DEFINITION of Privity
Privity is a doctrine of contract law which says contracts are only binding on the parties signing the contract, and that no third party can enforce the contract or be sued under the contract.
BREAKING DOWN Privity
Privity is an important concept in contract law. Under the doctrine of privity, for example, the tenant of a homeowner cannot sue the former owner of the property for failure to make repairs guaranteed by the land sales contract between seller and buyer, as the tenant was not "in privity" with the seller.
However, privity has proved to be a problematic and numerous exceptions are now accepted. For example, according to the doctrine of privity, the beneficiary of a life insurance policy would have no right to enforce the contract, since he or she was not a party to the contract, and the signatory is dead. As this would clearly be inequitable, third-party insurance contracts are one of the exceptions to the doctrine of privity.
Another exception is manufacturers’ warranties for their products. It used to be the case that a suit for breach of warranty could only be brought by the party to the original contract or transaction, so consumers would have to sue retailers for faulty goods, because no contract existed between the consumer and the manufacturer. Now, under modern doctrines of strict liability and implied warranty, the right to sue has been extended to third-party beneficiaries and members of a purchaser's household, whose use of a product is foreseeable.