TREITEL, G.H The law of Contract, 7th ed, London: Sweet and Maxwell (2007)
M.C. OKANNY, Nigerian Commercial Law, Revised Ed., Africana First Publishers Plc (2009)
As earlier pointed out, the doctrine of privity of contract is to the effect that an individual cannot acquire benefit or be subjected to the burden arising out of a contract to which he is a stranger. In other words, a person cannot obtain rights or subjected to liabilities of contract to which he is not a party. Going by the above, if A promises B to pay the debt incurred by B to C, the doctrine of privity will prevent C from suing A for the debt.
2.0 OBJECTIVES
At the end this unit you should be able to understand
Operational and Application of the Doctrine of Privity
Rationale behind the Doctrine
Reform of the Doctrine
3.0 MAIN CONTENT
3.1 OPERATION AND APPLICATION OF THE DOCTRINE
In Tweddle v. Atkinson (1861) All ER 369, the plaintiff’s father was promised a sum by the defendant if the plaintiff married his daughter. He did but the defendant refused to pay the sum to the plaintiff’s father. The plaintiff sued, the House of Lords held he could not enforce the promise because he was not a party to the contract. However, in as much as the nature and operation of the doctrine recognizes that performance by a third party may discharge one of the contracting parties from his obligation on his behalf.
However, the case of Price v. Easton (1833) 4 B. & Ad. 433. Illustrates, this point Easton promised A that if he worked for him, he would help him to discharge his debt to price, price’s action to get Easton to fulfill his promise failed, the reason being that he was a stranger to the contract. Again, if a contract between the original parties t it, contain a term purporting to impose a liability upon a third party, the privity doctrine will operate to prevent either of the contracting parties from relying on that term.
In classical case of Dunlop v. Selfridge (1915) AC 847, in the case the plaintiffs sold tyres to certain dealer on the understanding that he would not resell below a certain price and that in the event of a sale to customers the dealer would extract the same promise from him. The dealer sold tyres to Selfridge who agreed to observe the restrictions and pay Dunlop 5 pounds for each type they sold below the restricted price. Selfridge sold some tyres below the restricted price to a customer and Dunlop brought this action to enforce the promise to pay 5 pounds tyre, for the breach. It was held that while Selfridge had committed a breach a breach of the contract him and the dealer, the Dunlop company was not a party to this contract and had finished no consideration for the defendant’s promise. The principle of privity of contract has been affirmed in many cases in Nigeria.
Thus, in Chuba Ikpeazu v. African Continental Bank (o1965) NMLR 374. The appellant entered into an agreement with one Emodi, who was a debtor to the respondent bank under which the appellant was to run Emodi’s business with the intention that all the proceeds should be paid into the bank until Emodi’s debt was completely liquidated.
The appellant manage the business for sometimes and transferred back the business under a new agreement without the knowledge of the bank. The bank sued the appellant as the
guarantor of Emodi’s debt. It was revealed that the terms and content of the document was between Emodi and the appellant only. It was held that bank, not being a party could not acquire rights under the deed.
Also, I Etco Nig. V. Estern Nigeria Development Corporation (WNDC) Suit No.
1/30/69 delivered on June 8, 1970 (unreported). In the case, the plaintiff company claimed from the defendant corporation the sum of 2,213 pounds 19 shillings 11 pence.
Eing cost of the work done by them for the defendant at the premier hotel, Ibadan, sometimes in 1966, the fact of the case disclosed that although the hotel was owned by the defendant, they had awarded the contract for its constructions to Nigersol Construction Company, and it was the later company that commissioned the work to the plaintiff. The counsel for the defendant submitted that there was no contract between the plaintiffs and the defendant cannot confer rights or impose obligations arising under it n any party, except parties to it.
In more recent cases, although the facts have been more complex, the principle of privity of contract has been consistently applied. Thus, in Shuwa v. Chad Basin Authority (CBA) (1991) 7NWLR (pt. 205) p. 550. It was held that by the court of Appeal that not being a party to the contract between Akam and CBA, the appellant could not challenge it validity or implementation.
The same principle was applied by the court of appeal (Benin Division) in Unon Bank of Nigeria (UBN) Plc. V. Sparkling Brewaries Ltd. & ORS (1997) 5 NWLR (pt. 505) 344 at 373. The court of appeal held that, the respondent had no locus stand to institute the action because the appellant was not involved in the arrangement between the respondent and the four other companies and was not a party to it. It could therefore, not e sued by the respondent. In other words there was no privity of contract between the respondent and the appellant.
It should empazied that since a person who was a party to a contract cannot bring an action to enforce it, so too can he not be made liable under the contract only the parties to the contract can enforce it or have it enforced against them. Thus, in Ilesa Local Planning Authority (LPA) v. Olayide (1994) 5 NWLR (pt. 342) 91. The respondent was appointed by the governor of Oyo State, under an enabling law as the chairman of athe appellant authority. Under the relevant law, the authority could not appoint or dismiss its chairman.
This power was vested in the governor, acting on behalf of the government of the state.
When subsequently the governor relieved the respondent of his appointment, he turned round to sue the authority for breach of contract and areas salaries unpaid after his removal. The action was declared invalid by the court of appeal. Although the respondent was party to a contract of employment, the other party to it was the government of Oyo State and not the appellant authority. The latter not being privy to the contract of employment between the respondent and Oyo state government. It could be sued and made liable for its breach.
A contract cannot be enforced by a person who is not a party, even if the contract is made for his benefit and purports to give him a right to sue upon it. The scope of the doctrine of privity means that a person cannot acquire rights or be subjected to liabilities arising from a contract to which he is not a party.
3.2 RATIONALE, APPRAISAL AND REFORM OF THE DOCTRINE 3.2.1 RATIONALE BEHIND THE DOCTRINE
The main reason for the principle is that only a person who is a party to a contract can sue and be sued on it. That is, the parties to the contract and they are always free to vary it or discharge it by agreement.
The two fundamental principle of the doctrine of privity are:
i. No one except a party to a contract can acquire rights under it;
ii. No one can be subjected to liability under the contract to which he is not privy
As a general rule, a person should not be imposed with contractual obligations without his consent or without his general knowledge and understanding. However, the following are the rational behind the doctrine.
i. It is the parties to contract that are always free to vary or discharge it by consent. The creation of a third party right will delay this freedom unless an agreement for such third party involvement has been made part of the agreement.
ii. It would not be just to allow a person to sue on a contract or derive benefit from a contract in which he would not be sued.
Appraisal of the Doctrine
The following are the argument against the doctrine which are:
i. The application of the doctrine could sometimes lead to injustice.
ii. The doctrine failed to give effect to the express intention of the parties as was pointed out in Tweedle v. Alkinson (1861) 1 B&S 398.
iii. The doctrine is commercially inconvenient and only stand to defeat the legitimate expectations of the third party.
It should be noted that all these criticism have led to the development of exceptions to the general rule of the doctrine of privity which will be discussed in chapter four of this work.
3.3 REFORM OF THE DOCTRINE
The doctrine of privity of contract illustrate that someone who is not a party to the contract is unable to enforce the benefit created or subjected to liabilities imposed under the contract made between two others parties. To some extent, rights may be conferred on a third party, and also liabilities may be imposed under a contract depending upon the nature of the agreement.
In a modern day, accordingly, the law has recognized that with the current complex world of commerce, there must be some changes to accommodate certain exceptions to the
general rule and guarantee restitution to the aggrieved subject to certain extent. The doctrine of privity gives rise to considerable injustice and inconveniences.
Many exceptions have been developed to ameliorate the harshness of the doctrine in the province of law and equity. However, the fact that a number of established common law and statutory exceptions to the doctrine were resorted to by the court, to prevent injustice in many cases, has not served as a doctrine of covering the field in commercial transactions. The law reform commission considered this aspect for reform of the general rule which has been preventing a person from enforcing a right under a contract to which he is not privy even when such contract is for his benefit. In its reports, contract for the benefit of third parties law No. 242(1996) supported the reform of the third and recommended that the contracting parties are ti provide for enforceable third party rights without to the various evasions which had developed to circumvent the privity rule.
4.0 CONCLUSION
Notwithstanding the reasons enumerated for the operation and application of the doctrine.
The privity doctrine has been a subject of criticism. As for back as 1937, the law revision committee in its sixth interim report, para 590 (a) proposed as substantial reform of the doctrine. In Trident General Ins. Co. Ltd. v. MC Niece Bros Pty Ltd. (1988) 80 ALR 574. The majority of the High Court of Austrialia (Mason CJ, Wilson J and Tohey J) though the time had come to dispense with the doctrine of privity of contract whereas, Brennan J, Deane J and Dawson J. though the doctrine still law.
Similarly, in Wooodar investment Development Ltd. v. Winpey Construction (UK) Ltd (1980) 1 All ER 571 at 590. Lord Scarman forcefully urged the desirability of the House of Lords reconsidering the rule. Lord Denning also showed his dissatisfy with the doctrine in Beswick v. Beswick (1968) AC 58; (1967) 2 All ER 1197.
Their view is that it is commercially inconvenient and only stands to defeat the legitimate that the doctrine in its incidence has worked injustice and proved inadequate to modern needs. Moreover they based their criticisms on the contention that the doctrines undermind the social interest of the community in the security of bargains. Also it critics have argued that the doctrine of privity of contract is absent from the Scotland, and generally from the legal systems of United States. Amilder criticism put forward by some is of the opinion that:
“The law can only be put on a rational footing if the privity principles applied in a more discriminating fashion, there by facilitating proper consideration of whether it is appropriate to treat particular contractual relationship as transitive or intransitive. As a foist step in his process of rationalization, we propose that the range of the privity principle should be severely be a significant sphere in which contractual relationship should be treated as transitive.”
Accordingly, some of these criticisms have led to the development exceptions to the general rule to ensure consistency with needs of the modern day. Thus in insurance
contracts, for instance, third parties have been allowed in certain circumstance to sue on marine, fire or motor accident insurance policies. However, legislations have been passed to this effect, notwithstanding, some critics are of the opinion that development of exceptions to the privity doctrine is inadequate, what they desire is a complete eradication of the doctrine.
5.0 SUMMARY
We have discussed the Operational and Application of the doctrine of privity, the Rationale and Reform of the doctrine. Note the argument against the doctrine of privity of contract. Bear in mind the two fundamental principle of the doctrine of privity. The main reason for the principle is that only a person who is a party to a contract can sue and be sued on it. That is, the parties to the contract and they are always free to vary it or discharge it by agreement.
6.0 TUTOR-MARKED ASSIGNMENT 1. Write short notes on the following
a. Operation and application of the doctrine of privity b. Rationale behind the doctrine
2. The doctrine of privity of contract is now well established, its operation often caused hardship in practice. How true is this statement.
7.0 REFERENCES/FURTHER READINGS
OLUSEGUN YEROKUN, Modern Law of Contract, 2nd ed., Nigerian Revenue Project Publishers (2004)
T.O DADA, General Principles of Law, 3rd ed., T.O. Dada & Co. (2006)
I.E. SAGAY, Nigerian Law of Contract, 2nd ed., Spectrum Law Publishing (2001) TREITEL, G.H The law of Contract, 7th ed, London: Sweet and Maxwell (2007)
M.C. OKANNY, Nigerian Commercial Law, Revised Ed., Africana First Publishers Plc (2009)