1

Doctrine of Privity of Contract

The doctrine of privity of contract states that only a party to a contract can enjoy rights or suffer
burden in the contract. This means that a person who is not a party to a contract cannot sue nor be
sued on the contract. In Dunlop Pneumatic Tyre Co. Ltd v Selfridge,1the plaintiffs sold tyres to a
certain dealer on the understanding that he would not re-sell below a 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 restriction 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. 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. 2

Exceptions to the Privity of Contract Rule

The doctrine of privity of contract is now very clearly established as a fundamental rule of the law of
contract. However, it would be observed from the established cases that its operation sometimes
results in hardship and injustice. For this reason, the courts had over the years attempted to avoid the
doctrine by making some exceptions to it. Generally, many of these exceptions are not genuine
exceptions. They are merely independent principle of law which may indirectly side-tract the doctrine
of privity. Statute has also intervened in a number of cases in order to reduce the hardship and
inconvenience arising from the doctrine of privity.

1. Agency: Under the law of agency, it is possible to avoid the doctrine of privity. For example, A
enters into a contract with B. B commits a breach of the contract. In such a situation under the law of
agency, it is possible for C to step in and bring an action against B if C can prove that A entered into
the contract as his agent. What agency does is to regard the agent as being in the eyes of the law the
principal person so that rights and liabilities which the agent acquired under a contract are regarded as
rights and liabilities of the principal.3

2. Assignment: In certain circumstances both in equity and under statute it is possible for a party to a
contract to transfer all his rights under a contract to a third party so as to enable the third party to step
into the shoes of the transferor and enforce the rights transferred. This transfer of rights is called an
assignment. The subject matter of an assignment is the legal right which has no physical existence
and it is therefore intangible. Rights of this nature existing only in the eyes of the law having no

1
(1915) AC 847
2
See generally, Scruttons Ltd v Midland Silicons Ltd (1962) AC 446; Tweddle v Atkinson (1861)1 B& S; R.T.
Briscoe Nig. Ltd v Universal Insurance Co. Ltd. (1966) 1 ALR Comm.
3
See Chuba Ikpeazu v African Continental Bank (1965) NMLR 374
 2

physical existence and being intangible are called choses in action.4 Therefore, it is right to speak of
assignment of contractual rights as assignment of choses in action. Thus, where A acquires a right
under a contract to receive the sum of N500 from B, A’s right to receive N500 is a chose in action or
thing in action. What this means is that the law recognises this right as a form of property. It is
intangible and has no physical existence. It is a mere personal right and the law merely gives to it the
attributes of property. This differs from tangible physical property, e.g. motor car, a book or wrist
watch.etc. These are called things in possession. If a person wants to enforce a claim in relation to a
thing in possession he does so by taking physical possession of the property. But if a person wants to
enforce a claim in relation to a chose in action he does so by bringing an action in court.

One of the basic features of an assignment is that the assignor can accomplish the assignment with a
third party. That is, the assignee without seeking or requiring the consent of the debtor. In practice,
however, the law requires that notice of the assignment should be given to the debtor. The purpose of
this notice is to protect the assignee because without a notice being given to the debtor, any payment
made by him after or before he has notice of the assignment will be binding on assignee, whereas any
payment which he makes to the assignor after he had notice of the assignment will go to no account
and he will be made to pay the money over again to the assignee.5

Assignment should not be confused with a related common law doctrine of novation. Novation means
a new agreement between original parties to an agreement and the third party, whereby with the
consent of all three parties concerned and with a new consideration furnished for the agreement, one
of the original parties to agreement is released from burden or obligation of the agreement and those
burdens are transferred to a third party who thereby becomes liable under them.

3. Certain Covenant Concerning Land: A covenant is a promise contained in a document under

seal. There are two principles concerning covenants affecting land transactions under which a third
party may be bound by the obligation created by the covenant. The first rule is the principle that any
covenant affecting land, e.g. a lease which ‘touches and concerns’ the land binds successors in title of
either party. The principle under which this called is privity of estate. The second principle under
which a third party may be bound in a covenant concerning land is the rule in Tulk v Moxhay.6Under
this rule a restrictive covenant relating to land and accepted by the purchaser of that land as part of the
contract of sale will bind subsequent transferees of the land even though such transferees are not
4
Examples of choses in action include some of the followings: shares in a company, rights under a trust,
policies of insurances, right to salaries, pensions, patent, copyrights, trade mark and any other right arising
under a contract or tort.
5
At common law, a chose in action such as a right arising under a contract cannot be assigned so as to enable
the assignee to sue in his own name to enforce the right. Unlike common law, equity recognises assignment of
contractual rights or choses in action. No particular formality is required but a clear intention on the part of
the assignor to make the assignment, that is, to transfer his right under the contract to the third party C. Also,
notice is to be given to the debtor.
6
(1848) 2 PH 774
 3

parties to the original contract of sale. A restrictive covenant means a covenant which is negative in
substance. The test of negativity in this context is whether the covenant requires the expenditure of
money for its performance. In other words, if the covenant requires the covenant to put his hand into
his pocket, then it is a negative covenant. Example: A covenant by A (purchaser of land) ‘not to let
the land become overgrown with weeds. A negative covenant is technically called a restrictive
covenant.

4. Trust: If A & B by contract create a trust for the benefit of C, C acquires a proprietary right in the
trust property and for this reason he will be able to enforce his rights directly even though he is not a
party to the contract which the trust relationship is created.

5. Insurance Contracts: Statute has introduced two further exceptions to the doctrine of privity in the
area of insurance law. 7 Under s.2(1) of the law the rights of an insured car owner against the insurance
company are automatically transferred to the injured third party if the insured car owner becomes
bankrupt or insolvent. The second statutory exception is introduced in s.11 of Married Women
Property Act of 1882.8 It provides that a policy of life insurance taking out by a man for the benefit of
his wife and children, or taken out by the wife for the benefit of her husband and her children will
create a trust in favour of the beneficiaries named in the policy. Such beneficiaries will therefore be
able to enforce it directly even though they were not parties to it.

6. Contract affecting land: Statute has also introduced an exception to privity in respect of contracts
affecting land. The exceptions for Western Nigeria and Former Bendel States (now Delta and Edo
States) are contained in their Property and Coveyancing Law. 9 The position in the rest of the country
can be found in Real Property Act. 10 Each of this section provides as follows: ‘Any person may take
an immediate or other interest in land or other property or the benefit of any condition, right of entry,
covenant or agreement over or affecting land or other property although he may not be named as a
party to the conveyance or other instrument’.

Despite the apparent scope of this provision the court has held that its application is confined to
conveyance affecting land and that it does not extend to other types of contracts. The provision
therefore does not give a general exception to the doctrine of privity of contract. For instance, in
Beswick v Beseick,11 Mr Beswick was a coal merchant who transferred his business to his nephew
another Mr Beswick. Under the transfer arrangement, it was provided that the nephew should pay Mr
Beswick the transferor the sum of £6.10s a week during the remainder of Mr. Beswick’s life, and after

7
See s.2 (1) of the Third Parties (Rights Against Insurance) Act 1956.
8
A statute of general application. An identical provision is also contained in s.9 of Married Women Property
Law, 1959, for Western states.
9
See s.81(1) of the Property and Conveyancing Law 1959
10
See s.5(1) of the Real Property Act 1845.
11
(1968) AC 58
 4

Mr Beswick’s death, the nephew should pay the widow the sum of £5 a week for the rest of his own
life. Mr Beswick – the nephew – complied with this arrangement during the transferor’s life. After his
death he paid the widow only once and stopped. Thereupon, the widow Mrs Beswick brought action
against the nephew Mr Beswick seeking to enforce the terms of the transfer agreement made with her
late husband and she relied on the above provision. The court held dismissing her action that the
statutory provision does not provide a general exception to the doctrine of privity. In other words, that
the provision applies to only contracts and covenants affecting land and no more.
 5

Discharge of Contract

A contract is said to be discharged when the parties are freed from their mutual obligations under the
contract. The four ways in which a contract can be brought to an end are:

 Discharge by Performance
 By Frustration
 By Agreement
 By Breach

The general rule is that performance must exactly match the requirements laid down in the contract,
and this is known as entire performance. In practice, contracts requiring entire performance are the
exception rather than the rule. If after a contract is made, something happens, through no fault of the
parties, to make its performance impossible, the contract is said to be frustrated. In some cases, the
parties will simply agree to terminate a contract, so that one or both parties are released from their
obligations. A contract is said to be breached when one party performs defectively, differently from
the agreement, or not at all (actual breach), or indicates in advance that they will not be performing as
agreed (anticipatory breach).

Discharge by performance

The most obvious way in which a contract is discharged is by both parties performing their obligation
under it. When the parties to a contract have all performed their obligations under a contract, the
contract is completely extinguished. E.g. if Emeka and Ada make a contract under which Emeka is to
perform some service and Ada is to pay him a stipulated amount for the service, then when Emeka
and Ada have both performed the service and paid the money, both parties are discharged from the
contractual obligation and the contract thereupon comes to an end.

Performance rule

The general rule remains that performance must exactly match the requirements laid down in the
contract, and this is known as entire performance. If the first party fails to perform entirely, the other
does not have to pay at all, even if the shortfall in performance actually causes no hardship. In other
words, if a contract requires entire performance and a party fails to perform the contract in its entirety,
he or she is entitled to nothing under the contract from the other party.

Obviously, the entire performance rule has the potential to cause injustice, as can be seen in the case
of Cutter v Powell.12 In that case, a sailor had contracted to serve on a ship travelling from Jamaica to
Liverpool. He was to be paid 30 guineas for the voyage, payable when the ship arrived in Liverpool.

12
(1795) 6 Term Rep 320
 6

The plaintiff Cutter proceeded to do the job and did so for 50 days. However, he died in the course of
the voyage 19 days before the ship was due to arrive at Liverpool. His widow therefore brought an
action claiming to be paid proportion of the agreed sum. It was held, dismissing her action that the
contract between Cutter and Powell was an entire contract, and no payment could be made under it
unless Cutter did his entire duty under it.

In a similar case of Sumpter v Hedges,13 which involved a contract to build 2 houses and a number of
stables on the defendant’s land for a lump sum of £565. The plaintiff did about 3/5 of the job valued at
£333 and the informed the defendant that he had no money and could not complete the job. Faced
with the situation the defendant completed the job. The plaintiff thereafter brought an action to
recover the value of his work on a quantum meruit basis. It was held, following the earlier Cutter v
Powell that the plaintiff was entitled to recover the value of his materials used by the defendant. But
that he was not entitled to be paid anything in respect of the uncompleted work given that the contract
was an entire contract and no sum was payable under it until the whole work was completed.

The rule can also allow parties who wish to escape from what has become an unprofitable contract to
do so by taking advantage of the most minor departures from its terms. In Re More & Co Ltd and
Landauer & Co14 involving a contract for the sale of canned fruits, which were to be packed in cases
of 30 tins. On delivery, it was discovered that although the correct number of tins had been sent, about
half the cases contained only 24 tins each. This actually made no difference at all to the market value
of the goods, but the buyers pointed out that the sale was covered by the Sale of Goods Act, which
stated that goods sold by description must correspond with that description. The delivery sent clearly
did not comply, and the buyers were therefore entitled to reject the whole consignment.

In practice, contracts requiring entire performance are the exception rather than the rule, although
contracts for the sale of goods are usually entire performance.

Exceptions to Entire Performance Rule

The general rule that performance must be precise and exact obviously works injustice and hardship
in some cases and for this reason there are a number of exceptions.

1. Substantial performance

Established in Boone v Eyre15 by Lord Mansfield, the doctrine of substantial performance allows a
party who has performed with only minor defects to claim the price of the work done, less any money
the other party will have to spend to put the defects right. The doctrine will only apply where the

13
(1898)1 QB 673
14
(1921)
15
(1779)
 7

claimant has breached a warranty, or has breached an innominate term in a way that is not serious. It
cannot be used where the claimant has breached a condition of the contract. In other words, a party
who performed his obligation defectively but substantially can sue for the contract price, but he will
be liable to have deducted from the price the cost of making good the deficiency. In Dakin v Lee,16 the
plaintiff contracted to carry out repairs on the defendant’s house. He carried out the repairs but the
work was not done in accordance with the contract’s specifications. It was held that the plaintiff was
entitled to be paid the agreed sum subject to a deduction equal to the cost of putting the defect right.

Similarly, in Hoenig v Isaacs,17 an interior decorator contracted to refurbish a flat for £750. The
defendant had paid £400 in advance, but then refused to pay the remaining £350, arguing that the
design and workmanship were defective. The court agreed that there were problems with the work
done, but the cost of putting them right would only be £56. Consequently, it was held that the
decorator had substantially performed, and was entitled to the balance of the contract price, less the
£56 needed to put right the defects. However, in Bolton v Mahadeva,18 a contractor had agreed to
install a central heating system for £560. When the work was done, it was found that the system was
unable to heat the house adequately, and emitted fumes. It would cost £174 to remedy these defects.
The claimant sued for the contract price, less £174, on the basis that he had substantially performed
but the Court of Appeal rejected the claim given that the proportion of the contract price required to
put the work right was clearly greater than that in Hoenig, and the court considered that substantial
performance had not taken place.

It is noteworthy to stress that small domestic building contracts are usually treated as requiring entire
performance. Builders carrying out such work have to complete all the work contracted for before
they are entitled to be paid.

2. Severable contracts

Where the contract is severable, that is, divisible into parts, payment can be claimed for parts which
have been completed. Similarly, a contract is said to be severable where payment becomes due at
various stages of performance, rather than in one lump sum when performance is complete. Examples
can be seen from contracts of employment: employees are paid weekly or monthly, not all at once
when they finally leave the company. Major building contracts usually operate in a similar way, with
instalments falling due as various stages of construction are completed. The question of whether a
contract is severable or divisible depends on the intention of the parties to be gathered from the words
used in making the contract and also from the surrounding circumstances of the contract. In

16
(1916) 1KB 566
17
(1952)2 All ER 176
18
(1972)
 8

Vlierboom v Chapman,19 a ship owner agreed to carry a cargo of rice from Port A to Port B. He
carried the rice only half way to Port C. It was held that the ship owner was not entitled to claim for
any proportion of the agreed freight. But in Richie v Atkinson,20 a ship owner agreed to carry a cargo
of hemp. The freight for the cargo was agreed to be at the rate of £5 per ton of hemp carried. The ship
owner carried only a part of the cargo. It was held that words used in making the contract showed an
intention that the contract was to be severable or divisible. Accordingly, the ship owner was entitled
to claim an amount of freight proportional to the quantity of freight carried.

3. Prevention of performance by the other party

Where one party performs part of the agreed obligation, and is then prevented from completing the
rest by some fault of the other party, a quantum meruit can be used to claim the cost of the work done.
In other words, where complete performance of a contract is prevented by the other party an action
will lie for breach of contract or claim can be made in quasi contract for payment of a quantum meruit
basis. In Planche v Colburn,21the claimant was contracted to write a book on costume and ancient
armour, for a fee of £100. After he had begun writing, the defendants decided to cease publishing the
series of which the book was to form a part. It was held that the plaintiff was prevented by the
defendant from completing the book and therefore was entitled to be paid for the part of the book
written on a quantum meruit basis and this was assessed at £50.

4. Voluntary acceptance of partial performance

In some cases, while a contract may not originally have been intended to be severable, one party may
later agree to accept and pay for part-performance from the other. In other words, if one party to a
contract partially performed his obligation and the other party accepts the partial performance having
had a choice to reject it, the party who performed the partial obligation will be entitled to be paid on a
22
quantum meruit basis. In Christy v Row, the plaintiff entered into a contract with the defendant
under which the plaintiff undertook to carry the defendant’s cargo of coal from a port called Shields to
another port called Hamburg. The ship was unable to reach Hamburg and so the master of the ship at
the request of the defendant’s cargo owner discharged the cargo at the port just before Hamburg. It
was held that the plaintiff was entitled to be paid the freight.

In contract of sale of goods, the principle governing acceptance of partial performance has been
statutorily recognised by s.30 (1) of the Sale of Goods Act 1893.23 It provides that:

19
(1884) 13 M &W 230
20
(1808) 10 East 295
21
(1831) 5 C& B 58
22
(1808) 1 Taunt 300.
23
See s.31(1) of Sale of Goods Law 1958 of Western States Mid-western states
 9

Where the seller delivers to the buyer a quantity of goods less than is contracted to sell, the buyer may
reject them. But if the buyer accepts the goods so delivered, he must pay for them at the contract rate.

5. Frustrated contract

The basic principle here is that if after a contract is made, something happens, through no fault of the
parties, to make its performance impossible, the contract is said to be frustrated, and the obligations
under it come to an end. While there are many events which may make performance impossible, only
limited types will allow a contract to be frustrated. Given that frustration leads to the automatic
discharge of the contract, regardless of the wishes of the parties, the courts use it as a weapon of last
resort, which can only be used in exceptional circumstances. In Taylor v Caldwell,24 the parties had
entered into an agreement concerning the use of the Surrey Gardens and Music Hall for a series of
‘grand concerts, and day and night fetes’. Six days before the planned date for the first concert, the
building was burnt down, making it impossible for the concerts to go ahead. The party planning to put
on the concerts sued for the breach of contract, arguing that owners had failed to provide the Music
Hall as agreed under the contract. It claimed the money it had wasted on advertisement. The action
failed because performance by the owners had become impossible, so the contract had been frustrated.

Discharge by Frustration

The doctrine of frustration states that parties to a contract are freed from further performance of their
obligations if some unexpected event occurs during the occurrence of the contract, without fault of
either party, and the event makes further performance of the contract impossible or illegal or makes
the contract something radically different from what was originally undertaken. 25

The doctrine of frustration has no application in a number of cases:

 Where the parties have expressly provided for the contingencies which have occurred, 26
 Where the frustrating event was self-induced.27
 Where the frustrating event was foreseen by the parties at the time of the contract28; or
 Where the event alleged to constitute a frustration merely renders performance of contract
more onerous or burdensome29; or

24
(1863)
25
Non Haec in foedera veni meaning ‘it was not this that I promised to do’
26
Some contracts make specific provision for the type of event which might otherwise frustrate a contract. For
example, if you buy a house, the contract will often state that the responsibility for buildings insurance rests
with the buyer once contracts have been exchanged. This means that if the house burns down between
exchange and completion, you cannot say that the contract is frustrated by the destruction of the subject-
matter because you have already agreed to accept the risk.
27
See Maritime National Fish Ltd v Ocean Trawlers Ltd (1935)
28
Davis Contractors Ltd v Fareham UDC (1956)
 10

 Where the event alleged to constitute frustration merely renders the contract less profitable
than was originally anticipated.

The leading case on frustration and foresight is Davis Contractors Ltd v Fareham UDC.30 Davies, a
building company, agreed with Fareham UDC to build 78 houses over eight months for £94,000. It
ended up taking 22 months, because Davies was short of labour and materials. It costs the builders
£21,000 more than they had planned. Davies argued that the contract was frustrated, void, and
therefore they were entitled to payment on a quantum meruit basis for the value of work done. The
House of Lords held that although the performance of the contract had been more onerous it was not
frustrated.

It is rather difficult to compile an exhaustive list of the situations in which a contract will become
frustrated, but they fell into three broad categories:

 Events which make performance or further performance impossible

 Those which make it illegal; and
 Those which make it pointless.

Impossible events

A contract may become impossible to perform in any of the following ways.

 Destruction or unavailability of something essential for contract’s performance or when the

subject-matter is lost.31
 Death of either party if it requires a personal performance. Contracts requiring personal
performance are discharged by frustration on the death of either party.
 Unavailability of party. Contracts requiring personal performance will be frustrated if either
party falls ill or is imprisoned, provided that the non-availability of the party substantially
affects the performance. In Robinson v Davison,32a piano player was booked to perform, but
was ill on the day of the concert. He was sued for breach of concert, but it was held that the
contract had been frustrated when his illness made it impossible to perform. Cases relating to
illness, military service or imprisonment, the period affected by the event must be so long as
to virtually defeat the purpose of the contract.

29
Frustration cannot be invoked simply because one party has made what turns out to be a bad deal. See
Amalgamated Investment & Property Co Lt v John Walker & Sons Ltd (1977).
30
(1956)
31
In Taylor v Caldwell, the defendant contracted to allow the plaintiff to use a certain hall for concert. Just
before the first of the days on which the plaintiff was allowed to use the hall, the hall was completely
destroyed by fire. The plaintiff sued the defendant for breach of contract. It was held that the contract was
frustrated.
32
(1871) L.R. 6 Ex 269; for Military Service: see Morgan v Manster (1948)1 KB 184; For Imprisonment: Hare v
Murphy Brothers Ltd (1974) 1
 11

 Method of performance impossible. Where a contract lays down a particular method for
performance, and this becomes impossible, the contract may be frustrated. 33

Illegality

If, after a contract is formed, a change in the law makes its performance illegal, the contract will be
frustrated. This happened to many contracts made just before the First and Second World Wars as,
once war was declared, it became illegal to trade with enemy countries. 34 Other examples include:

 If the performance of a contract becomes illegal e.g. because a statute has been passed
prohibiting the kind of event contemplated in the contract.
 Outbreak of war – in Uzoma Sylvanus v Shell B. Petroleum Ltd, the plaintiff hired five houses
to the defendants. The houses were conscripted by the Biafran soldiers during the
Nigerian/Biafran war and got lost in the hands of the enemy. Plaintiff brought action. It was
held that the contract was frustrated by war.

Pointless

A contract can be frustrated where a supervening event makes performance of a contract completely
pointless, though still technically possible. Put in another way, this occurs where there has been a
drastic change in circumstances that the contract becomes essentially different from that which was
originally agreed. There are very tight limits on this aspect of the doctrine of frustration. These are
best illustrated by a pair of cases associated with the coronation of Edward VII in 1901. The
coronation had been planned for a particular date, but the event had to be postponed because the King
fell ill. Since the postponement was made at the last moment, a great many preparations had been
made and events organised, and it was from these that the two ‘coronation cases’ on frustration
arose.35

Frustration will also occur if the contract is wholly made for a particular purpose and that purpose has
been rendered impossible of attainment. Similarly, there will be frustration if the whole basis of the
contract is the occurrence of a named event and that event does not occur. 36

The starting point in the discussion of the legal effect of frustration is the rule in Chandler v
Webster.37 The rule states that the occurrence of a frustrating event ‘bring the contract to an end
forthwith without more and automatically’. The contract is terminated to the future only. Unlike a
contract vitiated by mistake a frustrated contract does not become void ab initio. It becomes void only

33
See Nickoll and Knight v Ashton Edridge & Co (1901).
34
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943)
35
See Krell v Henry (1903) 2 KB 740; Herne Bay Steam Boat Co v Hutton (1903) 2KB 683.
36
See Krell v Henry (1903) 2KB 740; Chandler v Webster (1904) 1KB 493.
37
(1904)1KB 493.
 12

from the time of frustration. This means that from the beginning of the contract to the time of
frustration the contract is valid. The rule in Chandler v Webster has two important consequences:

 All rights which have been vested or money which under the contract has become due and
payable at the time of frustration are enforceable.
 Money which under the contract is payable in advance but has not become due for payment
ceases to be payable. Thus, the principle in Chandler v Webster emphasises that any loss
arising from the termination of a contract by frustration must lie where it has fallen.

The principle in Chandler v Webster is illustrative in Krell v Henry. Under the contract the plaintiff
expressly agreed to let a room to the defendant for the express purpose of viewing the Coronation
Procession of King Edwards VIII on June 27, 1902. The contract provided that the rent for hiring the
room was due for payment on June 24. However, before that date the coronation procession of the
King was cancelled given the sudden illness of the King. The plaintiff brought an action claiming
payment of the agreed rent. It was held that the plaintiff could not recover the rent because it was not
due for payment before the time of frustration but after it. 38

In the second coronation case, X agreed to let a room to Y expressly for the purpose of viewing the
Coronation procession of King Edward VIII of England. The contract provided for a rent of £141: 15s
payable immediately upon signing the agreement. Y paid £100 immediately but still owed £41:15s
when the Coronation procession was cancelled owing to the sudden illness of the King. Y sued X to
recover the £100 paid. The court held that not only that he has no right to recover but also he was
liable to pay the remaining balance.

Given the injustice in Chandler, the House of Lord modified the rule in 1942 in Fibrosa’s case.39The
case concerned a contract for the sale and delivery of machinery. The contract price for the machinery
was £4800. The contract provided that out of this amount, £1600 was payable immediately in
advance. The purchaser paid £1000 towards the advanced payment. The contract was then frustrated
as a result of war. At the time of frustration no machinery has yet been delivered to the purchaser. But
the makers had done a considerable work already towards its manufacturer. The purchaser requested
the maker to return the £1000 which he had paid since it had then become impossible for the contract
to proceed but the manufacturer refused the request. The purchaser therefore brought an action against
the makers claiming a refund of the £1000 they had paid. It was held by the House of Lords that the
purchaser was entitled to recover the money because there has been a total failure of consideration. It

38
Krell v Henry (1902) is an old English case which sets forth the doctrine of frustration of purpose in contract
law. One of the group of cases which arose from event surrounding the coronation of King Edward VII and
Queen Alexandra in 1902; see also Herne Bay Steam Boat Co v Hutton (1903) 2KB 683.
39
(1942) 2 All ER 122; [1943] AC 32.
 13

was further held that the grounds of the action were a claim in quasi-contract unlike ordinary contract
consideration meant benefit and not just a promise or expectation.

Even with the modified rule in Fibrosa’s case, there still remained two areas of hardship with respect
to common law effect on frustration.

 Once the plaintiff gets any benefit at all e.g. once he gets any actual benefit, however small,
he can no longer recover any money paid, because there will then be no total failure of
consideration.
 The defendant who has done some work or spent some money in execution of the contract
gets nothing for his work or expenses so long as the benefit of his work or expenses has not
actually passed to the plaintiff.

The position in Fibrosa’s case represents the law as to the effect of frustration in the States in former
and Northern and Eastern Nigeria. In many other States, the legislatures have followed the example in
England and enacted statutes aimed principally at removing the two problems which remained after
the Fibrosa’s case.40

As a result of these statutes, the position now in these states regarding the effect of frustration may be
stated briefly:

1. Money paid before the frustrating event is recoverable; and money payable i.e. money due for
payment before the frustrating event ceases to be so payable. For example, if Chandler v Webster
were to be in court in any of these states now, the tenant who had paid £100 before the frustrating
event occurred would have been entitled to recover the money. In the same vein, the tenant who
remained liable to pay £41:15s upon the happening of frustrating event would have ceased to be so
liable.

2. If the party to whom money was paid or to whom money was payable incurred expenses before the
time of frustration in performance of the contract, the court may permit him to retain or recover the
money paid or payable not exceeding the amount of such expenses incurred. However, where upon
the happening of the frustrating event, no money had been paid or become payable the person who
had incurred expenses would not be able to recover his expenses at all.

3. If one party to the contract has by reason of anything done by the other in performance of the
contract obtained a valuable benefit other than money before the time of frustration, he can be ordered

40
The relevant statutes in which these changes were made are: for the West and Bendel States ( now Delta
and Edo states), Contract’s Law 1958, Cap. 43 sections 6 & 11, and for Lagos State, Law Reform (Contracts Law)
1961. Cap 66, sections 3 and 4. For Enugu State, Contract Law 2004, Cap 26, section 382.
 14

by the court to pay to the other party such a sum as the court thinks just not exceeding the amount of
the benefit received.41

These statutory provisions do not apply to the following types of contract.

 Any charter-party, except a time charter-party, or a charter-party by way of demise, or any

other contract for carriage of goods by sea.
 A contract of insurance
 Any contract for the sale of specific goods where the goods perished before the risk has
passed to the buyer, or any other contract for the sale of specific goods where the contract is
frustrated by reason of the fact that the goods have perished.

Discharge by Agreement

Since the contractual relationship is formed by agreement, the parties may by agreement discharge the
bond. This may be bilateral or unilateral. Where the contract to be discharged still requires each party
to carry out an obligation under the contract, the discharge is regarded as bilateral. It is bilateral given
that each party in the contract gave in something of value. But if the original contract is totally
executed on one side, the discharge is said to be unilateral given that only one party surrendered
something of value.

Rules Governing Bilateral Discharge

1. The parties may agree to discharge the original contract completely without substituting it with
another contract or they may agree to replace the original contract with a new one, or finally they may
agree to amend or vary the main contract.

2. An agreement for discharge in any of the approaches stated above is binding only if it is under seal
or is supported by consideration. However, the requirement of consideration in a bilateral discharge
presents an issue given that the original contract is wholly executory, each party by merely agreeing to
the discharge surrenders something of value. The problem which exists in bilateral contract concerns
only the form with which the discharge is attained.

3. Where the initial contract is not a contract required by statute to be evidenced in writing, it can be
discharged completely or varied orally even if the main contract is under seal. Under common law,
the position is that a contract under seal can only be discharged or varied by another contract under
seal. However, equity has always maintained that a contract under seal could be discharged in any
way. In line with this, the Judicature Act 1875 stated where there is a conflict between the principles
of common law and those of equity, the principles of equity will prevail.

41
Appleby v Myers (1867) LR 2 CP 651.
 15

This position is best illustrated in Bery v Bery.42 Husband and wife had issues and agreed to separate.
The husband was to pay the wife £18 per month for the period of separation. He continued to pay but
later a second agreement entered into minimised the amount to £9 made only in writing without a
seal. When quarrel came up again, the wife maintained that she would ignore the second agreement
and hold the first. The Husband contended that the second written agreement discharged the original
contract. It was held that the simple contract validly varied the parties’ obligation under the original
contract under seal.

4. If the initial contract is a contract required by statute to be evidenced in writing, the following rules
apply:

 Any partial discharge or variation must also be evidenced in writing otherwise it will be
ineffective and therefore unenforceable. If the partial discharge or variation is ineffective,
then it follows that the initial contract remains in force.43
 A total discharge of the contract requires no particular formality, and therefore can be
accomplished by word of mouth.44

Rules Governing Unilateral Discharge

1. Where one party has completely performed his own contract so that the contract becomes wholly
executed on one side any release by him of the other party from his own obligation will be ineffective,
for then there is no consideration moving from that other party. The consequence is that the party
making the release can go back on his promise and hold the other party still bound by his obligation. 45
However, if the promisee or the party released from his obligation relies on the release and acts upon
it, he may be able to invoke the rule in High Tree’s case to defend himself if the other party later sues
him on the initial contract.

2. It follows from the rule just stated that in order for a release or unilateral discharge to be effective
and binding, it must be made under seal or otherwise supported by consideration.

3. The requirement for a new consideration is satisfied by an arrangement called Accord and
Satisfaction. In this arrangement, the Accord is the agreement between the parties. The Satisfaction is
the new consideration furnished.46 Example, A and B entered into a contract under which A is to paint
B’s house, and B is to pay A the sum of N100, 000. A does the painting but B is unable to pay the
money. B then offers to A that instead of paying him the agreed sum, A should occupy one room in

42
(1929) 2KB 316
43
Goss v Nugent (1833) 5 B & A 58
44
Morris v Baron (1918) AC 1; UAC v Argo (1958) 14 NLR 105
45
This is similar to the decision in Pinnel’s case.
46
Ude v Osuji [1990] 5 NWLR (Pt.151) 488.C.A.
 16

B’s house rent-free for as long as A wants. A agrees to the arrangement. The arrangement is a valid
Accord and Satisfaction. The accord is the agreement between A and B. The satisfaction is the new
consideration furnished by B. The effect of accord and satisfaction is to totally discharge B from his
obligation to pay N100, 000 under the original contract. A cannot afterwards sue him under that
agreement to enforce payment of the amount.47

Discharge by Breach

A breach of contract is any unreasonable failure to perform the terms of a contract when performance
is due. A breach of contract occurs when one party fails to perform his obligation or evinces an
intention not to perform one or more of the obligations stipulated in the contract. Where a party fails
to perform one or more of the obligation on the date fixed for performance, the breach which results is
called actual breach. This may take the following approaches: it may take the form of total non-
performance or defective performance or in the case of a representation which has been made a term
in a contract. This may be in form of non-truth or half-truth of the statement or representation.

However, where a party before the date fixed for performance evinces an intention not to perform his
obligation, the breach which results is called anticipatory breach. It is called a repudiation or
renunciation.48 Anticipatory breach may take express or implied repudiation. While express breach is
fairly straightforward an implied breach is much more difficult to appreciate. It arises where a person
after making a contract and before the date fixed for performance, puts himself in a position in which
he cannot possibly perform the contract when the date of performance is due. An illustration can be
given to simplify this. E.g. A contracts with B to perform during a concert being organised by B in
June 20th. On 19th June, A flies out of the country on publicised tour for weeks. By this, A has puts
himself in a position in which he cannot possibly perform at the concert scheduled for 20 th June. His
conduct on the 19th June amounts to anticipatory breach. 49

Effect of breach

The effect of any breach of contract is to entitle the innocent party to bring an action for damages. In
some cases, such as anticipatory breach, breach of condition and non-truth of contractual
representation, the innocent party additionally has an option either to treat the contract as discharged
that is, as having come to an end or to disregard the breach and treat the contract as still subsisting. In
anticipatory breach, discharge may not be the only approach as this can be ignored. 50

47
Contrast this position with the arrangement under Pinnel’s Case
48
See Ajayi v Texaco [1987] 3 NWLR (Pt.62) 577 SC.
49
Frost v Knights (1872) LR 7 Ex 111.
50
Hashan v Zenab [1960]2 WLR 374.
 17

Remedies for breach of contract

The remedies available to the innocent party in the event of a breach of contract can be divided into
three categories:

 Common law remedies

 Equitable remedies and;
 Remedies agreed by the parties.

Every breach of contract entitles the innocent party to sue for damages. However, there are other
remedies such as:

 Rescission,
 Quantum meruit.
 Specific performance and;
 Injunction

Common law remedies

All common law remedies are available as of right if a contract is breached.

Damages

An award of damages is the usual remedy for a breach of contract under common law. It is an award
of money that aims to compensate the innocent party for the financial losses suffered as a result of the
breach. The general rule is that innocent parties are entitled to such damages as will put them in the
position they would have been in if the contract had been performed.51 When a contract is breached, a
party may suffer pecuniary loss or non-pecuniary loss.

Pecuniary loss

Damages aim to compensate the innocent party for their financial losses that result from not receiving
the performance bargained for.

Non-pecuniary loss

Damages for non-pecuniary losses are generally not recoverable in contract. Thus, damages for
mental distress are not awarded in commercial contracts. 52 However, recent cases have developed
principle that, in a limited number of situations, injury to feelings - generally called mental distress –

51
See Universal Vulcanizing (Nig) Ltd v I. U.T.T.C [1992]9 NWLR (P 266) 388 SC.
52
Addis v Gramophone Co Ltd (1909)
 18

and loss of amenity will be compensated. Such compensation is available where the contract’s whole
purpose was the provision of pleasure, relaxation and peace of mind.53

Limitations on awards of damages

The general is that innocent parties are entitled to such damages as will put them in the position they
would have been in if the contract had been performed, but there are three limitations, which will be
considered under the headings of causation, remoteness and mitigation.

Causation

A person will only be liable for looses caused by their breach of contract. The defendant’s breach
need not be the sole cause of the claimant’s losses, but it must be an effective cause of their loss.
Those intervening events between the breach of contract and the loss which were reasonably
foreseeable will not break the chain of causation. The general rule is that where breach can be shown
to be an actual cause of the loss, the fact that there is another contributing cause will not prevent the
existence of causation.

Action for damages

When an action for damages is brought upon a breach of contract, two important questions are
involved: the first question is about remoteness of damage. Here, the question seeks to answer the
problem as to which of the many damages which may have resulted from the breach will the
defendant be liable to compensate the plaintiff for. The second question which an action for damages
raises in the question of measure of damages. This raises the issue as to how much monetary
compensation will the plaintiff be entitled to get for such damage as the defendant has been found to
compensate him for.

Remoteness

There are some losses which entirely result from the defendant’s breach of contract, but are deemed
too remote from the breach for it to be fair to expect the defendant to compensate the claimant for
them. The rules concerning remoteness were originally laid down in Hadley v Baxendale.54 The court
laid down two situations where the defendant should be liable for loss caused by a breach:

1. Loss which would arise naturally, ‘according to the usual course of thing’, from their breach. Most
breach of contract necessarily contains element of this group damages.

53
See Jarvis v Swans Tours Ltd (1973); Farley v Skinner (No 2) (2001); Ruxley v Forsyth (1995)
54
(1854) 9 Ex 341. The approach in Hadley v Baxendale was reaffirmed in Victoria Laundary Ltd v Newman
Industries Ltd (1949) and discussed again by the House of Lords in The Heron II (1969).
 19

2. Loss ‘as may be reasonably be supposed to have been in the contemplation of the parties at the time
when they made the contract, as the probable result of the breach of it’.

Whether damages within this second group will feature in a breach of contract or otherwise depends
on the state of knowledge of the parties at time of contract. In other words, what the parties know or
disclose to each other at the time of contract is a relevant factor. Special circumstance must be made
known by the parties at the time of contract to be compensated.55

In Cottrill v Steyning & Little Hampton Building Society,56 the vendor of a piece of land was informed
at the time of contract about the purpose of such transaction and therefore had full knowledge that the
purchaser intended to develop the land himself. On a breach of the contract to sell the court held that
the vendor was liable for damages for loss of the profit which the purchaser would have made by
developing the land himself.57

Measure of damages

Measure of damages is a way to compute damages that are to be awarded to an injured person. The
general rule is that the plaintiff will recover his actual loss in respect of damage which is not too
remote. The plaintiff must as far as money can do it be put in the same position as he would be in if
the contract had been fully performed.58

Mitigation of loss (Cap 26, s.436)

The above rules about remoteness and measure of damages are subject to the general qualification that
the plaintiff is under an obligation once a breach has occurred to do what is reasonable to mitigate or
reduce his loss.59 He cannot sit back and watch his loss increase and multiply in the hope that the
burden will be borne by someone else. If therefore the plaintiff succeeds in his actions for damages he
will not recover for any part of his which the defendant proves to be due to the plaintiff’s failure to
mitigate his loss. In Obaike v B.C.C Plc,60 the court held that ‘a plaintiff must take all reasonable steps
to mitigate the loss to him consequent upon the defendant’s wrong and cannot recover damages for
any such loss which he could have avoided but has failed through unreasonable action or inaction to
avoid.

The duty to mitigate losses arising from the breach of a contract equally applies to building contracts.
In other words, where a contract abandons the building before completion, it is the duty of the

55
Diamond v Campbell-Jone (1961) Ch 22
56
[1966] 1WLR 753
57
See Eweka v Mid West Newspapers Corporation (1976) 6 ECSLR 280.
58
Mobile Oil (Nigeria) Ltd v Abraham Akinfosile (1969) NWLR 217; Olagunji v Raji (1986) 5 NWLR (pt 42) 408;
John Andy Sons & Co. Ltd v N.C.R.I (1988) 1NWLR (pt 72 633.
59
See Okongwu v NNPC [1989] 4 NWLR (pt 115) 296.
60
[1997]10 NWLR (pt 525)435
 20

employer to complete the house in conformity with the contract specification at the earliest moment
possible. Any increase in the cost of building brought about by his own delay, cannot be passed on to
the defaulting contractor by way of damages. The court applied this in Mertens v Home Freeholds
Co.61 In Nigeria, the court applied this in Victor Oladapo Taiwo v F.B.A Princewell.62

Calculating loss

There are two main ways in which the losses of a claimant in a contract action can be calculated: the
loss of expectation, and the reliance loss.

Loss of expectation

Where loss of expectation is the basis for calculating damages, the courts aim to put claimants in the
position they would have been in if the contract had been performed. Thus, the parties would have
expected a certain result from the performance of the contract and the damages will compensate for
the loss of the expectation.

Reliance loss

Where reliance loss is the basis for calculating damages, the damages seek to put claimants in the
position they were in before the contract was made. The damages will therefore compensate for the
actual wasted expenditure and other losses incurred because of the contract which has been breached.

Choosing between the expectation and reliance principles

As a rule, a claimant can choose whether to base a claim on loss of expectation or on reliance. In
practice, loss of expectation is the usual basis for calculating contract damages. There are two main
restrictions on the claimant’s choice between the expectation and the reliance principles. These are the
bad bargain rule and speculative damages rule.

 Bad bargain rule: this is used where the claimant would have made a loss from the contract,
then he or she will only be entitled to nominal damages, and will not be entitled to claim their
expenses on the basis of reliance loss.
 Expectation losses are ‘too speculative’: the reliance basis for calculating damages must be
used where it is virtually impossible to calculate what profit the claimant would have made if
the contract had been performed correctly.

61
[1921] 2KB 526;
62
[1961] All NLR 240.
 21

Restitution

Restitution is the remedy available when there has been unjust enrichment. When money has been
paid under contract, or purported contract and performance has not been received in return, or has
been inadequate, the payer may want to claim the money back, rather than claiming damages. Lord
Wright succinctly captured it thus:

It is clear that any civilized system of law is bound to provide remedies for cases of what has
been called unjust enrichment or unjust benefit, that is, prevent a man from retaining the
money of, or some benefit derived from, another which is against conscience that he should
keep. Such remedies in English Law are generally different from remedies in contract or tort,
and are now recognized to fall within a third category of the common law which has been
called quasi-contract or restitution.63
Traditionally, contract remedies and restitution do not overlap. In practice, restitution will therefore be
available if there is no contract. Some of examples include where:

 A contract has not been made (e.g. lack of agreement, uncertainty or absence of
consideration)
 The contract has been discharged
 The contract was void (e.g. because of illegality)
 Money paid under a mistake of fact.64

Equitable remedies

Equitable remedies are provided at the discretion of the court. Unlike damages under common law,
the plaintiff is not entitled to this remedy as of right.

Quantum meruit

The term ‘quantum meruit’ means ‘as much as he deserves’. This is an equitable remedy. Where work
has been done or goods supplied but no payment has been received and cannot be obtained under a
contract, an action is available called a quantum meruit, under which claimants can claim a reasonable
price for their performance. Other examples include:

63
Fibrosa’s Case [1943] AC 32 at 61. The term ‘quasi contract’ is used for variety of cases in which the law
imposes obligation on persons on equitable grounds in order to prevent unjust enrichment. The principle is
that no one should be allowed to enrich himself inequitably at another’s expenses.
64
In Admiralty Commissioners v National Provincial and Union Bank of England Ltd [1922] 127 LT 452, sums of
money paid into the account of a customer of the bank in the belief that he was alive, when in fact he was
dead, were recovered. See Norwich Union Fire Insurance Society Ltd v Price Ltd [1934] AC 455.
 22

1. Where the plaintiff has done some work in partial performance of a contract which is divisive or
severable

2. Where the plaintiff has done some work under a contract terminated prematurely due to the fault of
the defendant

4. Where the plaintiff has done some work in partial performance of an entire contract.

5. Where there is void or failed contract.

Rescission

Rescission is available as the equitable remedy to a party injured by breach of vital or fundamental
stipulation in a contract such as condition. Also, where a party is induced by misrepresentation,
mistake, duress or undue influence the court may award this equitable remedy.

As a general rule, where a rescission is granted the contract is terminated abinitio as if it never
existed. Therefore, the effect of rescission is retrospective. The contract is terminated and the parties
are put in the status quo ante so that as between them things are restored to the position in which they
were before the contractors entered into.

Limitation to right of rescission

There are four principal obstacles to the right of rescission. They are as follows:

1. Affirmation

If the party who has been misled into a contract by a misrepresentation, fraud, duress or undue
influence affirms the contract, he cannot afterwards claim a rescission of it. Affirmation occurs when
the party misled declares his intention to proceed with the contract. It can be expressly stated or
implied from inference.

2. Lapse of time

A person who claims rescission must do so with reasonable promptness. Rescission is an equitable
remedy and delay defeats equity. As a general, time begins to run from the discovery of the truth. This
is clear when rescission is based on mistake.65 The principle seems to be clear where rescission is
based on fraudulent misrepresentation. But in the case of innocent misrepresentation, the rule appears
to be that time starts to run from the time the contract is made. 66

65
Re Garnett (1885) 31 ChD 1
66
Lees v Internationa Galleries [1950] 2KB 86
 23

3. Restitutio in integrum

Where full restitution is not possible, the court may order substantial restitution. However, the right of
restitution may be lost if something happens in which the party misled has participated which renders
it impossible to restore the parties to their former position. E.g. if a person buys consumable goods
such as yam, rice or tomatoes, he cannot obtain a rescission of the contract of sale if in the meantime,
he had consumed the goods. The reason is that if the court orders rescission, he will not be able to
return the goods to the seller.

4. Acquisition of the third party

Rescission will not be ordered if a third party acquires a right under the contract in good faith or for
value before the action for rescission is begun. In Philip v Brooks67 the court refused rescission
because before the action was brought, the fraudulent Mr. North has pledged the ring to an innocent
third party in return for a loan of £350.

Specific performance

Specific performance is an equitable remedy. It is a decree issued by the court ordering the defendant
to perform a promise or contract that he has made in accordance with its terms. At common law, the
only relief available for breach of contract was damages. However, in some cases, for instance, in a
contract to convey land such as assignment, leases and mortgages, the remedy of damages is
inadequate. In such circumstances, the court of equity decrees specific performance.68

Certain types of contracts do not normally qualify for the remedy of specific performance. The
following contracts are examples:

 Contracts in which an award of damages will be an appropriate remedy.

 Contracts of personal service. E.g. employer – employee relationship.
 Contracts, the performance of which requires constant supervision by the court.
 Contracts which create an obligation lacking mutuality in enforcement. An example of this is
a contract between a minor and an adult, in which the infant is not bound but the adult is
bound.

Injunction (Cap 26, ss 457- 463)

Injunction is also an equitable remedy. It is an order issued by the court ordering a person to or not to
do a specified act. Injunctions are either restrictive (preventive) or mandatory (compulsive). The

67
(1919)2KB 234
68
See Fakoya v St. Paul’s Church Shagamu [1966] 1ALR COMM 459; Innih v Ferado Agro & Cons. Ltd (1990)5
NWLR (pt.152) 604 CA.
 24

remedy of injunction is used in contract so as to prevent a party from committing a breach of the
contract. Injunction therefore can sometimes perform the same function as specific performance. In
view of this, injunction will not be granted where specific performance will not be ordered. However,
the little difference lies given that an injunction may sometimes be granted to restrain the breach of a
negative undertaking in a contract of personal service if the effect of granting the injunction is merely
to encourage and not to compel the defendant to perform a positive duty. In Lumley v Wagner,69 an
injunction was granted to restrain a singer to comply with his contractual undertaking not to sing for a
third party during the period of his engagement with the plaintiff.

If the injunction is mandatory it is restrictive in its effect and not merely preventive. It could direct the
defendant to undo what he has already done in breach of the contract. E. g. he may be ordered to
demolish a building which he has erected in contravention of the contract. In practice, this sort of
injunction is very rarely granted.

Remedies agreed by the parties

Many contracts specify the kinds of breach which will justify termination, and/or the damages to be
paid by each party in the event of certain types of breach. There are two types of contract clauses
concerning damages: liquidated damages and penalty clauses.

Liquidated damages

Liquidated damages is the term used where a contract specifies the amount of damages to be paid in
the event of breach, and this amount represents a genuine attempt to work out what the loss would be
in the event of such a breach.

Penalty clauses

If a contract states that a particular sum is to be paid on breach of the contract, and that sum is not a
genuine pre-estimate of the loss that would be suffered in the event of breach, but it is designed
instead to threaten to penalise a party in breach, then, this is a penalty clause. Where the damages laid
down in a contract amount to a penalty clause, the clause will be found to be invalid and the award of
damages will determined by the ordinary principle of contract law. 70

69
(1852) 1BGM & G 604; Warner Bros Pictures Inco v Nelson [1937]1KB 209
70
See Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915)
25