EXCEPTIONS TO THE DOCTRINE OF PRIVITY

 AGENCY
Agency creates an exception where a principal, through an agent, enters a contract with a third party.
The principal, though not directly involved in the contract formation, becomes bound by the agent's
actions within the scope of their authority. To simplify this, an agency is the relationship which exists
between two persons, one of whom (the principal) expressly or impliedly consents that the other (the
agent) should act on his behalf, and the other of whom (the agent) similarly consents so to act or so
acts. In Golden Construction Company Ltd. v. Stateco (Nig) Ltd. The Court recognized that
when an agent acts within the scope of their authority on behalf of a disclosed principal, the principal
can be held liable for the agent's actions.

 COVENANTS RUNNING WITH LAND

A covenant is an agreement that can be under seal, implied, express, or usual in which a party (the
covenantor) promises another (the covenantee) that he will or will not engage in a specified activity in
relation to the defined area of land. A positive covenant imposes an obligation to do a specified thing
while a negative covenant imposes an obligation not to do a specified thing in relation to the land.

When a covenant runs with the land, the obligation to perform or the right to benefit from the
covenant passes to subsequent owners of the land, even if they were not parties to the original
agreement. The rule that covenants on land both burden and benefit may be enforceable against a
party without notice, was established in the case of Tulk v. Moxhay. In this case, Tulk sold Moxhay a
piece of land with the condition that he would maintain it as a garden. Even though he was aware of
the restriction, Moxhay later tried to build on the land. The court issued an injunction against him,
stopping him from building on the property, as it was determined that the restrictive covenant was
binding on subsequent purchasers. There are two requirements under which the general rule will
apply:
i. The person seeking to enforce restriction should have land which will benefit from enforcement
of restriction.
ii. Later buyer must have had notice of restrictive covenant.

Another case, Formby v. Baker, showcases a situation where the plaintiff was not a party to the land
contract but was trying to enforce terms of a covenant against a third party. The court held that the
covenant was not running with the land, meaning it could not be enforced.
In Smith v. River Douglas Catchment Board is eleven landowners made an agreement with a
catchment board to prevent flooding. When one landowner sold his land, the new owner
successfully sued the catchment board for breach of contract after his land flooded, even though he
was not a party to the original agreement. The court held that the plaintiff could sue because the
contract was one that ran with the land.

 SALE OF FAMILY LAND IN CUSTOMARY LAW

In customary law, members of a family have an interest in family land. They can challenge sales of
the land made without their consent, even if they weren't parties to the sale agreement. Cases like
Lewis v. Bankole and Agaran v. Olushi established this exception, recognizing family members as
co-owners with enforceable rights. In Adejumo v. Ayantegbe, the Supreme Court explained that
family land belongs to past, present, and future members, making them not "strangers" to
transactions involving the land.

 COLLATERAL CONTRACTS
A collateral contract is a separate agreement that runs alongside a main contract, often involving one
of the main contracting parties and a third party. This concept acts as an exception to the privity of
contract rule, allowing a third party to enforce a promise made to them even if they were not a party to
the main contract. A collateral contract can be made by both parties who enter into the main contract
(Bipartite collateral contract) or between one of the main parties and a third-party (Tripartite collateral
contract).
A key example provided is the case of Shanklin Pier v. Detel Products Ltd. In this case, Shanklin
Pier employed contractors to paint their pier. The contractors then purchased paint from Detel
Products Ltd. based on Detel's assurance to Shanklin Pier that the paint would last for seven years.
When the paint deteriorated after only three months, Shanklin Pier successfully sued Detel. The court
recognized a collateral contract between Shanklin Pier and Detel, separate from the main paint supply
contract between the contractors and Detel. This collateral contract, based on the seven-year
guarantee, allowed Shanklin Pier to sue Detel directly despite not being a party to the main purchase
agreement. This case illustrates how collateral contracts can provide a legal remedy for third parties
who rely on promises made during contractual negotiations, even when they are not directly involved
in the primary contract.

 HIRE FOR CHATTEL

Contracts for the hire of chattel, such as shipping agreements, present a unique exception to the
doctrine of privity of contract. This principle arises when a ship or similar property is leased by one
party to another, and ownership of the property subsequently changes hands. The key question is
whether the new owner is bound by the terms of the original agreement, even though they were not a
party to it.

The case of De Mattos v. Gibson provides the foundation for this principle. In this case, the court
ruled that when a ship is leased under a charter agreement, any subsequent owner of the ship who is
aware of the charter must honor its terms. For example, if Party A charters a ship to Party B for three
years, specifying its use for transporting coal, and Party A later sells the ship to Party C, Party C
would be bound by the original charter if they knew about its terms. If Party C attempts to use the
ship in a way that breaches the agreement, Party B can seek an injunction, a legal order preventing
such a breach. This decision reinforced the idea that contractual obligations can follow the property,
creating an exception to the privity rule.

However, this principle was challenged in the case of London County Council v. Allen, which
suggested that new owners of property might not always be bound by contracts they were not party to,
even if they had knowledge of those contracts. This decision created uncertainty around the
enforceability of such agreements. The principle was later restored in Strathcona Steamship Co v.
Dominion Coal, where the court unequivocally held that new owners of a ship must honor existing
charters if they were aware of them at the time of purchase. This case reasserted the idea that such
agreements run with the property and are enforceable against successors in title.

The case of Port Line v. Ben Line Steamers, however, introduced another layer of complexity by
declining to follow the Strathcona precedent. The court in Port Line questioned whether subsequent
owners should always be bound by prior agreements, even if they had knowledge of them. This
divergence highlights the ongoing debate surrounding the limits of exceptions to privity in shipping
contracts.

In Nigerian law, the principle established in Strathcona remains binding, meaning that new owners of
leased ships are generally required to honor existing agreements if they are aware of them. While Port
Line v. Ben Line Steamers offers a persuasive alternative view, it is not binding on Nigerian courts.
Consequently, Nigerian jurisprudence emphasizes the enforceability of such agreements, providing
stability and predictability in shipping and similar contractual arrangements. This approach
underscores the importance of respecting existing agreements to protect the rights and expectations of
all parties involved.

 INTERFERENCE WITH CONTRACTUAL RIGHTS

Tortious interference with a contract occurs when a third party intentionally induces one party to
breach their contract, causing harm to the other contracting party. While this is a tort, not a breach
of contract, it effectively provides a remedy for a third party affected by a contract they were not
privy to. Lumley v. Gye, a seminal case in English law, established this principle. In this case, the
plaintiff employed an opera singer. The defendant knowingly induced the singer to refuse to perform.
The plaintiff thus sued the defendant for tortious interference. The defendant was held to be liable by
the court. Also in the case of British Motor Trade Association vs.. Salvador (1949), A bought a car
and covenanted with B that he would not resell it in a period of one year without first offering it to B.
Subsequently C bought the car from A within a year’s notice. He was held to have interfered with B’s
right.

 ASSIGNMENT OF CHOSES

Choses in action refers to rights or claims that cannot be physically possessed but can be enforced
through legal action. For example, a debt, a patent, or a copyright are choses in action because they
are rights that can only be pursued or enforced through a lawsuit, not by simply taking physical
possession of something.

When a person has a right to something (say a debt owed to them), they can assign this right to a third
party. This means they transfer the right to someone else. The third party can then go to court and
enforce the right (like demanding the payment of the debt) without the debtor’s consent. This is an
exception to the usual privity of contract rule, where only the parties to a contract can enforce it. In
this case, even though the third party was not part of the original contract, they are still able to enforce
it. In the case of Torkington v. Magee, the court allowed the assignee of a debt to enforce the
contract, even though the assignee was not originally a party to it.

 BANKER’S COMMERCIAL CREDITS

Modern international trade often relies on letters of credit, also known as banker’s commercial credit,
to protect suppliers. When an importer needs to pay a supplier in another country, they ask their bank
to set up a credit line. This means the bank reserves a specific amount of money to pay the supplier
once certain conditions are met—like confirming the delivery of goods as agreed.

The bank then issues a letter of credit to the supplier, often through its partner bank in the supplier's
country. This letter assures the supplier that payment will be made once the agreed conditions are
satisfied, like providing proof of shipment or delivery.

The interesting part is that even though the supplier is not directly part of the contract between the
importer and the bank, the supplier still benefits from the arrangement. The supplier can also sue the
bank if it fails to honor the letter of credit, making this system a reliable way to facilitate international
trade while safeguarding the supplier's interests.

The court of Appeal in Felshade Int’l (Nig.)Ltd. V. T.B (BV) Amsterdam (2020) said:

“The purpose of letter of credit is to finance (pay for) international contracts for sale of goods. A letter
of credit is a promise by the buyer’s bankers to pay money to the seller of goods in return for the
shipping documents, which when presented the buyer’s bankers pays the seller the contract price.”

 SECTION 81(1) OF THE PROPERTY AND CONVEYANCING LAW, WESTERN

NIGERIA

Section 81(1) of the Property and Conveyancing Law (Western Nigeria) offers a significant
exception to the doctrine of privity, particularly in cases involving land-related agreements. The
section allows a person to claim an interest in land or property, or enforce conditions and agreements
related to land, even if they are not a party to the original contract or deed. This provision appears to
override the doctrine of privity by granting rights to third parties in contracts involving land.
However, its application has been subject to limitations, as demonstrated in the landmark case of
Beswick v. Beswick.

In this case, Mr. Beswick sold his business to his nephew on the condition that the nephew would pay
him £6 weekly for the remainder of his life and, after his death, pay his widow £5 weekly. Following
Mr. Beswick's death, the nephew paid the widow the agreed sum only once before stopping
altogether. This prompted the widow to seek legal redress to enforce the agreement. Her claim raised
important questions about the scope of third-party rights and the application of Section 81(1).

The widow sought to bring the action in three capacities. First, as her husband’s personal
representative or administrator, she aimed to enforce the agreement on behalf of the estate. Second, as
a beneficiary under Section 81(1) of the Property and Conveyancing Law, she claimed she was
entitled to the benefit of the agreement, arguing that it involved a condition or agreement affecting
property. Third, she sought to act in her personal capacity, asserting that the agreement created a trust
for her benefit.

The court ruled that Section 81(1) was limited to agreements involving land. Since the contract
between Mr. Beswick and his nephew was for a financial benefit and not related to land, the widow
could not rely on Section 81(1) as a beneficiary. Furthermore, her claim in her personal capacity was
rejected, as there was no trust explicitly created for her benefit under the agreement. However, the
court allowed her to sue as her husband’s personal representative, enabling her to enforce the contract
on behalf of his estate.
The case highlighted the restricted scope of Section 81(1), emphasizing that it applies only to land-
related interests. While the provision seems to challenge the strict application of the doctrine of
privity, its impact is confined to agreements involving land or property. Beswick v. Beswick
ultimately reinforced the principle that third-party rights in contracts remain limited unless specific
exceptions, such as land interests or trusts, are established. This case illustrates the delicate balance
between extending rights to third parties and upholding the foundational principles of contract law.

 PRIVITY AND THE TRUST CONCEPT

The doctrine of privity traditionally prevents a third party from enforcing a contract to which they are
not a party. However, equity has long provided an exception through the concept of trust, which
allows a third-party beneficiary to enforce a contract under specific circumstances. In such cases, if
the contracting party who stands to benefit the third party is unwilling or unable to enforce the
agreement, equity may treat this party as a trustee for the third party's benefit.

For instance, in Gregory v. Parker, Parker, who owed rent to Williams and money to Gregory,
agreed to transfer all his property to Gregory under the condition that Williams would settle Parker’s
debt to Gregory. Although Parker transferred the property, Williams failed to pay Gregory. The court
held that Parker, as a trustee for Gregory, could enforce the agreement. Gregory was able to join
Parker in the suit against Williams and succeeded in obtaining payment. This decision reinforced the
idea that a third-party beneficiary could enforce a contract if there was evidence of a trust created for
their benefit.

Nevertheless, for a third party to enforce such a contract, there must be clear evidence that a trust
exists rather than just a simple contract. In Tweddle v. Atkinson, the court emphasized that a third
party must provide consideration or demonstrate the presence of a trust to enforce the contract.
Further, in cases like Re Schebsman, deceased (1944), courts began to resist finding a trust in the
absence of explicit intention, as it would alter the terms agreed upon by the contracting parties. This
trend of judicial hostility continued in Vandepitte v. Preferred Accident Insurance Corporation
and Green v. Russell, where the courts stressed that an intention to confer benefits alone does not
automatically create a trust. There must be clear evidence of an intention to establish a trustee-
beneficiary relationship.

In contrast, Nigerian courts still recognize and uphold this trust exception to the doctrine of privity. In
Akene v. British American Insurance, the Nigerian judiciary reiterated the principle that a trust
could enable a third party to enforce a contract made for their benefit, provided there is clear evidence
of the trust's creation. However, not all contracts conferring benefits on third parties automatically
result in a trust. For a trust to exist, there must be an intention to create a trust relationship, with the
promisor acting on behalf of the beneficiary. This principle was highlighted in Devis v. The
Pavement, where the intention to make one party a trustee for the benefit of another was crucial to the
court's finding of a trust.

While the concept of trust as an exception to privity has waned in the United Kingdom, its continued
application in Nigeria underscores its relevance in ensuring justice for third-party beneficiaries. This
equitable mechanism prevents injustices where a party entitled to enforce a contract is unwilling or
unable to do so, thus protecting the legitimate expectations of third parties. However, it remains
essential that the intention to create a trust be explicitly or implicitly evident to invoke this exception
successfully.