PRIVITY OF CONTRACT: Overview, Examples, Comparisons (+ Free PDFs)

Privity of Contract
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There are several business laws guiding contracts. One vital aspect of business law is the privity of contract doctrine. However, it states that you cannot enforce or be liable for any obligation under a contract you are not part of. Also, there are some exceptions to this privity of contract. Nevertheless, this article will bring to your understanding the meaning and also an example alongside a PDF of privity of contract.

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Privity of Contract Meaning

A privity of contract states that you cannot enforce or be liable for any obligation under a contract you are not part of. However, the underlying basis is that only parties to a contract can sue or be sued under it. This means that no third party can enforce the contract or be sued under it. Also, lack of privity occurs when parties have no contractual duty to one another. Hence, eliminating obligations, liabilities, and access to specific rights.

Privity is an important concept in contract law. For example, the occupant of a house cannot sue the former owner of the property for failure to make repairs. Even if it is guaranteed by the land sales contract between seller and buyer as the occupant was not “in privity” with the seller. Eventually, privity is meant to protect third parties to a contract from lawsuits stemming from that contract.

However, privity has shown to be problematic; as a result, various exceptions are now accepted.

Privity of Contract Example

Consider the example in which Jane signs a contract to sublease a one-bedroom condo from a friend, Jackson, who leases the unit from its owner john before entering into a contract with jane, Jackson got written consent from john, the landlord. This consent does not release Jackson from tenant duties as John’s tenant as privity still exists between them.

Seven months into the one-year lease, jane threw a large party, and the guests caused $11,000 in damages to the unit. However, John sent the bill for damages to Patrick, and, in response, Jackson requested payment from Jane .

Unfortunately, Jane left the apartment and avoided Jackson’s efforts to recover for damages and unpaid rent. Since Jackson is the original tenant named on the lease, Jackson is responsible for any damages to the unit. And also is responsible for rents due and performing all duties as specified in the original lease. Jane has no privity with John; therefore, Jackson must pay John for the damages, or take legal action. However, Jackson is not defenseless as Jackson can sue Jane since Jane has privity with Jackson.

Exceptions to Privity of contract

However, there are specific types of contracts where the exceptions created under section 2 of the CRTPA do not apply, and the contract of privity prevails. Therefore, a third party will not be able to execute the rights and obligations arising from the contract if it is a:

  • Contract of employment;
  • Company constitution;
  • Contract on a bill of exchange, promissory note, or other negotiable instruments; Registration document of or agreement for a limited liability partnership;
  • Contract for the carriage of goods by rail or road, or for the carriage of cargo by air
  • Contract for the carriage of goods by sea;

Privity of Contract PDF

Here is a PDF explaining in detail the privity of the contract. However, this PDF on privity of contract is not sponsored by Business yield in any way.

Privity of Contract FAQ

What is an example of privity of contract?

Consider the example in which Jane signs a contract to sublease a one-bedroom condo from a friend, Jackson, who leases the unit from its owner john before entering into a contract with jane, Jackson got written consent from john, the landlord. This consent does not release Jackson from tenant duties as John’s tenant as privity still exists between them.

What are the rules of privity of contract?

Therefore, a third party will not be able to execute the rights and obligations arising from the contract if it is a:

Contract of employment;
Company constitution;
Contract on a bill of exchange, promissory note, or other negotiable instruments; Registration document of or agreement for a limited liability partnership;
Contract for the carriage of goods by rail or road, or for the carriage of cargo by air

Therefore, a third party will not be able to execute the rights and obligations arising from the contract if it is a:

Contract of employment;
Company constitution;
Contract on a bill of exchange, promissory note, or other negotiable instruments; Registration document of or agreement for a limited liability partnership;
Contract for the carriage of goods by rail or road, or for the carriage of cargo by air

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Conclusion

In conclusion, the underlying basis is that only parties to a contract can sue or be sued under it. This means that no third party can enforce the contract or be sued under it. Also, lack of privity occurs when parties have no contractual duty to one another. Hence, eliminating obligations, liabilities, and access to specific rights.

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