What is privity of contract?

Creating and signing legally binding contracts can be an overwhelming process — especially if you don’t know what to include or look for. After all, if each party’s rights, responsibilities, terms, and expectations aren’t clearly articulated in a contract, you risk an incomplete deal or a breach of contract later down the line.

When it comes to drafting, negotiating, and signing contracts — as well as protecting all involved parties — it’s important you understand the term “privity of contract.”

What is privity of contract?

Privity of contract is a common law principle that specifies that only parties directly involved in a contract can enforce the terms of the contract. By prohibiting anyone who isn’t a party named in the contract from claiming a right to any of the contract’s benefits or enforcing its obligations, the doctrine of privity of contract protects the parties from third-party interference.

To help explain this critical topic, let’s walk through a couple of examples.

Imagine Jane buys a rental property from John, but Ann is living on the property and has a one-year lease, which Jane acquires as part of the purchase. After buying the property, Jane notices a leak in the roof. John agrees to fix the leak, but he never actually does.

Even though Ann is directly affected by the leak in her rental property, she can’t sue John for failing to fix the leak because she doesn’t have a contract with John. She could, however, sue Jane if Jane is obligated under landlord-tenant law to fix the leak, but that wouldn’t be because she is in privity of contract with John. Ann can also use legal means to get Jane to repair her apartment leak if Jane and Ann have their own contract — or a lease — that requires Ann to repair leaks.

Sounds pretty cut and dried, right?

But what if the privity of contract between two parties is less clear? There are a few instances in which a third party to a contract has rights. For example, let’s say a celebrity wants to rent a private island for a summer vacation. The celebrity has a manager, and they’ve given the manager the authority to handle certain types of written agreements on their behalf. The manager, who has power of attorney, signs a lease for the island for the summer.

In this case, the manager, while a third party, could take action in the name of their client against the property owner if the owner didn’t fulfill part of their obligations within the contract.

It’s important to be aware of privity when drafting contracts to avoid confusion (and potential civil suits) in the future.

How Jotform Sign can make the contract process easier 

While privity of contract can be a perplexing topic, one way to make each party’s obligations clear in each contract you create — from house rental agreements and influencer contracts to consulting agreements and sponsorship proposals — is by using software like Jotform Sign.

E-signature solution Jotform Sign can make building, signing, and sharing customizable, reusable e-sign documents simple. You can either build one from scratch or choose from 600-plus ready-made templates. Use Jotform Sign’s intuitive drag-and-drop builder and large array of form field types to identify your contract’s terms and the parties’ roles and responsibilities, add logos and brand colors, and indicate where each party should sign.

In fact, you can even use Jotform Sign to track and manage all e-signature documents throughout the signing process, with access to a real-time audit trail showing which documents have been signed and which haven’t. This comprehensive platform is easy to use, fully customizable, and completely code-free.

Now that you’re familiar with the term privity of contract and what it means, you’ll be able to keep it in mind when drafting contracts in the future with software like Jotform Sign. It can add yet another layer of security around your contracts and help ensure all involved parties stay protected from third-party influence.

AS ALWAYS, CONSULT AN ATTORNEY BEFORE RELYING ON ANY FORM CONTRACT OR  CONTRACT TEMPLATE. THE CONTENT ABOVE IS FOR INFORMATIONAL PURPOSES ONLY.