Privity of Contract Definition:
A doctrine of contract law that prevents any person from seeking the enforcement of a contract, or suing on its terms, unless they are a party to that contract.
The 2004 edition of Chitty on Contracts describes the doctrine as follows:
"The common law doctrine of privity of contract means that a contract cannot (as a general rule), confer rights or impose obligations arising under it on any person except the parties to it."
Historically, the common law agonized over the issue of, or entertaining actions to, enforce the terms of a contract by a person not privy to that contract - not a party to it - mostly due to concerns related to ancillary contract law requirements of acceptance and consideration with the other side(s).
As chronicled in Cheshire, Fifoot - Law of Contract, finally, in 1861, the hammer of the law came down as in Tweddle v Atkinson, Justice Wightman stating that:
"... no stranger to the consideration can take advantage of a contract, although made for his benefit."
These oft-cited words are somewhat misleading.
There is no rule of law preventing a person from benefiting from another's contract. What is law is access to a court seeking relief on a contract and on that basis, the Tweedle precedent stands for a firm approach: unless a person is privy, or a party to, a contract, they will not be able to enforce it in Court.
As Madam Justice Reed of the Court of Queen's Bench of Alberta succinctly put in Fenrich (2004):
"... the doctrine of privity of contract provides that only a party to a contract has standing to sue to enforce it, even if the contract confers benefits on others in some fashion."
In Fraser River, Canada's Supreme Court stipulated two exceptions where a third-party (not a party to the contract) may be able to sue on its terms; hence, exceptions to the privity of contract doctrine, in limited circumstances:
"(a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and (b) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?"
Other legal remedies exist which may give some relief to a person stymied by the doctrine of privity of contract such as specific legislation (the Contract (Rights of Third Parties) Act of 1999 - England) subrogated rights, the law of agency, the exigencies of commerce (see Himalaya clause) and constructive trusts.
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