Definition
The term privity refers to common law that states a contract only provides rights and imposes obligations to the parties agreeing to it. The doctrine of privity is an important concept in the laws governing contracts.
Explanation
The common law doctrine of privity is interpreted to mean that only the parties to a contract are able to enforce their rights under it. This doctrine is frequently cited when determining who has a right to bring about a lawsuit for damages or impose their rights within a contract. Privity is problematic for third party beneficiaries, since they are unable to enforce the obligations of those parties named in a contract.
Example
Bill decides to lease a car from the Rents-R-Us automobile dealership. Unfortunately, the car performs poorly and spends more time in the repair shop then on the road. Under the principles of privity, Bill cannot bring about a lawsuit against the manufacturer of the car, because they were not a party to the contract between Bill and Rents-R-Us. In this example, Rents-R-Us would have to sue the car's manufacturer on behalf of Bill for the sale of a faulty automobile.
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