Privity of contract is a legal term that refers to the relationship between parties that have entered into an agreement. It establishes the rights and obligations of the parties involved and determines who can enforce the contract. In this article, we will explore the privity of contract meaning and provide examples to help you understand this concept.
What Does Privity of Contract Mean?
The privity of contract definition refers to the legal relationship between parties who have entered into a contract. It establishes the rights and obligations of the parties involved and determines who can enforce the contract. Simply put, it defines who is bound by the terms of the agreement and who is not.
For example, let`s say that a homeowner hires a contractor to build a fence around their property. The homeowner and the contractor enter into a contract that outlines the scope of work, the timeline for completion, and the payment terms. In this case, the homeowner and the contractor are in privity of contract. They are the only parties bound by the terms of the agreement and can enforce its provisions.
On the other hand, if the contractor hires a subcontractor to install the fence posts, the subcontractor is not in privity of contract with the homeowner. The subcontractor has no relationship with the homeowner and cannot enforce any provisions of the contract. Similarly, the homeowner cannot hold the subcontractor liable for any breach of contract.
Types of Privity of Contract
There are two types of privity of contract: vertical privity and horizontal privity.
Vertical Privity
Vertical privity refers to the relationship between the original parties to the contract. In our previous example, the homeowner and the contractor are in vertical privity because they are the original parties to the contract. They are bound by the terms of the agreement and can enforce its provisions.
Horizontal Privity
Horizontal privity refers to the relationship between parties that are not original parties to the contract but have a close connection to it. For example, let`s say that the homeowner sells the property before the fence is completed. The new owner may have a claim against the original contractor if the fence is not built according to the specifications in the contract. In this case, the new owner is in horizontal privity with the contractor because they have a close connection to the contract.
Conclusion
In conclusion, privity of contract is a legal term that establishes the relationship between parties that have entered into an agreement. It defines who is bound by the terms of the contract and who can enforce its provisions. Understanding privity of contract is important for businesses and individuals to protect their rights and obligations in any agreement they enter into. It is necessary for anyone to understand this concept before entering into a contract.
