The doctrine of privity of contract is an extension of the rule that consideration must move from the promisee. It postulates that a contract is a private relationship between the parties to it, and that no other party can acquire rights or incur liabilities under it. Therefore, whoever wants to claim benefits under a simple contract must prove that he was a party to it and has given consideration for the promise which he is seeking to enforce. The Supreme court in Tweedle V. Atkinson, 30 LJQB 265.
“However, 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“. This view was supported by the House of Lords in Dunlop pneumatic Tyre Company V. Selfridge company limited.
Privity of contract example
In Tweddle V. Atkinson (1861) 1 B. & S. 393;
The facts of the case were as follows:
The fathers of a husband and wife, in pursuance of an oral agreement made between then before the marriage, agreed together in writing that one of them should pay the husband £200 and the other should pay him £100, and that the husband should have full power to enforce the payments in any court of law.
An action by the husband against the wife’s father for the enforcement of his promise failed.
Final approval was given to the doctrine in Dunlop Pneumatic Tyre Co. Ltd. V. Selfridge Ltd.(1915) A.C. 79;847 at p.853, from which the classical exposition of the doctrine of privity of contract was taken above.
Facts of the case were as follows:
The plaintiffs sold tyres to a certain dealer on the understanding that he would not resell below certain price and that in the event of a sale to customers the dealer would extract the same promise from them. The dealer sold tyres to Selfridge who agreed to observe the restrictions and to pay Dunlop £5 for each tyre 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 per tyre, for the breach.
It was held that while Selfridge had committed a breach of the contract between him and the dealer, the Dunlop company was not a party to this contract and had furnished no consideration for the defendant’s promise.
Lord Haldene then used the opportunity to restate the doctrine of privity.
“…the doctrine of privity has been fully applied in this country, at the highest judicial level.
Exceptions to privity rule
- Covenants running with the land: The doctrine of privity was so inconvenient in the case of contracts affecting land that special exceptions were created by courts in this regard. Thus according to the rule in Tulk V. Moxhay, (1848)2 Ch.774, 18 L.J. Ch. 83., a restrictive covenant voluntarily accepted by a purchaser of land as part of a contract of sale will in certain circumstances bind persons who subsequently acquire the land. The characteristics of a covenant which runs with the land are well-illustrated in Smith V. River Douglas Catchment Board (1949) 2 K.B. 500; (1949) 2 All E.R. 179.
- Interference with contractual rights: It should be noted that at common law it is a legal wrong (tort) for someone to knowingly interfere with the contractual rights of others. In Lumley V. Gye (1853) 2 E & B. 216, the plaintiff had employed one Johanna Wagner as an opera singer. The defendant, knowing of this contract willfully induced her to refuse to perform it. He was held liable to the plaintiff for what later became known as the tort of wrongful interference with contractual rights. This principle is equally applicable to chattels as to services. See the case of British Motor Trade Association V. Salvador (1949) Ch.556;
Privity of contract case laws
- Dunlop Pneumatic Tyre Co. Ltd. V. Selfridge Ltd; (1915) A.C. 847 at p.853.
- Price V. Easton (1833) 4 B. & Ad. 433.
- Tweddle V. Atkinson (1861) 1 B. & S. 393
- Chuba Ikpeazu V. African Continental Bank,(1965) N.M.L.R. 374.
Exceptions to privity of contract in Nigeria
Insurance contracts
The law if insurance provides a good example of a statutory exceptions to the doctrine of privity. Section 11 of the Married Women’s Property Act 1882, provides that where a man insures his life for the benefit of his wife or children or where a woman insures her life for the benefit of her husband or children, the policy “shall create a trust in favour of the objects therein named”. This provision is restricted to policies for the benefit of spouses and children and does not apply in favour of other dependants.
However, in the re-enactment of this law for Western Nigeria, as the Married Women’s Property Law 1958, the provision relating to life insurance by a spouse in favour of the other souse or the children was left out.
Consequently, the common law and equity apply when the rights of the benefited spouse or children come up for consideration in the states created from the former Western Region.
Thus, in Akene V. British American Insurance co. (Nig) Ltd; where this issue arose directly for consideration, in the Ughelli judicial division of the High court of Mid-Western State, Ogbobine, J., was forced to resort to the truth concept in equity, for a solution to the problem posed by the facts of the case.
The facts were as follows:
The plaintiffs father who have died as a result of an accident had in his life time taken out a life insurance policy in which he named the plaintiff as beneficiary in case of his (the insured’s) death before the maturity of the insurance policy. The plaintiff brought a claim for £1,900, which was the amount in respect of which the policy was taken, when the defendant company offered him only £500.
The defendants argued that there was no privity of contract between them and the plaintiff, and the latter could, therefore, not sue to enforce the insurance contract.
Relying on the trust concept, the court held that the deceased was in the position of trustee for the plaintiff and the latter was entitled to sue as beneficiary. If the case had come up in any of the Northern or Eastern states, the relevant court would have been able to apply Section 11 of the English Married Women’s Property Act directly to it.
With regards to Motor insurance, Section 6(3) of the Motor Vehicles (third Party) Insurance Act, provides as follows:
“…notwithstanding anything in any written law contained, a person issuing a policy of insurance under this section shall be liable to indemnify the persons or classes of persons specified in the policy in respect of any liability which the policy purports to cover in the case of those persons or classes of person.
This implies that any person or classes of persons thus indemnified, can bring a claim against the insurance company, even though such person or persons were not parties to the insurance contract.
