Privity of contract in the context of Contracts (Rights of Third Parties) Act 1999


Privity of contract in the context of Contracts (Rights of Third Parties) Act 1999

⭐ Core Definition: Privity of contract

The doctrine of privity of contract is a common law principle which provides that a contract cannot confer rights or impose obligations upon anyone who is not a party to that contract. It is related to, but distinct from, the doctrine of consideration, according to which a promise is legally enforceable only if valid consideration has been provided for it, and a plaintiff is legally entitled to enforce such a promise only if they are a promisee from whom the consideration has moved.

A principal consequence of the doctrine of privity is that, at common law, a third party generally has no right to enforce a contract to which they are not a party, even where that contract was entered into by the contracting parties specifically for their benefit and with a common intention among all of them that they should be able to enforce it. In England & Wales and Northern Ireland, the doctrine has been substantially weakened by the Contracts (Rights of Third Parties) Act 1999, which created a statutory exception to privity, providing, in certain circumstances, third parties the right to enforce terms of contracts to which they are not privy.

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Privity of contract in the context of Third-party beneficiary

A third-party beneficiary, in the civil law of contracts, is a person who may have the right to sue on a contract, despite not having originally been an active party to the contract. This right, known as a ius quaesitum tertio, arises when the third party (tertius or alteri) is the intended beneficiary of the contract, as opposed to a mere incidental beneficiary (penitus extraneus). It vests when the third party relies on or assents to the relationship, and gives the third party the right to sue either the promisor (promittens, or performing party) or the promisee (stipulans, or anchor party) of the contract, depending on the circumstances under which the relationship was created.

A contract made in favor of a third party is known as a "third-party beneficiary contract."Under traditional common law, the ius quaesitum tertio principle was not recognized, instead relying on the doctrine of privity of contract, which restricts rights, obligations, and liabilities arising from a contract to the contracting parties (said to be privy to the contract). However, the Contracts (Rights of Third Parties) Act 1999 introduced a number of allowances and exceptions for ius quaesitum tertio in English law. Other common-law countries are also making reforms in this area, though the United States is unique in abandoning privity early in the mid-19th century.

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Privity of contract in the context of Tertius (law)

Tertius is the Latin word for "third", or "concerning the third". The term is used in contract law to refer to an interested third party not privy to a contract.

The English common law system follows the doctrine of privity: there is no recognition of the principle ius quaesitum tertio (a right in the third party to enforce performance) whereby a third party may enforce a promise due unto it under a contract to which it is not a party. However, in several legal systems, including U.S. and Scots contract law, this does not bar parties to a contract from specifying that a third party is to be a beneficiary of such contract. In England itself, as well as Wales and Northern Ireland, the doctrine of privity was reformed by statute in 1999 to enable third parties to enforce contract terms made for their benefit.

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