Contracts & Agreements
Privity: Why a Contract Usually Stops at the People Who Made It
Contracts create rights between the parties who made them and, as a rule, nobody else. That boundary explains a lot of otherwise puzzling paperwork.
The options around who can enforce a contract they did not sign are set out side by side below, with the conditions that genuinely favour one over the other.
The difference in one place
- A person who benefits from a contract cannot always enforce it.
- Many systems now allow expressly named third parties to sue.
- Chains of separate contracts are used to work around the boundary.
The basic boundary
A contract is an arrangement between the people who made it, and traditionally only those people could enforce or be sued upon it. The reasoning is that obligations should follow the bargain, and someone who gave nothing should not acquire rights through it. This produces results that feel wrong, such as an intended beneficiary of a promise being unable to complain when it is broken.
The strictness of the boundary has softened in many systems, but the starting point remains that outsiders are outsiders. How far it has softened, and by what mechanism, differs enough between countries that generalisation is genuinely unsafe here.
Where the rule causes trouble
A parent pays a company to provide a service to their child, and the child suffers when the service fails. A builder contracts with a developer, and the eventual owner of the finished property discovers a defect years afterwards.
As a general position, in each case the person harmed is not the person who contracted, and the person who contracted may have suffered no loss. That gap between harm and legal standing is the practical problem the doctrine creates for ordinary commercial life. Legal systems have responded with a patchwork of exceptions rather than a single tidy replacement rule.
Naming a third party in the contract
Many systems now allow a contract to confer enforceable rights on a person identified in it who is not a party. The right usually has to be granted clearly, and contracts commonly include a clause either enabling or expressly disabling it.
In the wording, disabling clauses are widespread because parties dislike the idea that someone outside the negotiation might later bring a claim. Where the right is enabled, it typically carries the same limitations and defences that apply between the original parties. The conditions attached to such rights vary considerably, so a clause drafted for one jurisdiction may behave differently in another.
Guarantees and separate promises
A guarantee is a way of giving somebody a direct contractual relationship rather than relying on the boundary being crossed. The guarantor makes their own promise, which is why guarantees are separate documents with their own formal requirements. Collateral warranties perform a similar function in construction, giving future owners and funders a direct route against contractors.
In the wording, the paperwork looks redundant until you realise it exists solely to create relationships the main contract cannot supply.
Formalities for such documents are strict in many systems, and a defect in execution can leave the promise unenforceable.
Chains of contracts
Supply chains are usually built as a series of separate contracts rather than one arrangement including everybody involved. Each party contracts only with its immediate neighbour, so a claim travels along the chain link by link. That works while every link is solvent and every contract carries similar terms, and it collapses when one link fails.
A buyer whose supplier has gone under may find that the manufacturer several links away owes them nothing contractually. Whether some other route exists in that situation depends on local law and on facts that a general article cannot assess.
When the person who harmed you is a stranger
Contract is not the only source of obligation, and separate legal duties may exist independently of any agreement. Those duties operate on different rules, with different tests, different time limits and different measures of compensation.
For most everyday situations, the relationship between contractual and non-contractual claims is one of the more technical areas of any legal system. It is also one where the outcome varies dramatically between jurisdictions, including on whether both routes may be used together. Anybody in that situation needs a qualified lawyer locally, because the choice of route can decide the case before it starts.
Side by side
| Consideration | What it means in practice |
|---|---|
| The basic boundary | A person who benefits from a contract cannot always enforce it. |
| Where the rule causes trouble | Many systems now allow expressly named third parties to sue. |
| Naming a third party in the contract | Chains of separate contracts are used to work around the boundary. |
The takeaway
Most odd-looking side agreements exist to build a relationship the main contract cannot create. This is general information, not legal advice.
Get it in writing, keep it dated, and file it where you will find it again.
Questions readers ask
My employer bought insurance that names me. Can I claim on it?
Sometimes, because policies are often structured to give named people direct rights. Whether that works depends on the policy wording and the law governing it.
Can I sue a manufacturer I never dealt with?
Contractually the boundary usually stands, though other legal routes may exist depending on the harm and the jurisdiction. This is a question that genuinely needs local advice.
Also by Bela Choksi
- Why a Signature Matters Less Than Most People AssumeContracts & Agreements
- The Entire Agreement Clause and the Promises It Quietly DeletesContracts & Agreements
- Force Majeure Is Not a Word for Bad LuckContracts & Agreements
- Reading a Termination Clause Before You Need ItContracts & Agreements
