Privity

AAA

DEFINITION of 'Privity'

A legal interpretation in contract law where contracts are only binding on the parties signing the contract. The idea is that, contracts are private agreements among the signatory parties which should have no bearing on others who are not involved in making the contract. While the doctrine makes sense in certain situations, over time it has proved to be problematic and numerous exceptions to the doctrine of privity are now well accepted.

INVESTOPEDIA EXPLAINS 'Privity'

The doctrine of privity has important implications for the rights of third parties to a contract. For example, consider a life insurance contract that is made between the insurance company and the insured. The arrangement is that the insured will pay premiums, and upon their death, the insurance company will make a payment to the third-party beneficiary. Under the doctrine of privity, the beneficiary would have no right to enforce the contract, since he or she was not a party to the contract. This conclusion is clearly inequitable, therefore, third-party insurance contracts are one of the exceptions to the doctrine of privity.



RELATED TERMS
  1. Third Party Beneficiary

    A person who will benefit from a contract made between two other ...
  2. Bilateral Contract

    A bilateral contract is a reciprocal arrangement between two ...
  3. Tort Law

    The area of law that covers the majority of all civil lawsuits. ...
  4. Administrative Law

    The body of law that governs the administration and regulation ...
  5. Common Law

    In the United States, a body of unwritten laws based on precedents ...
  6. Assignable Contract

    A futures contract with a provision permitting the contract holder ...
Related Articles
  1. Home & Auto

    It's Raining Lawsuits: Do You Need An ...

  2. Home & Auto

    Attention Home Buyers! Why You Need ...

  3. Personal Finance

    How To Pick The Right Lawyer

  4. Economics

    The SEC: A Brief History Of Regulation

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center