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Privity of Contract: Definition, Exception & Cases

Privity of Contract: Definition, Exception & Cases
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  • 0:01 What Is Privity of Contract?
  • 0:58 Exceptions to Privity…
  • 2:39 Cases on Privity of Contract
  • 3:53 Lesson Summary
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Lesson Transcript
Instructor: Jessica Schubert

Jessica is a practicing attorney and has taught law and has a J.D. and LL.M.

After you complete this lesson, you will know what constitutes privity of contract. You will examine some exceptions and look at cases to gain a thorough understanding of privity of contract.

What is Privity of Contract?

Imagine that you visit your local supermarket and buy a frozen dinner. You come home, heat it up, and get sick immediately after eating the dinner. It turns out that the dinner was tainted with bacteria. You want to sue the supermarket and the manufacturer of the meal. However, you also want to sue the middleman who delivered the meal to the store. This will be a potential problem, because you were not in privity of contract with the middleman; in other words, you had no direct relationship with the middleman at all. He did not sell you the item or market the frozen dinner.

Privity of contract is the relationship that exists between the parties to an agreement. This relationship is necessary in contracts. If you want to file a lawsuit involving a contract, you, therefore, need to show that you and the other person were in privity of contract. In other words, you were both involved in the contract and had an established contractual relationship.

Exceptions to Privity of Contract

There are some exceptions to privity of contract, meaning that even though someone was not directly involved in the contract, that person might still be able to sue. For example, there is a trust exception. Here, a trust beneficiary, who is a person who receives money or property from a trust, can sue the trustee if the trustee is not following the contract. The trustee is the third-party person who oversees the trust and gives out the property in accordance with a contract.

Next, there are property exceptions to privity of contract. For example, there may be a restrictive covenant that runs with the land. In other words, no matter who buys the property, that buyer has to abide by the restrictions on the property. An example of a restrictive covenant is where there is an easement (or right of use) on the property that allows a neighbor to use a part of the land. Even though the present owner does not have a contract with the neighbor, the covenant is still enforceable as if the owner and the neighbor had a contractual relationship.

In addition, there are assignments of contract that can lead to an exception. In this instance, a party to a contract can assign, or give, another person the right to sue. This type of situation arises when the original person in the contract transfers all of their rights to another third person. This third person stands in the place of the original person and, therefore, can file a lawsuit based upon the contract.

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