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

## THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA AT KAMPALA

MISC. APPLICATION NO.1080 OF 1998

AUISING FROM HEES 1000 63 or 1995 PUNJANI MOTORS LTD. ::::::::::::::::::::::APPLICANT/DEFENDANT

$V \in R \subseteq S \cup S$

PABARI PROPERTIES LTD. ::::::::::::::::RESPONDENT/PLAINTIFF

## BEFORE: THE HON. MR. JUSTICE J. P. M. TABARO

## $R$ U L I N G

On 29/10/1998 counsel for the defendant/applicant, Mr. Blaze Babigumira urged an application for removal of a caveat affecting property comprised in LRV 483 FOLIO 24 PLOT 32 JINJA ROAD in the City of Kampala. The caveat was lodged as Instrument No.272417, on the 26th day of July, 1995. The application is contested, by counsel for the plaintiff/respondent, Mr. Tibesigwa. The application is brought under s.14 &(1) of the Registration of titles Act (RTA)Cap 205, and 0.48 r.1 CPR.

background to the application in question The is straightforward, and, in my humble opinion, the issues can be sharply defined. Originally the plot in question solely vested in the defendant, Punjani Motors Ltd. On 20th August, 1994 the plaintiff, Pabari Properties Ltd, entered into a sale agreement with the defendant for part of the plot. The defendant, pursuant to the sale agreement, undertook to subdivide the plot so that one part is sold to the plaintiff.

The purchase price of US dollars 500,000 was payable in accordance with clause 4 of the agreement, is couched in these words:-

> "In consideration of the said purchase the PURCHASER undertakes to pay to the VENDOR United States dollars five hundred thousand (US \$ 500,000) as follows:-

$(a)$ $On$ the exchange of this contract the shall transfer US \$ 100,000 (United PURCHASER Stated Dollars one hundred thousand only) to the M/S PUNJANI MOTORS LTD in its Foreign Account in the Bank of Baroda $(U)$ Ltd at such money shall be refunded to the purchaser if completion of the sale does not take place.

(b) On completion of the sale, which shall take place on 15th September, 1994 four weeks after the exchange of contracts, the PURCHASER shall<br>pay direct to the VENDOR US \$ 250,000 (two hundred and fifty thousand United States dollars only)

(c) After completion of the sale the PURCHASER shall pay United States dollars one hundred and fifty thousand only (US \$ 150,000) in twelve (12) equal instalments with interest at a rate of *12 o/o per annum."*

Clause 5 of the agreement was in these words:-

"In consideration of the full purchase price agreed upon in clause 4 supra and of the VENDOR on the terms mutually agreed upon the occupation, ownership and all other rights shall vest in the buyer absolutely."

The property in question has since been subdivided into plots 32A Jinja Road, and Plot 32B Jinja Road. Plot 32B Jinja Road has been renamed plot 95 Kitante Road. However, the plaintiff, Pabari Motors Ltd, disputes the subdivision and contends that it was not carried out in accordance with the instructions given by the City Council of Kampala. Plaintiff alleges that the area set aside in Plot 95 Kitante Road (formerly plot 32B Jinja Road) is less than what it bargained for.

the purchase price of US dollars 500,000 is not wholly paid by the plaintiff. US $$100,000$ remain unpaid. The manner or mode in which the plaintiff has been paying is one of the matters for resolution in this application; the court will consider whether the mode and manner of payment led to a new contract between the parties.

Whereas the sale agreement was made on 20th August, 1994 the plaintiff was incorporated on 22nd August, 1994. Hence as both learned counsel jointly agreed the agreement in issue id a preincorporation contract. Mr. Babigumira submits that the contract is null and void and no rights can be derived by either party from it as it is unenforceable. Mr. Tibesigwa submits that the agreement provided that occupation of the premises would take place on full payment of the purchase price. However, he further contends, the plaintiff took possession and occupied the suit premises before completion of the full purchase price and hence counsel argues, this led to a new contract that can be relied upon by the plaintiff. Evidently, whether or not there was a new contract must depend on the interpretation of Clauses 4 and 5 of the Agreement of sale. Mr. Babigumira contends that modification of the agreement of $20/8/1994$ to lead to a new contract would have to be in $counting$ since the original contract is itself in writing. The plaintiff has been in occupation of the suit premises since September, 1994, according to the affidavit sworn by the Managing Director of the defendant, Mohammed Punjani. From the affidavit of Mahes Radia, the General

Manager of the plaintiff, it is clear that the taking of possession and occupation of the suit was effected in the month of September, 1994. The Caveat in question was lodged on 26th July, 1995 and registered on 27th July, 1995. The affidavit in support of the Caveat is dated 5th April, 1995. In the affidavit it is deposed that the defendant refused or rending delayed in subdividing the suit property so as to transfer part of the property to the purchaser (plaintiff). It refers to the sale agreement of 20th August, 1994 as the basis of the claim plaintiff lays to the part of the property which is supposed to be surveyed off in favour of the plaintiff.

In the reply, dated 5th December, 1997 to the defendant's amended pleadings, the plaintiff asserts that the defendant by accepting 4 months instalments at once, instead of the stipulated 12 instalments for the payment of the balance, the defendant waived the conditions of date of completion of payment and mode of payment. In a letter dated 23rd January, 1995 the defendant's Managing director wrote to counsel for the plaintiff stating that the 4 instalments amounting to 50,000 US dollars were paid as a result of earlier default by the plaintiff - that the defendant accepted to waive the claim for interest in return for payment of the US 501,000 dollars at once. In para 4 of the letter "Annexure R1" to the application, the defendant's Managing Director asserted that by not completing payment of US \$ 250,000 by 15th September, 1994 the plaintiff had defaulted, by 15 days.

Mr. Babigumira counsel for the defendant/applicant quoted a number of authorities, that is, the Principles of Modern company Law by L. C. B. Gower, 3rd Edition at page 280, the case of KENNER V BAXTER [1886] L. R.2 C. P. 174 available in the ${\bf f}$ aw of Business Organisations By J. W Katende 1st Edition, $(E. A)$ Literature Bureau) pp 252 - 255, New Borne v Sensolid (Great Britain) LD(1954)1 Q. B 45, Trevor Price and Anor v Raymond Kelsel [1957] E. A. 752, and the recent case of National Enterprises Corporation & 2 Others $v$ Nile Bank C. A. No.17 of 1994 decided by the Supreme court of Uganda (unreported) in

I have studied the with it See : Touche v made old. [1870] Odoki J. S.c. that a contract company formed afterwards. authorities carefully. National Enterprises In order after its 6 CR APP. Cas.671, [1888] 38 CR D. 156> <sup>2</sup> C P 174 and Colonisation Co Ltd V In the words of. v Nile Bank <sup>I</sup> quote from the judgment of "It is well settled support of his submission that the contract entered^by the parties on 20th August, 1994 is null and void since the plaintiff was not in existence until 22nd August, 1994. In my humble opinion the authority of Corporation Ltd (supra) summaries the position succinctly. at page <sup>8</sup> of the typed teSt. made before a company is formed cannot bind the Nor can a company by adoption or ratification obtain the benefit of contract purporting to have been made on its behalf before it came into existence, to do so a new contract must be incorporation on the terms of the Metopolition Railway Warehousing Co. Howard v Patent Ivory Manufacturing c. Kelen V Baxta [1866] L.r. Pauline and Colliery Syndicate [1904] A. C 120." Gower (supra)vuntil the company has been incorporated it cannot, contract or enter into any other act in law. Nor onceincorporated, can it become liable on or entitled under contractspurporting to be made on its behalf prior to incorporation, for ratification is not possible when the ostensible principal didnot exist at the time when the contract was originally entered' into." Hence, it is fairly clear from these authorities, that, in the present case the parties cannot legally benefit from the agreement of 22nd August, 1994 unless there was a new contract <n the pre-incorporation terms entered into by the parties, afterwards. In other words court must establish whether, as Tibesigwa submits, by taking occupation of the premises before . payment of the purchaser price in full by the plaintiff and the defendant by accepting 4 months instalment at ago, instead of 12 monthly instalments, the parties 20 modified the contract as to make it new.

**/O**

**/s**

On adoption of pre-incorporation contracts, Hebbury's laws of England 3rd Edition, Vol.6 at 825." In order that the company may according to Vol . <sup>6</sup>at page 426 para be Sound by agreements

**/5**

entered into before its incorporation, there must be a new contract to the effect of the previous agreement. This new contract, may, however, be infixed from the acts of the company when incorporated except where such acts are done in the mistaken belief that the agreement is binding." It is significant that the parties did not raise the issue of pre-incorporation since the contract was signed or sealed in 1994 until November, 1998 when this application was argued before this court. Evidently, both parties have been labouring under the mistaken belief that the plaintiff had capacity to contract on 20th August, 1994 whereas it came into existence on 22nd august, 1994 when it was incorporated. It appears to me the parties acted under a mistake of the law, believing that the contract was valid and binding upon the parties.

As is well known in interpreting Clauses 4 and 5 of the agreement the ordinary meanings of the words therein shall be adopted by the parties $\frac{1}{2}$ such an approach would lead to an absurdity - BEAt's Carinal Rules of Legal Interpretation - 3rd Edition at page 80., is with interpretation of the sources to.

Looking at the agreement and with this principle in mind it appears to me the parties regarded 15th September, 1994 as the date of completion of the sale after which US dollars 150,000 would be paid in 12 equal instalments, since 350,000 US dollars were supposed to have been paid by them (15th September, 1994). The defendant's letter of January 23rd 1995 indicates that it regarded the payment of 4 instalments in a lump sum as an atonement for the breach to pay the requisite instalments regularly, on time. I am unable to say that this was novation of and implementation of a new contract. The transaction was in furtherance of the agreement of 20th August, 1994.

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I must say clause 5 of the Agreement is poorly drafted. However, since the parties regarded the sale as going to be completed on 15th September, 1994 and there is nothing tying completion of payment of the whole price to occupation of the premises it cannot be said that occupation of the premises before full payment of all the 12 instalments for discharge of the balance of US dollars 150,000 created a new contract. As stated before, occupation of the premises itself was $\frac{1}{2}$ pursuant $\frac{1}{2}$ the pre-incorporation agreement (of 20th August, 1994). At the same time the expression "on the terms mutually agreed upon" meant that the parties could discuss and agree upon the date of occupation. It did not have to be $\frac{1}{2}$ to completion of the whole of the purchase price.

The plaintiff company holds the defendant in breach of the contract on the ground that the property has been sub-divided in violation of the Kampala City Council specifications. Needless to say, unless there is full trial none can say whether or not the defendant complied with the survey instructions issued by the City Council. Hence, on the evidence available we cannot say whether or not by not paying the US 100,000 dollars the plaintiff is in the right or 🛶 breach.

In the affidavit ("Annexure P5) $\ell$ to the application) sworn by Niru Maweni sworn 🚧 support of the Caveat, on 5th April, 1995 it is made clear that what gave rise to the interest sought to be protected by the caveat, is the agreement made between the parties on 20th August, 1994 I uphold applicant's counsel's submission that there is no other caveat spent from the one based on the agreement of 20th August, 1994 which is supported by any affidavit. Since the sale of 20th August, 1994 is null and void for being made before one of the parties (plaintiff) came into existence, it cannot be the basis for any interest that can be protected by a caveat. I am $\overbrace{\text{atiffed}}^{\text{abs}}$ that if the plaintiff's management believed that after occupation of the premises and payment of the equivalent of 4 instalments in one lump sum $\neq$ a new contract was novated they would have stated as in an

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affidavit; they would have cited the new contract as the basis of another caveat, but not the one of 20th August, 1994 which is blatantly void as a pre-incorporation contract. Clearly, the caveat dated the 10th February, 1995 cannot stand. There is no other caveat in question.

Since it is found that the suit is based on a preincorporation contract which the parties never re-enacted after the incorporation of the plaintiff it follows that the suit is not maintainable; at the same time it is not necessary for now to opine as to whether a written contract of this nature can be altered orally. H. M. B. Kayondo v Attorney General [1988-1990] $\overline{\text{HBC}}$ 127 (before Byamugisha Ag. J as her Ladyship then was) $\stackrel{1}{\ast}$ authority for the proposition that court can use its inherent powers to strike out a plaint or written statement of defence where the defect is appeared on the face of the record and no amount of amendment can remedy the defect. In the present case the parties have since 1994 acted the mistaken belief that the plaintiff could contract before it was incorporated. It is not legally possible to do so and I find the agreement in issue null and void. The plaint shall be strick out with costs. Necessarily, the caveat in question cannot stand $\mathbf{w}$ as there is no valid contract that could legally have led to it. The Caveat shall also be removed with costs.

> $J. P. M.$ Tabaro **JUDGE** $9/12/1998.$

$9/12/1998$ :

Parties not present.

Mr. Babigumira for applicant/defendant. Mr. Tibesigwa for respondent/plaintiff. Ruling read.

> J. P. M. Tabaro **JUDGE** $9/12/1998.$

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IS

*Court: Counsel shall address court on the orders to be made since the contract has been found to be null and void on 15/1/1999 at 3.00 p.m.*

> *J. P. M. Tabaro JUDGE 9/12/1998.*