Privity of Contract: Why ATM Pharmaceutical Company has no right to sue Federal Medical Centre

Privity of Contract: Why ATM Pharmaceutical Company has no right to sue Federal Medical Centre

Pastor Joshua Allen is the CEO of ATM Pharmaceutical Company Ltd., Akure. On the 25th day of January, 2016, he entered into a contract of sale of some drugs on behalf of the Company with Miss Oladipo who is also a renowned Pharmacist at the sum of N750, 000. This was based on the agreement that she would not resell the drugs below N1million or pay the sum of N500, 000 for the breach and that in the event of a sale to her customers she would extract the same promise from them. On the 31st day of March, 2016, Miss Oladipo sold the drugs to the MD of Federal Medical Centre, Sagamu, Dr. Tolani Awokoya at the sum of N1.2million and he agreed to observe the restriction or pay the sum of N500, 000 for the breach. On the 1st day of November 2016, Dr. Tolani Awokoya sold the drugs to a community hospital at N800,000 and ATM Pharmaceutical Company has instituted an action against the Federal Medical Centre, sagamu to enforce the promise N500,000 for such breach.


Points to note:
1. The principle of law is that a person who is not a party to a contract although the contract was made for his benefit cannot sue on the contract.
2. In other words, a contract, generally, cannot confer enforceable rights or impose obligations arising under it on any person except those who are parties to it. For instance, if your Project Supervisor contracts with Royal Diadem Consults to help you with your project analysis and the latter failed to do so, you don’t have a right to sue because you’re not a party to the contract.
3. The parties to a contract are those who communicated with each other and fulfilled the basic elements of a valid contract to bring the agreement into existence.
4. The main reason behind this principle is that only a person who is a party to a contract can sue and be sued on it.
5. However, parties have the freedom to enter into a contract based on their desired terms and they can include such third party involvement in their initial agreement.
6. Nonetheless, the party to the contract can sue the party who defaulted by joining the third party for whose benefit the contract was made as a party.
It is apparent that ATM Pharmaceutical Company does not have a right to sue because the Company was not a party to the contract between Miss Oladipo and Federal Medical Centre, Sagamu. However, the only bailout he has is to persuade Miss Oladipo to sue FMC, Sagamu and join him as a necessary party.
THE LEGAL DIARY
Joseph Jagunmolu Ogunmodede

Joseph Ogunmodede
Founder, THE LEGAL DIARY
Joseph Jagunmolu Ogunmodede is a budding lawyer and founder of Nigerian-based innovative network known as THE LEGAL DIARY, an online platform for educating people on their legal rights and duties which is a unique idea that meets the pressing need for public enlightenment in Nigeria.
Since the evolution of THE LEGAL DIARY in January, 2017, he has consistently updated his audience with various legal stories and legal opinions posted on a weekly basis. He has also offered several pieces of advice and legal opinions to a number of clients both online and physically.
He was born in Ogun State, Nigeria, and holds Bachelor of Laws (LL.B) Degree from the prestigious University of Ibadan, Ibadan, Oyo State where he was awarded a First Class (Honours). He is currently an Intern at B. O. Ogunmodede & Co, Abeokuta, Ogun State.

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