What is Privity of Contract?

Privity of contract is a fundamental common law principle establishing that only parties directly involved in a contract possess rights and obligations under that agreement. The doctrine ensures contractual relationships remain exclusive to signatories, preventing third parties from enforcing or being bound by contractual terms.

The Nigerian Supreme Court affirmed this principle in Chuba Ikpeazu v. African Continental Bank (1965) NMLR 374, stating that generally, a contract cannot be enforced by a person who is not party to it, even if made for their benefit.

Core Principles of Privity

The doctrine operates on three essential foundations:

1. Binding Obligations: Only contracting parties bear legal obligations under the agreement. Each party must have provided consideration and explicitly agreed to contractual terms.

2. Third-Party Exclusion: Non-parties cannot sue for benefits promised within the agreement or be held responsible for obligations, regardless of potential benefits they might receive.

3. Legal Enforcement: Courts restrict enforcement rights strictly to original contracting parties, as established in Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd (1915) AC 847.

Understanding Privity of Contract: What It Means

Privity of contract defines the relationship between parties in a contractual agreement. Under Nigerian law, this means:

• Mutual Interest: Parties share legal rights to the same contract, measure of damages, or identical issues of fact and law
• Direct Relationship: Only those who signed or agreed to terms are legally bound
• Consideration Requirement: Each party must have furnished valid consideration to enforce the contract

The Court of Appeal emphasized this in NOSPETCO Oil and Gas Ltd. v. Prince Matiluko Emmanuelolorunnimbe (2022) 1 NWLR (Pt. 1812) 495, stating that privity is the relation between parties in a contract which entitles them to sue each other but prevents third parties from doing so.

Privity of Contract Examples in Practice

Example 1: Manufacturer-Retailer-Consumer Chain

A manufacturer sells products to a distributor, who sells to a retailer, who sells to consumers. No privity exists between manufacturer and consumer. If the product is defective, the consumer cannot sue the manufacturer for breach of contract (though tort claims may apply under negligence principles).

Example 2: Property Purchase and Construction

Effiong (developer) enters a purchase agreement with Godwin (buyer) for a property to be constructed by Yakubu Ltd. While Godwin has privity with both Effiong and Yakubu Ltd through separate contracts, Effiong and Yakubu Ltd lack direct privity unless they establish a collateral contract.

This scenario illustrates how complex real estate transactions can involve multiple layers of contractual relationships without creating direct privity between all parties involved.

Example 3: Insurance Policies

If Party A insures their life naming Party B as beneficiary, Party B cannot enforce the insurance contract as they lack privity with the insurance company, absent specific statutory provisions under the Married Women’s Property Law 1958.

Example 4: International Trade Transaction

A Nigerian importer opens a letter of credit with Access Bank to purchase machinery from a Chinese manufacturer. While the contract is between the bank and the importer, the overseas supplier (third party) acquires enforceable rights to payment once shipping documents are presented, demonstrating an exception to strict privity.

Types of Privity in Contract Law

Nigerian jurisprudence recognizes two forms:

Horizontal Privity

Arises when contract benefits flow to third parties not originally part of the agreement. This occurs when contracting parties intend to benefit someone outside the contractual relationship, such as life insurance beneficiaries or trust beneficiaries.

Vertical Privity

Involves a contract between two parties where one party subsequently creates an independent contract with another individual or corporation. This creates a chain of contractual relationships without direct privity between all parties, commonly seen in supply chain arrangements.

Exceptions to the Privity Rule in Nigerian Law

While privity remains sacrosanct, Nigerian courts recognize several important exceptions that allow third parties to enforce contracts or be affected by them:

1. Agency Relationships

When an agent negotiates a contract on behalf of a principal, the principal can sue and be sued despite not being directly named. The agent acts as the principal’s representative, creating enforceable rights.

Legal Basis: In STANBIC IBTC BANK v. LONGTERM GLOBAL CAPITAL LTD. & ORS (2018) 10 NWLR (Pt. 1626) 96, the Court of Appeal held that a disclosed principal may sue or be sued by a third party on a contract made on its behalf by an agent acting within the scope of authority.

The legal maxim “qui facit per alium facit per se ipsum facere vindetur” applies—he who does an act through another is deemed in law to do it himself.

2. Collateral Contracts

A collateral contract accompanies the main contract, involving one original party and a third party. The landmark English case Shanklin Pier v. Detel Products Ltd (1953) illustrates this principle, widely applied in Nigeria.

Example: A contractor painting a pier based on the paint manufacturer’s guarantee to the property owner creates a collateral contract between owner and manufacturer, despite the main contract being between contractor and manufacturer. The manufacturer’s representations to the property owner form the consideration for the collateral contract.

3. Assignment of Rights

A party to a contract may assign their rights to a third party, who can then enforce those rights. The assignee steps into the assignor’s position regarding benefits (though not necessarily obligations).

Requirements:

• Valid consideration for assignment (or assignment by deed)
• Notice to the other contracting party
• Rights must be assignable under the contract terms

As held in Julius Berger (Nig.) Plc v. T.R.C.B. Ltd. (2019) 5 NWLR (Pt 1665) 219, a beneficiary of an assignment does not need to furnish any consideration to the debtor before enforcing the right that has accrued therefrom.

4. Trusts

When one party holds contractual benefits as trustee for a third-party beneficiary, the beneficiary may sue the trustee to enforce performance. This exception recognizes equitable interests in contractual arrangements.

The Supreme Court in REBOLD INDUSTRIES LIMITED v. MAGREOLA & ORS (2015) 8 NWLR (pt1461) 201 held that where a trust is created for the benefit of a third party, that third party can enforce the promise if they can show the promisee is a trustee and that the promise was intended to create a trust.

5. Customary Law Transactions

Contracts relating to family land under customary law fall outside strict privity rules. The Supreme Court held in Adejumo v. Ayantegbe that any family member can challenge land sales, even if not party to the transaction, because family land belongs to all members.

Justice Karibi-Whyte stated: “communal or family land belongs to all members of the society or family and a member of the family who is co-owner is therefore not a stranger to any transaction purported to have been made in relation thereto.”

6. Third-Party Beneficiary Rights

Nigerian law increasingly recognizes intended beneficiaries’ rights when:

• Parties expressly intend to benefit the third party
• The third party is identified in the contract
• The benefit constitutes the contract’s primary purpose

As held in Ezex Courier Services Ltd v. Ugwu & Anor (2016) LPELR-41478, a third party beneficiary may legally enforce the contract after their legal rights have vested, either by assent of contracting parties or by justifiable reliance on the promise.

Types of Third-Party Beneficiaries:

• Creditor Beneficiary: Person to whom the promisee owes a debt, paid by the promisor
• Donee Beneficiary: Person gratuitously benefiting from contract performance
• Incidental Beneficiary: Person who benefits indirectly without express intent (cannot enforce)

7. Negligence Claims

Third parties suffering foreseeable harm due to negligent contract performance may bring tort claims, circumventing privity requirements. This developed from cases like Donoghue v Stevenson, establishing duty of care beyond contractual relationships.

In Mainstreet Bank Ltd. v. Chahine (2015) 11 NWLR (Pt. 1471) 479, the Court of Appeal recognized that privity requirements have been relaxed under modern laws and doctrine of implied warranty, allowing third party beneficiaries to sue sellers of defective products.

8. Statutory Exceptions

Nigerian statutes create specific exceptions:

Insurance Policies:

• Married Women’s Property Law 1958: Allows spouses and children to sue on insurance policies taken for their benefit
• Motor Vehicles (Third Party) Insurance Act Cap. M22, LFN 2004: Section 6(3) provides that insurers must indemnify persons specified in the policy

Consumer Protection:

• Consumer protection laws enable consumers to enforce rights against manufacturers
• Product liability claims extend warranty protections beyond immediate purchasers

Banking and Finance:

• Letter of credit beneficiaries have enforcement rights against issuing banks
• Bills of lading create rights for endorsees and consignees

9. Covenants Running with Land

Restrictive covenants on land can bind subsequent purchasers if they protect neighboring land owned by the original seller. This exception recognizes that land law requires special treatment to maintain property rights across ownership changes.

The principle from Tulk v. Moxhay (1848) applies in Nigeria: where a purchaser acquires land with notice of a restrictive covenant, equity will enforce that covenant against them, even though they were not party to the original agreement.

In Smith v. River Douglas Catchment Board, a contract for river maintenance was held to run with the land, allowing a subsequent purchaser to enforce the agreement despite not being an original party.

10. Charter-Party Contracts

When a vessel owner charters their ship and subsequently sells it during the charter period, the new owner with knowledge of the charter cannot interfere with the charterer’s rights. The charterer may bring action against the new owner despite no direct contract.

This was established in De Mattos v. Gibson and affirmed in Lord Strathcona Steamship Co. v. Dominion Coal Co (1924) AC 128, where courts granted injunctions protecting charterers’ rights against subsequent purchasers.

11. Bills of Lading

Bills of lading represent a significant exception in maritime and international trade. An endorsee to whom property in goods has passed can sue under the bill of lading contract, even though not an original party.

The Supreme Court in BASINCO MOTORS LTD v. WOERMANN-LINE & ANOR (2009) 13 NWLR PT 1157 149 held that by virtue of Section 375(1) of the Merchant Shipping Act 1990, consignees or endorsees to whom property has passed can enforce bill of lading contracts.

12. Letters of Credit

International trade transactions frequently use letters of credit, where banks promise payment to suppliers upon presentation of shipping documents. Although the underlying contract is between buyer and issuing bank, overseas suppliers (third parties) acquire enforceable payment rights.

In Felshade Int’l (Nig.) Ltd v. T.B (BV) Amsterdam (2020) 14 NWLR (Pt 1743) 107, the Court of Appeal explained that letters of credit involve four separate contracts, with the seller having enforceable rights against the correspondent bank despite being a third party to the buyer-issuing bank relationship.

13. Interference with Contractual Rights (Tort)

At common law, knowingly interfering with another’s contractual rights constitutes tortious conduct. If Party A knows Party B contracted with Party C, and Party A induces breach or interferes, Party C can sue Party A in tort.

Lumley v. Gye established this principle: the plaintiff’s employee was induced by the defendant to breach her employment contract. The defendant was held liable despite not being party to the employment agreement.

14. Garnishee Proceedings

Courts may order a third party (garnishee) owing money to a judgment debtor to pay directly to the judgment creditor. The judgment creditor becomes entitled to enforce what was originally a contract between debtor and garnishee.

In Heritage Bank Ltd. v. Interlagos Oil Ltd. (2020) 7 NWLR (Pt 1723) 368, the Court of Appeal defined garnishee proceedings as a procedure for enforcing money judgments by seizing debts due to the judgment debtor from third parties.

Classification of Contracts Under Nigerian Law

Understanding how contracts are classified helps determine which privity rules apply and what exceptions might be available. Nigerian contract law categorizes agreements based on formation, validity, and enforceability:

By Formation Method

Formal Contracts (Contracts Under Seal)

Made by deed, requiring:

• Written form
• Signature, seal, and delivery
• No consideration required for enforcement

Uses: Land conveyances, mortgages, gratuitous promises, gifts

Simple Contracts

All other contracts, whether written or oral (parol). Require valid consideration for enforcement. Most commercial transactions fall under this category.

By Expression of Terms

Express Contracts

Terms are clearly stated verbally or in writing through negotiation. Parties explicitly agree to specific conditions.

Example: Mountford v Scott involved an express option to purchase property for £10,000 within six months.

Implied Contracts

Terms inferred from parties’ conduct rather than explicit statements. The case Brogden v Metropolitan Railway Co established that conduct demonstrating agreement creates binding contracts.

Example: Boarding public transportation without verbal agreement implies consent to pay the fare for transport services.

By Mutual Obligations

Bilateral Contracts

Both parties exchange promises, creating mutual obligations. Most commercial transactions are bilateral.

Example: Sale of goods contracts where buyer promises payment and seller promises delivery.

Unilateral Contracts

One party makes a promise in exchange for the other’s performance (not merely a promise to perform).

Example: Reward offers that become binding only when someone performs the requested action.

By Validity and Enforceability

Valid Contracts

Meet all legal requirements for contract formation:

• Offer and acceptance
• Consideration
• Legal capacity
• Lawful purpose
• Genuine consent

Void Contracts

Contracts lacking essential elements or having illegal purposes from inception. They have no legal effect and cannot be enforced by either party.

Examples:

• Agreements without consideration (absent a deed)
• Contracts with illegal purposes
• Agreements violating public policy

Voidable Contracts

Valid contracts that may be avoided at the option of one party due to:

• Misrepresentation
• Duress
• Undue influence
• Mistake
• Lack of capacity (minors, mental incapacity, intoxication)

The innocent party may choose to affirm or rescind the contract.

Unenforceable Contracts

Valid contracts that cannot be enforced due to procedural defects like:

• Failure to comply with statutory formalities
• Missing written documentation when required
• Expired limitation periods

By Performance Nature

• Executed Contracts: Fully performed by both parties
• Executory Contracts: Performance remains outstanding by one or both parties
• Partly Executed Contracts: One party performed while the other has not

Termination of Offers in Nigerian Contract Law

Before a valid contract forms through proper offer and acceptance, offers must remain open. Understanding how offers terminate prevents contractual disputes and is essential context for privity questions that may arise when contracts fail to form.

Five Ways an Offer Can End

1. Revocation by Offeror

The offeror may revoke anytime before acceptance. Revocation becomes effective when communicated to the offeree, either directly or through reliable third parties.

Rule: Communication of revocation is essential. In Byrne v Van Tienhoven, a revocation letter sent after an acceptance letter was posted proved ineffective.

2. Rejection by Offeree

Express rejection terminates the offer immediately. The offeree cannot later accept a rejected offer.

Counter-offers: Any modification to original terms constitutes a counter-offer, automatically rejecting the original offer. The case Hyde v Wrench (1840) established that counter-offers “kill” original offers.

3. Lapse of Time

Offers terminate after:

• Specified time periods expire
• Reasonable time passes (for unspecified durations)

Determining Reasonable Time: Courts consider the subject matter’s nature, market conditions, and industry practices. Perishable goods have shorter reasonable periods than real estate.

4. Death or Incapacity

If either party dies or becomes mentally incapacitated before acceptance, the offer terminates automatically. However, contracts already formed remain valid unless requiring personal performance.

Exception: If the offeree accepts without knowledge of the offeror’s death, and executors can perform the contract, it may remain valid per Bradbury v Morgan (1862).

5. Supervening Illegality

When contract performance becomes illegal after the offer but before acceptance (due to new legislation or regulatory changes), the offer terminates automatically.

Example: An offer to sell alcoholic beverages terminates if the jurisdiction prohibits such sales before acceptance occurs.

Important Timing Rules

• Postal Rule: Acceptance by mail takes effect when properly posted, not when received
• Revocation: Must be communicated before acceptance occurs
• Option Contracts: When consideration is paid to keep offers open, revocation during the specified period constitutes breach

Practical Implications for Third-Party Beneficiaries

Nigerian businesses and individuals should understand these key points:

When Third Parties Can Enforce Contracts

Third-party beneficiaries may have enforceable rights when:

1. The contract explicitly identifies them as intended beneficiaries
2. Contracting parties clearly intended to confer direct benefits
3. Their rights have “vested” through:
   • Knowledge of the promise
   • Detrimental reliance
   • Commencement of performance
   • Contract provisions regarding vesting

Protecting Third-Party Interests

For Contract Drafters:

• Include explicit third-party beneficiary clauses when intending to benefit non-parties
• Use “no third-party beneficiary” clauses to prevent unintended claims
• Clearly identify beneficiaries by name or description
• Specify when beneficiary rights vest
• Consider including indemnification clauses for third-party liability

For Third Parties:

• Document reliance on contractual promises
• Seek to be named in the contract if possible
• Consider alternative enforcement mechanisms (tort claims, statutory rights)
• Understand that incidental beneficiaries have no enforcement rights
• Obtain written acknowledgment of your intended beneficiary status

Burden of Proof

The Court of Appeal confirmed in Felshade Int’l (Nig.) Ltd v. T.B (BV) Amsterdam that plaintiffs without privity must demonstrate they fall within recognized exceptions to maintain their cause of action.

Elements to Prove:

• Existence of a contract between other parties
• That you fall within a recognized exception
• The contracting parties intended to benefit you
• You suffered damage or are entitled to a benefit
• The other party breached or failed to perform

Drafting Considerations

When drafting contracts that may affect third parties:

1. Be Explicit: Clearly state whether third parties are intended beneficiaries
2. Define Scope: Specify exactly what rights third parties have, if any
3. Vesting Conditions: State when third-party rights become enforceable
4. Modification Rights: Address whether parties can modify the contract after third-party rights vest
5. Liability Limitations: Include provisions limiting exposure to third-party claims

Key Nigerian Cases on Privity

Foundational Cases

Tweddle v. Atkinson: Established the foundational principle that third parties cannot enforce contracts made for their benefit

Dunlop Pneumatic Tyre Co. Ltd v. Selfridge (1915) AC 847: Confirmed only parties providing consideration can enforce contracts—the cornerstone case for privity doctrine

Chuba Ikpeazu v. African Continental Bank (1965) NMLR 374: Nigerian precedent establishing privity’s application to domestic law, holding that contracts generally cannot be enforced by non-parties

Modern Applications

NOSPETCO Oil and Gas Ltd. v. Prince Matiluko Emmanuelolorunnimbe (2022) 1 NWLR (Pt. 1812) 495: Defined privity as the relation between parties entitling them to sue each other while preventing third parties from doing so

Basinco Motors Limited v. Woermann-Line (2009) LLJR-SC: Reaffirmed that contracts cannot be enforced by or against non-parties, while recognizing bills of lading exception

Heritage Bank Ltd. v. Bentworth Fin. (Nig.) Ltd. (2018) 9 NWLR (Pt. 1625) 420: Held that third parties injured by a transaction arising from others’ contract may sue for damages caused

UBA PLC & Anor. v. JARGABA (2007) 11 NWLR (pt1045) 247: Emphasized the doctrine protects contract sanctity but won’t apply to shield parties from legitimate third-party claims

Adejumo v. Ayantegbe: Recognized family land exception under customary law, allowing family members to challenge sales

STANBIC IBTC BANK v. LONGTERM GLOBAL CAPITAL LTD. (2018) 10 NWLR (Pt. 1626) 96: Confirmed disclosed principals’ rights under agency contracts

REBOLD INDUSTRIES LIMITED v. MAGREOLA (2015) 8 NWLR (pt1461) 201: Clarified trust exception requirements for third-party enforcement

Comparative Perspectives: Global Reforms

While Nigerian law maintains traditional privity principles with exceptions, other jurisdictions have implemented statutory reforms worth noting:

England & Wales: The Contracts (Rights of Third Parties) Act 1999 allows third parties to enforce contract terms if the contract expressly provides for this or purports to confer a benefit on them, subject to certain conditions.

New Zealand: The Contracts (Privity) Act 1982 enables third parties to sue if sufficiently identified as beneficiaries and the contract expresses or implies they should be able to enforce the benefit.

United States: The Restatement (Second) of Contracts broadly recognizes intended beneficiary rights, distinguishing between creditor beneficiaries, donee beneficiaries, and incidental beneficiaries.

These reforms reflect global recognition that strict privity can produce unjust results in modern commercial transactions. Nigerian law achieves similar flexibility through its expansive exceptions rather than comprehensive statutory reform.

Conclusion

The doctrine of privity of contract remains a cornerstone of Nigerian contract law, protecting parties from unintended liabilities while ensuring contractual certainty. However, the law has evolved substantially to recognize legitimate exceptions balancing strict privity with fairness, particularly for third-party beneficiaries, agency relationships, and collateral contracts.

Understanding privity’s application and its numerous exceptions enables businesses and individuals to:

• Structure agreements that properly protect third-party interests
• Anticipate enforcement limitations and plan accordingly
• Draft contracts that clearly define rights and obligations
• Navigate complex commercial relationships involving multiple parties
• Minimize litigation risks through proper contract drafting

The Nigerian courts have demonstrated sophistication in applying privity principles while recognizing that rigid application can produce unjust results. The extensive case law provides clear guidance on when third parties may enforce contracts, from traditional exceptions like trusts and agency to modern commercial instruments like letters of credit and bills of lading.

Whether drafting contracts, advising clients, or seeking to enforce agreements, mastery of privity principles ensures compliance with Nigerian law while achieving commercial objectives. As commerce grows increasingly complex with globalized supply chains and intricate financing arrangements, courts continue refining these doctrines to serve justice while respecting contractual autonomy.

For Nigerian businesses engaged in international trade, understanding exceptions like bills of lading and letters of credit is essential. For real estate transactions, recognizing covenants that run with land protects property interests. For insurance and banking, statutory exceptions ensure beneficiaries receive intended protections.

The balance Nigerian law strikes between protecting contracting parties and recognizing legitimate third-party interests reflects centuries of common law evolution adapted to local circumstances. This pragmatic approach serves both justice and commercial certainty in Nigeria’s dynamic economy.

Related Topics

• Formation of Valid Contracts in Nigeria
• Understanding Consideration in Nigerian Contract Law
• Capacity to Contract in Nigerian Law
• Misrepresentation in Contract Law
• Mistake in Contract Law
• Illegality and Public Policy in Contracts
• Contract Terms and Exclusion Clauses
• Understanding the Nature of Contract
• Sources of Law in Nigeria
• Legal Reasoning in Judicial Process

Further Reading

For comprehensive understanding of privity and related contract law principles, consider these authoritative resources:

• Law Commission Report on Privity of Contract (UK Law Commission Report No. 242) – Provides extensive analysis of privity problems and solutions adopted in England
• Nigerian Supreme Court Law Reports – For latest appellate decisions on contract law
• Sagay, I.E., Nigerian Law of Contract (2nd Edition) – Leading Nigerian contract law textbook
• Treitel on The Law of Contract – Authoritative English contract law text frequently cited in Nigerian courts

Legal Disclaimer

This article provides general information about Nigerian contract law and should not be construed as legal advice. Contract law principles can vary based on specific facts, applicable statutes, and evolving case law. Consult qualified legal practitioners for specific contractual matters, especially when drafting agreements intended to create or exclude third-party rights. The cases and principles discussed reflect the state of law as of the knowledge available, and readers should verify current legal positions through updated research.