Vail Daily column: What is ‘privity’ and why does it matter?

No, not a privy, “privity”! Trust me, it’s different.

So what, then, is a “privity”? Well, first off, privity is not a thing. Instead, it is a concept. For now, think magnets. I’ll come back to that in just a sec.

The word “privy” derives from the French word “prive” and from the Latin “privus,” both of which may be defined in English as the word “private.” Accordingly, one who is in their “privies” is in their “privates.” Oh my!

Webster’s defines “privy” as meaning “private” or, alternatively, “hidden, secret, surreptitious or furtive.” The word can also refer to a toilet, especially of the outhouse variety.

What, you’re wondering, do one’s “privates” and toilets of the outhouse kind have to do with the law? Well, lots, as it turns out. Really. Hang in here with me for just a second.

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You see, the Latin “privus” and the French “privete” yield a second, related word, the word “privity.” In plain English, “privity” may be defined as “a private or secret knowledge, as shared between persons.” In law, however, the word has morphed to mean “a mutual or successive relationship to the same rights of property.” Okay, your eyes are glazing over; let me try my best to un-muddle things a little.

The concept of privity pertains to the relationship between one party to another. If the persons are “in privity,” they share a common interest in something.

Most commonly, the concept of privity is applied in the law of contracts. “Privity of contract” is that connection or relationship which exists between two or more contracting parties. In other words, if I enter into a contract with you (let’s say, just for the sake of example, for the sale of my fabulously expensive Ripley’s Believe-It-Or-Not oddities), you and I are in privity of contract over those same Ripley’s oddities. That is, we have a contractual relationship regarding our rights or interests in the same (in this case, weird) “thing.”

In a more common setting, say the owner of a parcel of realty determines to have a residence built upon it. He enters into agreement with a general contractor to construct the envisioned home. The owner and the general contractor, in entering into agreement for construction of the home, have entered into a privity relationship with one another. They both have an interest in the same thing, the “thing” in this instance, the home. They are connected in their interest in the thing, like magnets drawn to one another.

Naturally, the general contractor enters into various subcontracts with various trades. Excavators, framers, drywallers, painters, trim carpenters, electricians, plumbers and the like. And with each, the general contractor enters into a contractual relationship. With the electrician, for example, the general contractor enters into agreement to perform certain work of electrical improvement to the property. And in so doing, the general contractor and the electrician (and, similarly, the other subcontractors) establish a privity relationship with one another. The general contractor and the electrician now have an interest in the same “thing,” in this instance the electrical improvements to the property. And that relationship has been established by entering into a contract with one another.

At the same time, the owner has likely entered into a contract with an architect (and perhaps other consultants) for certain services. In so doing, the owner has established a separate relationship with the architect and has thereby established another privity relationship.

Clearly in a construction project (and many other endeavors) privity relationships are flying all over the place, establishing a tangled web of relationships.

It was traditionally essential to the maintenance of an action (or lawsuit) based upon a contract that there should subsist such privity between the plaintiff and defendant in respect to the matter sued upon. In other words, without strict privity (that is a direct tie or line in the web of contractual relationships) one simply could not sue another. However, while this still holds to some degree, the absence of privity as a defense in actions for damages in contract and tort (a “tort” is an “injury” or harm to person, thing or interest), is often no longer viable owing to the enactment of various warranty statutes, acceptance by states of the doctrine of strict liability, and various court decisions, each of which have extended the right to sue for injuries or damages to third party beneficiaries and even, at times, to innocent bystanders.

A quick example of a third party beneficiary is as follows. Let’s say company A makes an engine for an airplane manufacturer, B. A and B have a privity relationship. Let’s say that a passenger, C, is injured when the engine manufactured by A for B unexplainably explodes. As Mr. C is not in a privity relationship with the engine manufacturer, A, traditionally, C could not sue A. But, alas, A benefits (through B) by B’s commerce with C. Simply, if C and others like C didn’t fly, B wouldn’t build planes and would, accordingly, have no need for A’s engines. In consideration of this string of relationships, C, if injured, will likely be able to sue A applying a third party beneficiary theory. That is C through B to A.

In our owner-general contractor-subcontractor example, the electrician likely does not have a privity relationship with the owner. But the lack of privity does not necessarily leave the sub out in the cold (maybe, I should have used a heating subcontractor in the example). If the electrician fails to be paid and pursues an action against the contractor for breach of contract (since that is with whom the electrician has a privity relationship), he can also likely “get at” the owner under an alternative theory since, lacking a direct contractual relationship with the owner (and therefore lacking privity with him), the electrician can likely not assert a breach of contract claim. The electrician’s claim against the owner will likely be one for “unjust enrichment,” stating generally that the electrician’s efforts on behalf of the owner enriched the owner and, as the electrician has not been paid, did so without just compensation.

Privity defines the legal relationships between parties and, accordingly, defines the parameters of the legal rights between them. While privity still matters, modern law has expanded the obligations between parties and, at least in part, eliminated the strictures that limited the redress of certain claims.

Notwithstanding this evolution in the law, having the “special relationship” of privity still matters. The straightest line to redressing a wrong still travels down the line of privity from point (or party) A to B. Much like the pull of magnets.

Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley. His practice areas include business and commercial transactions, real estate and development, homeowners’ associations, family law and divorce and civil litigation. He may be heard on Wednesdays at 7 p.m. on KZYR radio (97.7 FM) and seen on ECOTV 18 as host of “Community Focus.” Robbins may be reached at 970-926-4461 or at his email address, robbins@colorado.net.