A
Term Paper On
PRIVITY OF BUILDING CONTRACTS IN NIGERIA
Written by
ISIJOLA O.S
Arc/04/3197.
ISSAH S.M.J
Arc /04/3196
Submitted to Department of Architecture in partial fulfilment of the award of Bachelors of Technology
Lecturer in charge
Professor Ogunsote.
Table of contents
1.0INTRODUCTIONS
2.0BUILDING CONTRACTS
- Building contracts in Nigeria
- Offer and acceptance
3.0PRIVITIES OF BUILDING CONTRACTS
- Exclusions to the rule of privity of contracts
Collateral contracts
Multilateral contracts
Agency
Statutory exceptions
Third party beneficiaries
4.0THE REASONABLE MAN
Judicial devices
5.0RECOMMENDATION AND CONCLUSION
References
1.0 INTRODUCTION
Contract,inlaw,anagreement 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.
Ingeneral,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. Contractsareoftenclassified 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.
Contractsbyspecialty 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 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.
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.
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 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 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.
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.
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).
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.
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)
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.
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.
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, Consultation
Paper, Privity of Contract (Wanchai: The Commission, 2004), online: The Law Reform Commission of Hong Kong
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]; Hong
Kong Report, supra note 9 at 14; Law Commission of England and Wales, “Privity of Contract: Contracts for the
Benefits 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 of
Third Parties@, Report No. 242 (1996) at 39-40 [UK Report].
23. Fraser River, supra note 1 at para. 36.
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