Privity of contract
relationship that exists between the parties to a contract
Rule of privity
if there is no privity, there is no right to obtain legal remedy based in contract law
-to win a contract lawsuit, plaintiff must prove privity of contract w/ defendant
novation
termination of existing contract to introduce new contract with same or similar terms with a 3rd party to the contract
-No privity
Vicarious Performance
where 3rd party performs on behalf of the promisor who remains responsible for proper performance
- 3rd party who takes over performance does not face contractual liability
- can only sue people you have privity with
Exceptions to Privity of Contract Rules
- trusts
- constructive trusts
- insurance
- undisclosed principal
- contracts concerning land
- special concessions to commercial practice
- assignment of rights
Trusts
where property has been transferred to a person who administers the property for the benefit of another
- trustee
- beneficiary
- beneficial owner
Constructive trusts
trust relationship imposed by the court to prevent a party from being unjustly enriched by keeping property that should benefit another
-relationship that permits 3rd party to obtain performance of a promise included in a contract for their benefit
Insurance
Typically in a contract of life insurance, a person pays a premium in exchange for a promise from the insurance company to pay a sum of money on his or her death to specified person who is not a party to the insurance contract
Undisclosed Principal
–A party enters into a contract and isn’t aware of who they are dealing with
–One party represented by an agent
–The person with whom the agent was acting may sue/be sued on the contract
Contracts Concerning Land
–The rules of privity of contract do not apply in land law
Special Concessions to Commercial Practice
–Collateral Contracts – a party is trying to get work done so they hire another contractor to do the work
–Exemption Clause: a clause in the contract that exempts or limits the liability of a party to the contract for damages arising in breach of contract and tort
•Could also protect the third party
Assignment of Rights (Important Exception to Privity Rule)
–A transfer by a party of its rights under a contract to a third party
