According to the doctrine of privity, only the parties to a contract are obligated by it, and a third person cannot be sued or have the agreement enforced. Absence of privity occurs when parties are under no legal responsibility to one another, which renders obligations, liabilities, and access to particular rights null and void.
A key idea in contract law is exclusivity. The tenant of a homeowner, for instance, cannot sue the prior owner of the property under the doctrine of privity for failing to make repairs that were promised in the land sales contract between the seller and the buyer since the tenant was not "in privity" with the seller. Privity is designed to shield third parties from legal action resulting from a contract.
Exceptions to Privity
- Insurance Companies: Because they were not a party to the contract and the signature is deceased, the beneficiary of a life insurance policy would not be able to enforce it under the doctrine of privity. One of the exceptions to the doctrine of privity is third-party insurance contracts, which let third parties to file claims from policies issued for their benefit since doing so would be unfair.
- The Sale of Defective Goods: The warranties provided by manufacturers for their products are one exception to privity. Before, a lawsuit for a breach of warranty could only be filed by the party to the first contract or transaction. As a result, consumers who purchased defective items had to file a lawsuit against shops because there was no contract between them and the manufacturer. The power to sue has now been extended to third-party beneficiaries, such as family members of a purchaser, under contemporary theories of strict liability and implied guarantee, whose use of a product is predictable.
- Negligence: The negligent party may be sued by third parties who are not parties to a contract with the negligent party if negligence results in a physical injury.
- Restrictive Agreements: A restrictive covenant might occasionally be upheld by a third party. Let's say, for instance, that a home's owners want to sell it but know that the buyer won't make any changes to the home's design. The third party may be required to abide by the original owners' stipulations if the buyer sells the residence to a third party and certain circumstances are satisfied.
- Trusts: A deal made by a trustee and another party occasionally has an impact on the owner. For instance, if a contract is established between a trust's trustee and a third party, even if the beneficiary of the trust is not a party to the contract, they may still file a lawsuit to enforce their rights under the trust.
Example of Privity
Consider the case where Shawn signs a sublease agreement with his friend Blake, who rents the Manhattan condo from Jude, the owner, and who needed Jude's written approval before signing the agreement with Blake. This authorization does not absolve Blake of his tenant obligations as Jude's renter because that privity still exists between them.
The condo sustained $10,000 in damages as a result of a major party that Shawn hosted six months into the one-year lease. Blake sought money from Shawn after Jude sent Jessica the damage estimate. Sadly, Shawn left the flat and evaded Blake's attempts to collect on the overdue rent and damages.
Blake is liable for any damages to the property, must pay any outstanding rent, and must carry out all obligations outlined in the original lease because he is the original tenant stated on the lease. As Shawn has no business relationship with Jude, Blake must compensate Jude for her losses or face legal action. Blake is not helpless, though, as Blake has the right to sue Shawn because of their relationship.
- A notion known as privity in contract law prevents non-contractual parties from enforcing a contract and imposes rights and obligations on parties to a contract.
- Absence of Privity means that there isn't a contract between the parties, so some obligations aren't imposed upon them and certain rights aren't granted to them.
- According to the doctrine of Privity, a renter of a homeowner cannot bring a claim against the former owner of the property for failing to make repairs that were promised in the land sales agreement between the seller and the buyer since the tenant was not "in privity" with the seller.
- Privity is designed to shield third parties from legal action resulting from a contract.
- Even though they were not parties to the original contract, third parties can sue manufacturers for defective products under the strict responsibility and implied warranty theories.