An appraisal of the scope and limitation of privity of contract under the Nigeria law

 

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

       An inept knowledge of the nature of law of contract will give a proper understanding of the doctrine of privity of contract. This is because people the world over engage in daily transaction that take the form of contract and social and domestic arrangement to which they are most time ignorant of.

       The existence of man most time depend on his relationship with others. But there are times that he does not know that his daily activities are influenced by the contractual arrangement that he has with others and still find it difficult to have an understanding of that contractual relationship. Even when he has nothing but a mere social arrangement with others he regard it as contractual relationship forgetting that it is not every relationship which people exchange hand shake that amount to contractual relationship. To this end, a distinction of legal obligation from mere domestic and social obligation is pertinent.

       There is basically no complete definition of the concept of contract as an attempt to define the concept have been abortive rather what we have is a generalization of the concept with certain exceptions.

       However, in attempting to define the term contract, we consider three distinct fields of legal rules relating to contract.

       According to T. Anthony Downes[1], there must be rules relating to the formation and content of agreement, rules relating to the enforcement of agreement and rules which distinguish those agreement which are legally enforceable from those which are not.

       I.E sagay in his book titled “Nigeria law of contract[2] defined contract as an agreement which the law will enforce or recognize as affecting the legal rights and duties of the parties.

       In his own view, Tobi JCA defined contract as an agreement between two or more parties which create reciprocal legal obligation to do or not to do particular things.

       Furthermore, T. Anthony Downes[3] defined contract as a legally enforceable agreement.

       From the above definition offered by authors and scholars, it can rightly be said that for an agreement between two or more parties to be legally enforceable, it must have sanction of law.

       Therefore, where there is a mere social or domestic agreement which exist outside the framework of law, the agreement will not have the force of law rather it will attract mere social and moral obligation.

       The rules determining whether an agreement is to be regarded as enforceable is based on three distinct elements that is, intention to create legal relationship, consideration and the form.

       However, the major factor which distinguishes contractual obligation from to other legal obligation is that they are based on the agreement of the contracting parties.

       This proposition remains generally true inspite of the fact that it is subject to a number of important qualifications.[4]

       The law of contract cuts across all spheres of human activity for example hire-purchase, insurance, company law, banking law etc.

       The legal relation created by law of contract enables a person to whom money, goods, services or some other benefits has been promised to enforce the promise or to obtain a remedy for its breach[5]

       However, for a contract to be valid, there must be mutuality of purpose and intention. This was the position of the court in the case of Orient Bank (Nig) Plc V Bilante International Ltd[6]

1.2 STATEMENT OF THE PROBLEM

       Due to the unsettled dissatisfaction as to the right of third parties to a contract, this long essay conducted a wide and interesting research to settle the controversy. This is because often times the operation of the doctrine causes hardship in practice.

       A contract cannot confer enforceable rights or impose obligation arising under it on any person except parties to it. It follows that only those who have furnished consideration towards the formation of the contract that can bring an action on it.[7] This principle was illustrated in the English case of Dunlop Pneumatic Tyres Co. Ltd V. Selfridge Ltd[8] where the court held that only a person who is a party to a contract that can sue on it.

       This was also established in the Nigerian case of Chuba Ikpeazu V. Africa Continental Bank Ltd[9]

       The implication of the above decisions of the court is that strangers to a contract cannot sue on it since they are not parties to it.

       This rule however was recently developed. As at 17th century in the case of Dulton V. Poole[10] a father intended to sell wood to raise money for his younger children. His eldest son dissuaded him from doing so by promising to pay ∑1,000 to each of the younger children. When he failed to carry out his promise, one of the children sued him on it and was successful.

       The doctrine of privity of contract cannot be over-emphasized. It is a settled fact that people enter into contract because they desire to benefit from it. But there are times when what they bargain for does not come to them handy.

       A promisor and a promisee who have furnished consideration may be required to perform other obligation for the enjoyment of the contract. They may be required to insert in the contract clause certain obligation and duties which will guarantee easy access to the contract.

       However, they may have started on a good note but along the line conflict may arise as a result of the emergence of a third party who was not even there when the contract was made. This loophole tend to create confusion and problem in the contract which was done with pleasant exchange of hand shake among the contracting parties.

       Furthermore, a promisor and a promise who have furnished consideration may have inserted in their contract clause that a third party is to benefit from their relationship even though such third party is not a privy.

       The third party may have been mentioned in the contract but is required to perform an obligation under the contract but failed to do so may want to enforce his right.

       Privity of contract poses a lot of challenges and special problem between the promisor, the promisee and the third party and this thus affect the enjoyment of the contract.

       The care of these problem is that privity of contract centres on two basic aspect that is

  1. No one except a party to a contract that can acquire rights under it and
  2. No one except a party can be subjected to liabilities under it[11].

       Although a third party cannot generally assert rights under a contract made for his benefit, the contract remains nevertheless binding between the promisor and the promise. The fact that the contract was made for the benefit of a third party does however give rise to special problems so far as the promisee’s remedies against the promisor are concerned. Actual performance of the contract may also lead to dispute between promise and the third party[12] .

       It is not an overstatement or an exaggeration to say that third parties have been denied their rights and benefit in a contract entered on their behalf either because of their failure to perform the obligation under the contract or because they are not privies to it.

       With due respect to the court which represent the temple of justice, it is not also an overstatement to say that the courts are occupied with irregularities that tend to sway their mind from the right of the third party thereby denying them justice even when they believe that they are working in the interest of justice.

       The question then comes to mind whether a third party who has performed obligation under the contract made on his behalf can enforce it in the law court? Yet another question arises as to whether that third party who has failed to perform the obligation under such contract can sue on it? It is the above question and more this research seek to address.

       In doing this however, consideration which is the bedrock of the contractual relationship without which there will be no relationship must be born in mind.

       This is because once there is valuable exchange of consideration between the contracting parities, then contract comes into exist. Therefore, absence of consideration between the promisor and promisee goes along way to affect the claim of the third party.

       It is this and more that the writer took an indepth research to x-ray the problems encountered in the privity of contract and to settle the unrest between contracting parties.

       This is because it would be wholly unreasonable for any legal system to subject a third party to a contractual obligation to which he was completely unaware.

       Secondly, it would amount to injustice whereby a third party is denied his benefit in a contract simply because he was not a party to it or merely because he did not perform the obligation in the contract which he was not aware of.

       It should be noted that it is the inherent problem that exist in contract relationship between the parties to it that gave rise to the burning desire to reconcile the two and the right of the third party under the doctrine of privity of contract.

       This research is an attempt to find out why some third parties are denied their right in a contract made to benefit them.

1.3 RESEARCH QUESTION

The writer of this long essay sets to give a befitting burial to the following questions raised under privityof contract and as well provide answers to them. Such questions include but not limited to the following;

1.What is privity of contract?

2.What is the rationale behind its operation?

3.Is it relevant in our legal system?

  1. Are there reasons for its application in our legal jurisprudence?
  2. Can a person enforce a contract which he was not a party?
  3. How has consideration influenced the operation of the doctrine?
  4. Does Section 81(1) of Property and Conveyancing Law of Western State exist in practice or remains a theoretical conception?

8.To what extent has the court applied the doctrine in adjudication of dispute?

9.Are there remedies available to an aggrieved party who was denied his benefit under a contract that was entered for his benefit?

  1. Are there limitation to the operation of the doctrine?
  2. What are the circumstances under which a third party can be denied his right?

1.4 OBJECTIVES OF THE STUDY

     To state the law as it both under the English common law and under our legal system which is the major point of interest, the researcher came up with the following objectives;

  1. To settle the conflict between parties to a contract
  2. To state the nature of privity of contract, and how it has been applied in Nigeria.
  3. To bring the right of the third into play
  4. To unveil the duties and obligation required of a third party before the enjoyment of his right
  5. To review how the doctrine has been applied in other jurisdiction of which Nigeria has a relationship with.
  6. The constraints and limitation of its application in Nigeria
  7. The relevance of the doctrine in our legal system.

1.5 RESEARCH METHODOLOGY

       The method employed by the writer in putting together this long essay are primary and secondary sources.

       The primary sources would include case laws both foreign and Nigeria law reports, statues like property and conveyanncing law of Western States.

       The secondary sources includes Journals, articles, text books of renowned authors as well as the internet.

       The essence of using the above is to have wide knowledge on the topic as well as unlimited contribution made by authors and scholars and the courts in the area of privity of contract.

1.6 SIGNIFICANCE OF THE STUDY

     The long essay under discussion will be of beneficial interest in many ways.

       It will educate and enlighten especially the lay man who is a beneficiary in a contract of which he is ignorant of.

       It will also benefit both writers and scholars specialized in the field of contract law, teachers and professors of law as well as the general public.

       Furthermore, it will assist the disputing parties in contract know their rights, duties and obligation as well as their limitation.

       Also, an analysis of the doctrine will help a third party understand his right in a contract to which he is a beneficiary.

       An x-ray of this work will provide possible solution to curb the interference of certain contractual clause from the enjoyment of the contract.

       It equally gives an avenue to criticize certain unjust decisions of the court and how it has affected a third party.

       A study of the work will give an insight into ways of avoiding the doctrine.

1.7 SCOPE OF THE STUDY

The scope of the this long essay is within the confine of Nigeria legal system. In this regard , it means that references will be made to those case law , statues, that regulate contractual relationship in Nigeria bearing in mind privity of contract which is the main reason for this research.

Even though the vocal point of this study is within our legal jurisdiction references will be made to the old common law where the received English law came from. This is because any discussion on the topic will first and foremost look at the evolution of the term contract out of which came the offspring privity of contract.

       Furthermore, this work deals mainly on the scope and limitation of privity of contract as it concerns third parties.

       Although there are other areas in contract that deals with the right of third parties in contractual relationship, this area of research focuses on the extent to which a third party’s right can be protected under a contract which he is a mere beneficiary under the Nigeria law.

       A closer look at the reviewed English law gives a wide coverage and understanding of the rules and principles in contract as it relates to privity of contract which is traceable to foreign laws.

       It should be born in mind that this research cuts-across all spheres of contract and therefore should not be limited to Nigeria law in terms of its application.

1.8 LIMITATION OF THE STUDY

The long essay under study had, its limitation and set backs. One of its limitation was time constraint. There was not much time given to this research as one had to combine it with school activities which includes but not limited to lectures, assignment.

       Secondly, financial constraint is not to be left out. The success of this work depends heavily on financial capacity of the researcher as this requires typing and printing, thus the researcher embarked on the work based on the available funds.

[1] . T. Anthony Downes, Text Books on Contract (4th ed. Black stone Press Ltd.1995), P.41.

[2]. I.T. Sagay, Nigeria Law of Contract (2nd ed. 2000), P.1

[3] . T. Anthony Downes Op.Cit, P.41

[4] . See Treitel, Law of Contract (9th ed. 1995),

[5] . P.I Sagay, Op.Cit, P.2

[6] . (1997)8 NWLR (Pt. 515)37 @76

[7] . Sagay Op. Cit; P489

[8] . (1915) A.C. 847 Q 853

[9] . (1965) NWLR 374

[10] .(1967)2 Lev.210

[11] Treltel Op. Cit, P.539

[12] . Treltel, Ibid, P.541-541

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