In contract law, privity refers to the relationship between the parties who have entered into a contract. It refers to the legal connection or bond that exists between the parties who have entered into a contract, and it determines who can enforce or be bound by the terms of the contract.
The general rule of privity is that only parties to a contract can enforce or be bound by its terms. This means that a third party who is not a party to the contract generally cannot enforce any of its provisions. For example, if A and B enter into a contract for the sale of goods, a third party C cannot sue either A or B for breach of the contract, even if the third party has been affected by the breach.
There are, however, some exceptions to the rule of privity. These exceptions allow third parties to enforce or be bound by the terms of a contract in certain circumstances. Some common exceptions to the rule of privity include:
Assignment: When a party assigns their rights or obligations under a contract to a third party, that third party can enforce the contract.
Agency: When an agent acts on behalf of a principal in entering into a contract, the principal can be bound by the terms of the contract.
Collateral contract: A collateral contract is a separate agreement between a third party and one of the parties to the contract, which is made in connection with the main contract. In some circumstances, a third party can enforce a collateral contract.
Overall, privity is an important concept in contract law as it determines who can enforce or be bound by the terms of a contract. While the general rule is that only parties to a contract are bound by its terms, there are some exceptions to this rule which allow third parties to be bound by the contract or to enforce its terms.