A

Term Paper On

PRIVITY OF BUILDING CONTRACTS IN NIGERIA

Written by

ISIJOLA O.S Arc/04/3197.

ISSAH S.M.JArc /04/3196

Submitted to Department of Architecture in partial fulfilment of the award of Bachelors of Technology

Lecturer in charge

Professor Ogunsote.

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Table of contents

1.0 INTRODUCTIONS

2.0 BUILDING CONTRACTS

Building contracts in Nigeria

Offer and acceptance

3.0 PRIVITIES OF BUILDING CONTRACTS

Exclusions to the rule of privity of contracts

Collateral contracts

Multilateral contracts

Agency

Statutory exceptions

Third party beneficiaries

4.0 THE REASONABLE MAN

Judicial devices

5.0 RECOMMENDATION AND CONCLUSION

References

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1.0 INTRODUCTION

Contract, in law, an agreement that creates an obligation binding upon the

parties thereto. The essentials of a contract are as follows: mutual assent; a legal

consideration, which in most instances need not be pecuniary; parties who have

legal capacity to make a contract; absence of fraud or duress; and a subject

matter that is not illegal or against public policy.

In general, contracts may be either oral or written. Certain classes of contracts,

however, in order to be enforceable, must be written and signed. These include

contracts involving the sale and transfer of real estate; contracts to guarantee or

to answer for the miscarriage, debt. Contracts are often classified as either

contracts by specialty or simple contracts. Another class of obligations,

sometimes referred to as contracts of record, are conclusive legal obligations

created by the judgment or order of a court of record.

Contracts by specialty depend for their validity on the formality of their

execution. They are required to be written, sealed, and delivered by the party to

be bound thereby. The usual form of specialty contract is a covenant. A bond,

although in form an acknowledgment of indebtedness instead of a promise to

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pay, has always been regarded and classified as a specialty contract. Contracts

by specialty do not require consideration or surrender of a right, given in

exchange for the promise, to give them validity. Courts of equity, however, will

not enforce a specialty contract unless it is founded on a consideration.

2.0 Building contracts

If the world of business was a building, contracts could be described as the

foundation upon which it depends for its stability. Trade as we know it would

be in chaos if a would-be promisor felt free to break his word without the threat

of legal sanctions pointing in his direction. A contract is simply that promise or

set of promises that the law finds enforceable. In essence the universal law of

contract requires that a valid contract possess certain factors, namely; an

intention to enter into legal relations, an agreement and a deed under seal

(written) or supported by consideration or payment. A contract involves a

"meeting of the minds". For this, all parties must be capable of consent.

It is a common feature of corporation legislation to give companies the ability to

contract, as long as their contracts are within the scope of their stated purpose.

To get around this, many companies make sure their incorporation documents

are very generally worded so as to prevent any restriction on their ability to

contract.

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PRIVITY OF CONTRACT

If Mr. A makes a contract with Mr. B, he comes under a legal obligation to pay

damages if he fails to keep his promise. The enforceability or liability as regards

this contract lies firmly in the hands of A and B to the exclusion of others, this

is the foundation of the doctrine of privity of contract.

The doctrine of privity of contract is that a contract cannot confer rights or

impose those obligations arising under it, on any person except the parties to it.

The term "parties" may seem simple enough but there are situations where it

may become doubtful as to exactly who the parties are and resultantly, who, in

the eyes of the law should be liable or should be compensated in event of

inevitable breaches that may occur from time to time.

The concept of privity is part of the bedrock called common law which was

made up of the collective judicial decisions derived from court decisions. Today

however the law has recognized that with the increasingly complex world of

commerce there must be some changes to accommodate certain exceptions to

the general rule and guarantee restitution to the aggrieved. Growing consumer

rights questions including warranty claims have contributed to this amendment

of approach.

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Exceptions to General Rule of Privity:

Collateral Contracts: A collateral contract is one that accompanies the

main contract between two parties. It is one involving either of them

and a third party. A classic example of this happened in England in 1953

in the case of Shanklin Pier v. Detel Products Ltd. In this case Shanklin

Pier (plaintiff) employed contractors to paint a pier. The contractors then

instructed Detel Products to supply them paint. This instruction was

given based on a statement made by the defendants to the plaintiffs

that the paint would last for seven years. When after just three months

the paint work fell apart, the plaintiff sued and was given the go ahead

by the courts to proceed with the suit against the defendant because

even though the main contract had been between the contractor and

the defendant there was in existence a collateral contract between the

plaintiff and the defendant guaranteeing seven years protection.

Multilateral Contracts: When a person joins an unincorporated

association such as a club, it could be said that he has gone into a

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contractual relationship with other members even if he may not be

aware of their identity and if the person only liaises with the secretary of

the organization. In one case the courts decided that a competitor in a

race contracted not only with the organizers but with other competitors.

Agency: The status and vicarious liability issues of an agent also create

exceptions to the rule of privity. When an agent negotiates a contract

between his principal and a third party, it is generally regarded as being

between the principal and the third party. However there are situations

where it is subject to question as to whether or not an agent acted on

his own behalf or not. It may even reach new heights of complexity

when an agent makes use of a sub-agent, spawning twin questions of

whether or not the contract will now be between the principal and the

sub-agent or the agent and the sub-agent.

The current relaxed requirements of modern contract law in relation to privity of

contracts have, provided an avenue for redress to genuinely affected persons

who the strict common law interpretation of privity might have been deprived of

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such. Under the current operation of the law, a perfect stranger could be

awarded damages if the infringement is proved.

Agents, or employees who obviously accept or offer a contract not in their own

personal names but on another person's or a corporation's behalf. In these

situations, the contract is said to be signed by an "agent". The person employing

the agent is called the principal and the principal could sue or be sued under

contracts entered into by his or her agent even though the principal did not sign

the contract directly.

Another exception allowed under special laws is cheques and promissory notes

(which are really just miniature contracts but contracts nonetheless). In these

cases, enforcement rights are created by special laws between non-signatories as

the cheque exchanges hands, from one bank to another or from one person to

another.

Contracts that restrict or impact upon the use of land (eg. an easement) may be

enforceable upon the next land-owner, even though they were not privy to the

original contract. This is an old exception to the rule of privity of contract that is

still applicable today.

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Statutory exceptions

The Contracts (Rights of Third Parties) Act 1999 now provides some reform for

this area of law which has been criticised by judges such as Lord Denning and

academics as unfair in places. The act states:

1. - (1) Subject to the provisions of this Act, a person who is not a party to a

contract (a "third party") may in his own right enforce a term of the contract if-

(a) the contract expressly provides that he may, or

(b) subject to subsection (2), the term purports to confer a benefit on him.

(2) Subsection (1)(b) does not apply if on a proper construction of the contract it

appears that the parties did not intend the term to be enforceable by the third

party.

This entails that a person who is named in the contract as a person authorised to

enforce the contract or a person receiving a benefit from the contract may

enforce the contract unless it appears that the parties intended that he may not.

The Act enables the aim of the parties to be fully adhered too. Taking the

situation in Beswick v Beswick whereby the only reason why Mr Beswick and

his nephew contracted was for the benefit of Mrs Beswick. Under the Act Mrs

Beswick would be able to enforce the performance of the contract in her own

right. Therefore, the Act realises the intentions of the parties.

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The law has been welcomed by many as a relief from the strictness of the

doctrine, however it may still prove ineffective in professionally drafted

documents, as the provisions of this statute may be expressly excluded by the

draftsmen.

[edit] Third-party beneficiaries

In Australia, it has been held that third-party beneficiaries may uphold a

promise made for its benefit in a contract of insurance to which it is not a party

(Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd (1988) 165 CLR

107). It is important to note that the decision in Trident had no clear ratio, and

did not create a general exemption to the doctrine of privity in Australia.

Queensland, the Northern Territory and Western Australia have all enacted

statutory provisions to enable third party beneficiaries to enforce contracts, and

limited the ability of contracting parties to vary the contract after the third party

has relied on it. In addition, section 48 of the Insurance Contracts Act 1984

(Cth) allows third-party beneficiaries to enforce contracts of insurance.

Although damages are the usual remedy for the breach of a contract for the

benefit of a third party, if damages are inadequate, specific performance may be

granted (Beswick v. Beswick [1968] AC 59).

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The issue of third-party beneficiaries has appeared in cases where a stevedore

has claimed it is covered under the exclusion clauses in a bill of lading. In order

for this to succeed, four factors must be made out:

THE REASONABLE MAN

Another important feature of the law of contract is that where there is a dispute

as to whether or not a contract exists, the courts will assess the situation not

from the perspective of the parties, but from the perspective of a reasonable

man. In other words, the judge will want to decide if, given all the

circumstances, a reasonable man would believe there to be a contract. An 1871

English case, Smith v. Hughes, summarized this principle as follows:

"If whatever a man's real intention may be, he so conducts himself that a

reasonable man would believe that he was assenting to terms proposed by the

other party and that other party, upon that belief, enters into a contract with him,

the man thus conducting himself would be equally bound as if he had agreed to

the other person's terms."

Theoretically, then, both parties could deny having entered into a contract but if

a third party brought them to court and asked the court if there was a contract,

the judge could decide that there was one based on this objective standard.

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In the real world, mere conduct will rarely cause a judge to "make" a contract

between the parties. This is particularly true if some type of written document

has been prepared or exchanged between the parties. Rather than invent a

contract, the judges would then take any written document between the parties

and try to make sense of it given it's wording, rather than suppose terms. A 1978

Canadian case (Marquest Industries Ltd. v. Willows Poultry Farms Ltd.) sets

out the principle as follows:

"... if the real intention of the parties can be collected from the language within

the four corners of the instrument, the Court must give effect to such intention

by supplying anything necessarily to be inferred and rejecting whatever is

repugnant to such real intention so ascertained."

Furthermore, where a key element of the contract has not been negotiated

between the parties, then it makes more sense to conclude that there was no

contract rather than a court trying to fill in such a huge blank. Such a situation

might be an "agreement in principle," but not a contract (see also Interpretation

of Contracts below). Letters of intent are not normally held to be binding.R. Cae

Industries Ltd. (1986)

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RECOMMENDATION AND CONCLUSION

The ULCC should complete a study on this issue, including recommendations

for

uniform legislative reform. The doctrine of privity of contract with respect to

third party

beneficiaries is in need of reform. The existing exceptions and judicial devices

mitigating the

effect of this doctrine on third party beneficiaries are complex. In addition, the

common law is

unclear as to whether a third party can enforce a contract intended for his or her

benefit. The

result may be inconsistent with the parties’ intentions and commercial realities.

Further, there is

a clear trend in other common law jurisdictions outside of Canada to permit

third parties to

enforce contracts made for their benefit.

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Uniform legislative change is preferable to waiting for the courts to address this

issue as

the latter is incremental and depends on the facts of a particular case.

Implementation will likely pose a challenge. As the study proceeds it will be

important

that governments, as well as the legal profession are consulted and provided

with background

materials to assist them in understanding the nature of the problem and the

proposals for reform.

A uniform reform proposal would have the advantage of carrying greater weight

than

recommendations from individual provincial law reform bodies.

ed by the parties in deciding whether an enforceable contract exists."

Due to little document on the topic privity of building contracts in Nigeria,this

write-up suffered set backs of material.

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REFERENCES

2 Joseph Chitty, Chitty on Contracts, 29th ed. (London: Sweet & Maxwell, 2004) at 1075, para. 18-003.3. Ibid. at 1073, para. 18-001.4. David Percy, “Privity of Contract: The Final Siege of the Citadel” (Paper presented April 2000) at 3 [unpublished].5. S.M. Waddams, The Law of Contracts, 5th ed. (Aurora: Canada Law Book, 2005) at 193.6. (1861) 121 E.R. 762 (Q.B.)7. [1915] A.C. 847 (H.L.).8. [1968] A.C. 58 (H.L).9. Examples derived from the Law Reform Commission of Hong Kong Privity of Contract Sub-Committee, ConsultationPaper, Privity of Contract (Wanchai: The Commission, 2004), online: The Law Reform Commission of Hong Kong<http://www.hkreform.gov.hk> at 5-6 [Hong Kong Report].10. London Drugs, supra note 1at para. 208.11. Organization and headings for this section based on Hong Kong Report, supra note 9 at 14-20.12. Robert Stevens, “The Contracts (Rights of Third Parties) Act 1999" (2004) 120 L.Q.R. 292 at 320-322 [Stevens]; HongKong Report, supra note 9 at 14; Law Commission of England and Wales, “Privity of Contract: Contracts for theBenefits of Third Parties”, Consultation Paper No. 121 (1991) at 69, para. 4.4 (iii) [UK Consultation Paper].13. Hong Kong Report, supra note 9 at 14; UK Consultation Paper, supra note 12 at 66.14. Hong Kong Report, ibid. at 15; UK Consultation Paper, ibid.. at 67.15. Hong Kong Report, ibid.; UK Consultation Paper, ibid. at 68.16. Hong Kong Report, ibid.; UK Consultation Paper, ibid. at 66.17. Hong Kong Report, ibid.; UK Consultation Paper, ibid. at 69.18. Alta. Reg. 390/1968.19. See for example, article 5 of the U.K. Contracts (Right of Third Parties) Act 1999.20. Hong Kong Report, supra note 9 at 16; UK Consultation Paper, supra note 12 at 70.21. Hong Kong Report, ibid.; UK Consultation Paper, ibid. at 66.22. Hong Kong Report, ibid.; and Law Commission of England and Wales, APrivity of Contract: Contracts for the Benefit ofThird Parties@, Report No. 242 (1996) at 39-40 [UK Report].23. Fraser River, supra note 1 at para. 36.

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