Privity of Contract Doctrine

Study Notes

Definition

Privity of contract is a common law doctrine that states that a contract can only be enforced by and against the parties who entered into it.
This means that only the parties who signed the contract can sue or be sued for breach of contract.

Key Characteristics

Privity: The concept that only the parties to the contract have contractual rights and liabilities.
No third-party rights: Third parties, who are not signatories to the contract, have no rights or liabilities under the contract.

Exceptions to the Rule

Agency: If an agent enters into a contract on behalf of a principal, the principal can enforce the contract.
Assignment: If a party assigns their rights under the contract to a third party, the third party can enforce the contract.
Trust: If a party enters into a contract for the benefit of a third party, the third party can enforce the contract.

Rationale

The privity of contract doctrine is based on the idea that a contract is a private agreement between two parties, and outsiders should not be able to interfere with that agreement.
It protects the parties to the contract from unintended liabilities and ensures that only the parties who negotiated the contract are bound by its terms.

Criticisms and Reforms

Critics argue that the doctrine is too restrictive and can lead to unfair outcomes.
Some jurisdictions have reformed the doctrine to allow for third-party beneficiaries to enforce contracts in certain circumstances.

Description

Understand the concept of privity of contract, its key characteristics, exceptions, and criticisms. Learn how it affects contractual rights and liabilities. Discover the rationale behind this doctrine and its impact on contract enforcement.