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KembaraXtra – Legal Terms – Privity of Contract
Privity of contract refers to the legal relationship existing between the parties to a contract. Under the traditional common law doctrine, only the persons who were parties to the contract and who provided consideration could sue or be sued upon it. This meant that third parties could neither enforce rights under a contract nor be burdened with obligations arising from it. The doctrine was based on the principle that contractual rights and liabilities should remain confined to those who voluntarily entered into the agreement. As a result, even if a contract was clearly intended to benefit a third person, that person generally had no right to enforce it. This sometimes produced harsh or commercially inconvenient outcomes.
The strict common law rule has been modified by the Contracts (Rights of Third Parties) Act 1999. Under this legislation, a third party may enforce a contractual term if the contract expressly allows enforcement or if the term purports to confer a benefit upon that third party. The Act therefore created an important exception to the traditional doctrine of privity. However, the legislation does not alter the principle that contractual obligations cannot generally be imposed upon someone who has not provided consideration or agreed to the contract. Privity of contract continues to remain a foundational principle of contract law while modern legislation provides greater flexibility to reflect commercial realities and fairness.
Privity of contract refers to the legal relationship existing between the parties to a contract. Under the traditional common law doctrine, only the persons who were parties to the contract and who provided consideration could sue or be sued upon it. This meant that third parties could neither enforce rights under a contract nor be burdened with obligations arising from it. The doctrine was based on the principle that contractual rights and liabilities should remain confined to those who voluntarily entered into the agreement. As a result, even if a contract was clearly intended to benefit a third person, that person generally had no right to enforce it. This sometimes produced harsh or commercially inconvenient outcomes.
The strict common law rule has been modified by the Contracts (Rights of Third Parties) Act 1999. Under this legislation, a third party may enforce a contractual term if the contract expressly allows enforcement or if the term purports to confer a benefit upon that third party. The Act therefore created an important exception to the traditional doctrine of privity. However, the legislation does not alter the principle that contractual obligations cannot generally be imposed upon someone who has not provided consideration or agreed to the contract. Privity of contract continues to remain a foundational principle of contract law while modern legislation provides greater flexibility to reflect commercial realities and fairness.
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