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. It's Raining Lawsuits: Do You Need An ...
    Home & Auto

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

  2. Attention Home Buyers! Why You Need ...
    Home & Auto

    Attention Home Buyers! Why You Need ...

  3. How To Pick The Right Lawyer
    Personal Finance

    How To Pick The Right Lawyer

  4. The SEC: A Brief History Of Regulation
    Economics

    The SEC: A Brief History Of Regulation

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center