20 August 1994, Pabari Properties Ltd (the plaintiff) entered into a sale agreement with Punjani Motors Ltd (the defendant) 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 defendant subdivided the property, and the plaintiff took occupation in September 1994. US$100,000 remained unpaid. The plaintiff disputed the subdivision and lodged a caveat on 26 July 1995 based on the sale agreement. The defendant applied to remove the caveat. The plaintiff contended that occupation before full payment and acceptance of modified payment terms created a new contract. The defendant argued the original contract was void as a pre-incorporation contract and could not support the caveat.

Issues

  1. Whether a caveat lodged on the basis of a pre-incorporation contract can be sustained where the contract was made before the company claiming the interest came into existence.
  2. Whether subsequent occupation of premises and modification of payment terms created a new contract capable of supporting the caveat.
  3. Whether a pre-incorporation contract is null and void and whether a suit based on such a contract is maintainable.

Orders

  • Application granted.
  • Caveat removed.
  • Plaint struck out.
  • Costs of the application and suit awarded to the defendant/applicant.

Rules and key headnotes

Pre-incorporation Contracts — Validity
A contract made before a company is formed cannot bind the company formed afterwards. A company cannot by ratification obtain the benefit of a contract purporting to have been made on its behalf before it came into existence.
Pre-incorporation Contracts — Novation Requirement
For a company to become bound by a pre-incorporation contract, a new contract must be made on the terms of the old after the company's incorporation. Mere occupation of premises or modification of payment terms pursuant to the original agreement does not constitute novation where the parties acted under a mistaken belief that the original contract was valid.
Caveats — Removal — No Valid Interest
A caveat cannot be sustained where the underlying agreement on which the claimed interest is based is null and void. Where a caveat is lodged on the basis of a pre-incorporation contract that is unenforceable, the caveat must be removed.
Striking Out — Inherent Powers
The court has inherent power to strike out a plaint where a defect appears on the face of the record and no amount of amendment can remedy the defect. Where parties have acted under a mistaken belief that a contract was valid but the contract is legally a nullity, the plaint must be struck out.

Legislation cited (2)

Cases cited (9)

  • 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 (Court of Appeal Civil Appeal No. 17 of 1994)
  • Touche v Metropolitan Railway Warehousing Co [1870] 6 Ch App 671
  • Howard Kelen v Patent Ivory Manufacturing c.
  • Colonisation Co Ltd V [1888] 38 CR D. 156
  • Pauline and Colliery Syndicate [1904] A.C 120
  • HMB Kayondo v Attorney General [1988-1990] HCB 127

Full judgment

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

Punjani Motors Ltd. v Pabari Properties Ltd. (Miscellaneous Application 1080 of 1998) [1998] UGHC 54 (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.