Doctrine of Privity of Contract
The Doctrine of Privity of Contract establishes that no one will be entitled to or bound by the terms of a contract to which he was not a party to the original contract. In other words, a stranger to a contract has no legal access to the rights and obligations, since rights and obligations are strictly the private matters of primary contracting parties. Thus, the Doctrine of Privity of Contract states that a non-party to a contract cannot bring any action on the contract irrespective of the fact that he would benefit from the contract.
Privity of Contract has three major effects, which are:
1. A third party cannot receive a benefit if he is not a party to the contract.
2. A third party cannot be liable to a contract if he is not a party to the contract.
3. A third party cannot enforce a contract if he was not a party to the contract.
For example, B has advanced loan to A. A is a seller, who sold certain goods to C. C promises to A, that he will pay off A’s debt to B, as a consideration for the contract which was established between A and C. In case C fails to pay the debt of A, B will have no right to sue C, as B is a stranger to the contract between C and A. To sum it up, C is not in privity with B. However in this case, C stands in privity with A.
Contact Us