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What Is Privity of Contract?

A contract is an agreement made under legal obligations and entered into by 2 or more parties. The contract may be written or oral, but both subscribe to the contract that only those who have entered into the contract can reap the benefits of the agreement or must abide by whatever terms and conditions were stipulated in the contract. This legal concept refers to privity of contract.

Privity of contract is a legal concept that deals with issues surrounding what legal obligations the parties under contract are subject to. This may also include the possibility of suing a party in the event of a breach of contract. This happens when a party cannot fulfill the terms and conditions or deliver the promises he or she agreed to. This is because parties subject to the contract have certain rights and obligations that one must respect and follow. However, such rights and obligations are not usually extended to third parties in a contract because they are not included in the privity of contract.

There are instances however when a third party can be granted the right to privity of contract. This can be done through assignment wherein one of the parties under contract, referred to as an assignor, transfers rights or responsibilities due from the contract to the third party, referred to as an assignee. Once an assignment occurs, the assignor loses his or her rights in the contract while the assignee receives the rights. It’s also possible to gain privity of contract through delegation of duties wherein the delegator gives his or her rights to the delegatee.


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