INTRODUCTION
“The doctrine of privity of contract is that only the parties to a contract can sue or be sued on it.
Privity of contract remains a cornerstone principle that upholds the sanctity of agreements while safeguarding parties from unintended liabilities. This article examines the doctrine’s foundations, its application in Nigeria, key statutory and judicial authorities, and its enduring relevance. Privity of contract continues to promote commercial certainty, discourage speculative litigation, encourage precise drafting and values that are more critical than ever in Nigeria’s evolving economy.
HISTORICAL AND CONCEPTUAL FOUNDATIONS
The doctrine of privity of contract posits that only parties to a contract can acquire rights and incur obligations under it. A stranger to the consideration cannot enforce the contract, nor can they generally be bound by its terms. This principle finds classic expression in the English cases of Tweddle v. Atkinson (1861) 1 B & S 393 and Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd [1915] AC 847, which Nigerian courts have consistently adopted.
In Nigeria, privity of contract is not merely imported; it is a living principle reinforced by judicial precedent and aligned with the common law received through the statutes of general application 1900. This rule aligns with the foundational elements of contract formation: offer, acceptance, consideration, capacity and intention to create legal relations. Without privity, consideration’s requirement that it must move from the offeror would be undermined.
STATUTORY FRAMEWORK AND EXCEPTIONS
Nigerian law does not have a comprehensive equivalent to the UK’s Contracts (Rights of Third Parties) Act 1999, which reformed privity to allow third-party enforcement in specified circumstances such as when a term of the contract expressly allows third party to enforce or when the term of contract confers a benefit on him. Instead, Nigeria relies on targeted statutory exceptions and common law doctrines, preserving the core rule while addressing inequities:
- Agency: Under agency, a person called the agent can enter into a contract with another person in favour of yet another person called the principal. For example, if X has made a contract with Y, it is possible for Z to take X’s place and enforce the contract against Y, if he can show that X was throughout acting as Z’s agent. In the case of Asset Mgt. Nominees Ltd. v. Forte Oil Plc (2023) 9 NWLR (Pt. 1889) 237 @ (P. 273, paras. D-F), the Court held thus:
“The essence of the doctrine of privity of contract is that a stranger to a contract cannot sue to enforce the terms of the contract even if it is made for his benefit. However, the doctrine does not apply in the case of an established agency relationship”.
In the case of Makwe v. Nwukor (2001) 14 NWLR (Pt. 733) 356 @ (P. 372, para. H), the Apex Court held thus:
“The general principle of law of privity of contract admits of a number of exceptions. These include the case of a contract made by an agent on behalf of an undisclosed principal who, as a general rule, is entitled to sue and liable to be sued on such a contract”.
- Trust: A party to a contract can constitute himself a trustee in favour of a stranger to the contract. For example, if X and Y, by contract, create a trust for the benefit of Z, Z has a proprietary right in the trust property and can directly enforce his right, though he was not a party to the contract. The Court held thus in the case of Hart v. T.S.K.J. Nig. Ltd. (1998) 12 NWLR (Pt. 578) 372 @ (Pp. 388-389, paras. G-A):
“As equity would not allow the law to be used as an engine for fraud, it follows that in an appropriate case equity may intervene in a contract to impose a trust in favour of a stranger to a contract to prevent the law being used as an engine to defraud. This is by no means a departure from or a violation of the principle of equity, namely, “equity follows the law”. In the instant case, the doctrine of privity of contract invoked and relied on as a basis for the trial court’s decision was wrong”.
The Supreme Court in the case of Rebold Ind. Ltd v. Magreola (2015) 8 NWLR (Pt. 1461) 210 @ (P. 228, paras. D-E) held thus:
“Where a trust is created for the benefit of a third party who was not a party to an agreement containing a promise creating the said trust, the third party can enforce the promise against the promisor only if the third party can show that the contracting promisee is a trustee for the third party and that the promise was intended to create a trust and that the third party joins the promise in the action to enforce the promise. In this case, the respondent did not show that a trust was created for him under the deed of sublease.”
- Tortious Interference and Negligence: Third parties may pursue claims in tort (e.g., under Donoghue v. Stevenson principles) where contractual performance causes foreseeable harm. In the case of S.G.D.S. v. Rastico (Nig.) Ltd. (1992) 6 NWLR (Pt. 245) 93 @ (P.110, paras. B-C), the Court held:
“The rule of law enshrined in the Donoughue case (which is generally and universally accepted) is that where a person is injured from a transaction arising from the contract entered into by other parties, the third party is not precluded from bringing an action on the ground that he was not a party to that contract.”
The Court also stated in the case of I.M.N.L. v. Nwachukwu (2004) 13 NWLR (Pt. 891) 543 @ (Pp. 560, para. C; 561-562, paras. C-D):
“A breach of a contractual duty must be dealt with according to the law of contract, and cannot be regarded as a tort of negligence, although the same facts may in some cases amount to a breach of contract and also the tort of negligence. Thus, where a person is injured from a transaction arising from the contract of two persons, the third party is not precluded from bringing action on the ground that he was not a party to the contract, the mis- performance or non-performance of which has resulted in the damage”.
Other exceptions include: Assignment of contractual obligations, certain covenants concerning land.
These exceptions demonstrate the doctrine’s flexibility. Courts apply them judiciously, ensuring privity’s core remains intact to prevent chaos in multi-party transactions.
Privity compels parties to structure deals transparently: use agency, trusts, collateral warranties, or assignments explicitly. In construction, insurance, and joint ventures, these tools work effectively.
CONCLUSION
Privity of contract is indispensable for ordered commercial relations. Lawyers and businesses should embrace privity by drafting with precision; naming beneficiaries where intended, incorporating agency clauses, or creating collateral undertakings. Courts should continue resisting expansive third-party rights absent clear legislative intent, lest we invite the very uncertainties the doctrine prevents.
Privity is not a barrier to justice; it is a guardian of contractual freedom. In Nigeria’s dynamic legal landscape, its preservation ensures that agreements mean what they say, to whom they say it. Stakeholders would do well to uphold and skillfully navigate this foundational principle for the sake of economic stability and fairness.
References:
Nigerian Commercial Law by M.C Okany
Contracts (Rights of Third Parties) Act 1999
Wikipedia.Org
