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Chapter 2

Privity of contract

The term ‘privity of contract’ means that only a person who is a party to a contract
has enforceable rights or obligations under it:

Exceptions

 The Contracts (Rights of Third Parties) Act 1999 allows a person who is not a
party to a contract to enforce it as long as the contract was for his benefit and
he was identified expressly by name or description. In addition the contract
must expressly allow the third party to enforce the term.

 A contract between two parties may be accompanied by a collateral contract
between one of the parties and a third person relating to the same subject
matter.

 Under the rules of land law, restrictive covenants run with the land to which they
relate i.e. that a future owner will be subject to restrictions made in previous
contracts.

 Insurance law allows a third party to take the benefit of a contract of insurance.
For example where the policy is for life insurance which will pay out to a third
party in the event of the policy holder’s death

Trust law allows a beneficiary to enforce a trust.

 Agency law allows an agent to make a contract between his principal and a
third party, even though the third party may be unaware that he is acting as an
agent. Agency is covered later in chapter 5.

 An executor can enforce contracts made by the deceased for whom he is
acting.

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