Privity of Contract Explained

Privity of contract is a legal doctrine that holds that a business contract, along with any other type of contract, may not confer rights or impose obligations to any person or agent except for the specific parties that have formed the contract.

Privity of contract is most commonly an issue which arises during business contracts that have been formed to allow for the sale of goods or services. Horizontal privity of contract becomes an issue when the benefits bestowed by a contract are given to a third party or a party that was not a part of the original contract. Vertical privity of contract involves an independent contract that develops between one signer of the original contract and another individual or other legal entity.

There are certain circumstances under which privity of contract may be set aside which will allow the legal entity who is not directly a part of the business contract to be allowed to sue to force a party to the original contract to uphold their obligations. Privity of contract will only allow a third party to the contract to go against one of the original parties to the contract beyond the ability to collect the third party’s entitlement to a benefit under the contract.

NEXT: Quick and Easy Contract Law Cases