What is privity and why does it matter?
The word “privy” derives from the French word “privé” 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 New Universal Unabridged Dictionary defines “privy” as meaning “private” or, alternatively, as “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, really. Hang in here with me for just a second.You see, the Latin “privus” and the French “priveté” 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 is morphed to mean “a mutual or successive relationship to the same rights of property.” Stated otherwise, privity means a successive relationship to, or mutual interest in, the same thing, established by law or legalized by contract.” 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 usually, 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 self-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 or she enters into agreement with a general contractor to construct the home. The owner and the general contractor, in entering agreement for the 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.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 preform 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 one with the other. 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 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. or Ms. 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. 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 or her), 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.Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley. He is a member of the Colorado State Bar Association Legal Ethics Committee and is a former adjunct professor of law. Robbins lectures for Continuing Legal Education for attorneys in the areas of real estate, business law and legal ethics. He can be heard on Wednesdays at 7 p.m. on KZYR radio (97.7 FM) as host of “Community Focus.” He can be reached at 926-4461 or email@example.com.Vail, Colorado