Privity of Contracts: A brief about its exceptions

If you are familiar with contract law, you must know the doctrine of privity of contract. This is because the principle applies to almost all contracts to keep the sanctity of agreements between people intact. Be a normal person, a law student or a lawyer, a little knowledge of the doctrine will go a long way if you deal in contracts. This is because contracts are essential in most of our work that requires a surety. In brief, the doctrine states that only the parties bound by a particular contract can enjoy the rights or suffer the burdens relevant to the contract.

Instances where the doctrine does not apply

The exceptions of the doctrine are nothing but independent rules of law which sidetrack the doctrine indirectly. 

  • When an agent is the third party

When the third party acts as an agent in the contract, it is an exception to the doctrine. As the rule of law, an agent is regarded to be the principal person. The liabilities and rights acquired by the agent under the contract are considered liabilities and rights of the principal. For instance, in breach of contract, a third party has to step in to prove that the contract existed between the other two parties.

  • When contractual right is assigned

The assignment of contractual rights is when contractual powers are transferred to a third party. The third-party can then be liable and can sue in a contract. Both under statute and in equity, it is possible that a contractual party transfers the rights to a third party regarding the same contract. The assignment of rights is a legal right and is intangible in legal service

  • When it is an insurance contract

According to insurance law, the doctrine has two exceptions. The first exception is for cases of bankruptcy or insolvency. If the insured owner goes bankrupt or insolvent, his rights are automatically transferred to a third party. The second exception is when a man or a woman takes out the life policy of insurance for the benefit of the family, establishes a trust that favours the beneficiaries in the policy.

  • When it is a land contract

Another exception of the doctrine is when the contract affects land or property. This means that any person can take an interest in a particular land or property that affects another land or property, although the person may not be named as a party to the agreement. The exception is also applicable when a party has contributed towards the land or property’s maintenance cost. This is a complex matter in legal service that would require in-depth knowledge in the privity of contracts. 

Wrapping up

All in all, the doctrine of privity of contract portrays the validity of the law. Whenever you sign a contract and want to establish the doctrine, you must consult a lawyer who will analyse your case carefully. If the court finds that the exceptions are applicable, then a third party can say in the contract. 

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