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Court of AppealDismissedNot stated in the judgment

Daniel M. Njai v High View Farm Ltd & another [1995] KECA 142 (KLR)

Court of Appeal
14 August 1995
2,552 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal confirmed that if you sign a contract for a company that doesn't exist yet, you are personally bound to honour it.

What this practically means

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Executive summary

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This was a first appeal to the Court of Appeal (Gachuhi, Omolo and Lakha, JJA) against the decision of Bhandari J decreeing specific performance of a sale of LR No 11453/1 near Thika to the second respondent on payment of the balance of the agreed price of Shs 1.75 million. The appeal attacked four matters: the late amendment of the plaint adding the second respondent at the close of the evidence; the finding that a subsisting contract existed with the second respondent personally rather than with the first respondent, a company not yet incorporated when the agreement was signed on 17 January 1985; the alleged want of Land Control Board consent under Cap 302; and the grant of the equitable remedy of specific performance despite alleged unclean hands. The court held that the amendment power under Order VIA permits amendment at any stage where justice requires, that prejudice was compensable in costs, and that the trial judge's discretion was properly exercised, applying Mbogo v Shah. It held that a person contracting on behalf of a company not yet formed is personally liable absent clear exclusion, and on the substance the second respondent was principal: negotiations were with him, his signature was unqualified, and the contract contained a nomination clause. The consent point was rejected as a new point on appeal not fully investigated below, and in any event the Muranga Land Control Board had granted consent, the appellant failing to discharge the onus. The unclean-hands objection also failed. The Court of Appeal affirmed the decision below, dismissed the appeal with costs, and established that lower courts are bound by its affirmance of the pre-incorporation contract principle and the restraint on taking new points on appeal.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the trial judge properly allowed the first respondent to amend the plaint at a late stage by adding the second respondent
  2. 2.Whether the contract of sale dated 17th January 1985 was between the appellant and the second respondent personally rather than the then unincorporated first respondent
  3. 3.Whether the absence of (or alleged want of) Land Control Board consent under the Land Control Act, Cap 302 defeated the suit
  4. 4.Whether the respondents came to court with unclean hands so as to disentitle them to specific performance

Key legal issues

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01

Late amendment of pleadings

Holding

The amendment adding the second respondent was properly allowed; an amendment may be made at any stage of the proceedings where the interests of justice so require.

Reasoning

Order VIA rules 3(1) and 5(1) confer power to amend at any stage to determine the real question in controversy. The appellant neither sought an adjournment nor offered further evidence when the amendment was allowed. Any prejudice is compensable in costs, and success on amended pleadings is not injustice to a defendant. The trial judge's discretion is not lightly disturbed on appeal.

p. 2
02

Contract with a company not yet incorporated

Holding

The sale agreement was a personal contract of the second respondent, who was principal, not agent for the unincorporated first respondent.

Reasoning

Where a person contracts for a company not yet formed, he is personally liable absent clear exclusion of personal liability. The agreement was signed unqualified, not on company notepaper, made no reference to the company, and contained a nomination clause; negotiations were conducted with the second respondent personally. The court was bound to examine the substance of the transaction rather than the form of signature.

p. 3
03

Land Control Board consent

Holding

There was no total want of consent; the Muranga Land Control Board granted consent, and the appellant failed to discharge the onus of proving otherwise.

Reasoning

The point was not raised below, so the court lacked the trial judge's findings and declined to entertain it absent full investigation of facts in the lower court. In any event, consent was granted by the Muranga Land Control Board, and the burden of establishing want of consent lay on the appellant, which he did not discharge.

p. 4
04

Specific performance as a discretionary equitable remedy

Holding

The trial judge's decree of specific performance rested on correct principles and was not disturbed.

Reasoning

Specific performance is equitable and discretionary. The judge found a subsisting contract which the appellant unlawfully attempted to rescind, found time was not of the essence, and noted the second respondent had been in occupation since February 1985. The unclean-hands objection failed on the facts found. The appellate court reviewed all circumstances and saw no reason to interfere.

p. 4

Legal principles established

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  • A person who purports to contract on behalf of a company not yet formed is personally liable on the contract unless there is a clear exclusion of personal liability.
  • An appellate court will not interfere with a trial judge's exercise of discretion unless satisfied that the decision is clearly wrong.
  • An appellate court will not allow a new point to be taken on appeal unless all facts bearing upon it were elicited in the court below.

Court orders

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  1. 1.The appeal is dismissed with costs

The bench

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One judgment of the whole court — no separate or dissenting opinions.

majority
majority
majority
On appeal from
High Court of Kenya (superior court)
Jurisdiction invoked
First appeal to the Court of Appeal from the decision of the superior court

Relief refused

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Setting aside the amendment of the plaint adding the second respondent

The power to amend applies at any stage and no injustice was shown; the trial judge's discretion was properly exercised

p. 3

Rescission of specific performance decree on the ground of want of Land Control Board consent

New point on appeal without full investigation below; Muranga Land Control Board had granted consent and the appellant failed to discharge the onus

p. 4

Denial of specific performance on grounds of unclean hands

The learned judge exercised his discretion on correct principles

Costs

this appeal fails and it must be, as it hereby is, dismissed with costs

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

Accordingly and, for the reason above stated, this appeal fails and it must be, as it hereby is, dismissed with costs.
p. 4Disposition
The Court grants second plaintiff's prayer for specific performance of the said contract and orders that the defendants do transfer the said property to the second plaintiff free of all encumberance on this plaintiff tending the balance of the agreed sale price.
p. 4Order of the trial court as affirmed
in all cases where a person purports to contract on behalf of a company not yet formed, then however he expresses his signature he himself is personally liable on the contract unless there is a clear exclusion of personal liability
p. 3Pre-incorporation contracts
The mere fact that the first respondent may succeed on the amended pleadings where it would have failed on the original pleadings is not an injustice to the appellant.
p. 2Amendment of pleadings
it is settled law that this Court will not allow a new point to be taken on appeal unless it is satisfied that all the facts bearing upon the new point had been elicited in the court below
New points on appeal

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Daniel M. Njai v High View Farm Ltd & another [1995] KECA 142 (KLR)", Case Analysis (1995). Not stated in the judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1995/142/eng@1995-08-14

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.