Privity is a principle of contract law that states contracts are binding only to the parties to the contract, and that nobody else can make the contract enforceable or sue for breach of it. The absence of privity occurs when parties are not bound by a contract to one another, thus cutting off obligations, liabilities and the right to access certain rights.
Understanding Privity
Privilege is a key concept in the field of contract law. In the doctrine of privity such as, for instance, the homeowner’s tenant cannot claim against the former proprietor of their property due to failing to repair the property as required by the contract to sell land between the buyer and seller because they were in no way “in privity” with the seller. Privilege is designed to shield the parties in a contract from lawsuits related to the contract.
But, the concept of privity has been proven to be a problem; as the result, many exceptions are being accepted.
Excuses for Privilege
Insurance Companies
In accordance with this doctrine it is believed that the beneficiaries of the life insurance policy is not entitled to enforce the policy because they were not a signatory to the contract and since the person who signed the contract is deceased. Because this is unfair third-party insurance contracts that permit third parties to file claims against policies they purchased to benefit themselves are among the exemptions to the privity doctrine.
Furthermore the third party who is who was involved in an auto accident that involves an insured vehicle can in certain instances pursue the insurance company after the court gives a favorable decision against the car owner. 1
A. The Sale of Defective Goods
The only exception is the manufacturer’s warranty regarding their product. There was a time when it was the rule that a suit regarding violation of warranty was only filed by the person who was the victim of the initial contract or transaction that is, the consumer could not take on retailers for defective products because there was no contract between the customer as well as the producer. Today, under the new laws of strict responsibility and implied warranty, the right to sue has been extended to third parties.and implied warranties the rights to sue have been extended to third party beneficiaries, such as members of a household member of a buyer who’s use of the product is predetermined. 1
Negligence
If the victim suffers personal injuries as a result due to negligence, the responsible party may be sued by other parties who haven’t signed a contract with the party who was negligent. 1
Restrictive agreements
In some instances an agreement that is restrictive could be enforced against an unrelated third person. As an example, suppose that those who own a home are looking to sell their home in the knowledge that the buyer isn’t intending to alter the design of the home. If the buyer offers the property to a third party , and certain conditions are fulfilled, the third party is likely to be required to adhere to the original owner’s conditions. 1
Trusts
In certain instances there are instances where a agreement between a trustee and an additional party could affect the trust’s owner. For instance, if the trust has a contract with the trustee with another person who is beneficiaries of trust could seek to enforce their rights to the trust even if they’re not an unrelated party to the agreement.
A Prime Example of Privilege
Think about the scenario in which Shawn sign an agreement for sublease the Manhattan one-bedroom apartment from a friend Blake who leases the condo from the owner Jude before signing an agreement together with Shawn, Blake obtained written permission from Jude as the owner. This does not exempt Blake from his obligations as a tenant. Jude’s tenant since privity exists between the two.
After six months of the agreement, Shawn threw a large celebration, and the guests caused $10,000 of damage to the property. Jude sent the damage bill to Jessica and in response, Blake demanded payment from Shawn. Unfortunately for Shawn, Shawn moved out of the house and did not allow Blake to recover from him for the damage or unpaid rental. Because Blake was the first tenant listed in the lease Blake will be accountable for damage to the property and is accountable for the rent due and for performing all obligations according to the terms of the lease. Shawn is not privy to Jude Therefore, Blake must pay Jude for damages or pursue legal action. But, Blake is not defenseless since Blake could sue Shawn as Shawn has a relationship with Blake.
Privity FAQs
What is the definition of Privilege of Contract?
The principle of the sanctity of contracts is a principle of contract law, which says that contracts must not grant rights or obligations to anyone that are not participants in the contract.
What is the definition of Privity of Estate?
Privilege of estate occurs when more than one party are owners of the same property. For instance, in lease agreements where both the landlord as well as the tenant are privy of the estate. 2
What is the difference between the Horizontal Privity as well as Vertical Privity?
The term horizontal privity is used to describe the relation between original parties who signed the contract, while vertical privity is the relationship between the initial party and the successor.
