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May 07, 2010

Assessment VIII – Privity of Contract

The concept of privity of contract exists in the French, English and German legal system. But the extent of its application is different. This can be shown by comparing the quantity and nature of the exceptions to the principle of privity of contract. I would like to focus on three legal instruments being listed as exceptions to the principle of privity in England, that exist also in the other 2 countries but are classified differently. We will see why they are not exceptions in the strict sense of the principle that is : a contract can not impose obligations on a third party and a contract can not create a benefit for and be enforced by a third person.

Land law, agency and assignment are mentioned as some of the exceptions to the principle of privity in Common Law. In my opinion these instruments are no exceptions in a narrow sense.

Because the the effect of agency is that he contract is formed between the represented party and its co-contractor, and not between the agent and the co-contractor. For me, this problematic is more about the subject of formation of the contract and the question "who is party to the contract?" than about the effect of a formed contract.

As to assignment, there is usually a substitution of at least one of the parties. The contract itself stays bilateral between two parties, only the parties will be others. Only when ot the whole contract but one of the rights out of the contract is conferred I would eventually say that there is a trilateral situation presenting an exception to the principle of privity. Because two parties, say A and C, can  invoke one contract, the original one, say the one between A and B, in order to obtain performance of B. But still C needs t invoke in combination his or her contract of assignment with A. The original contract does not directly create a right for him or her. 

As to land law, the fact, that the rights third persons have concerning a territory can not be rescinded by a contract of the owner of the territory with his or her co-contractant, appears to be logical from the German and French pont of view. In France and Germany this question belongs to droit de biens or Sachenrecht, that English lawyers do not know. Due to the distinction droit de biens or Sachenrecht makes between usus, fructus and abusus, between pure property (nue-proprieté/Eigentum) and possession (Besitz) and exploitation. Une servitude (637-710 Code civil), administrative (there are for instance Baulasten in German Baurecht) or private, that exists as a right another person or the State has concerning a territory, sticks to the territory when it is, for example, sold. If third persons have the right of usus and fructus, then the Eigentümer can only transfer to a co-contractant the nackte Eigentumsrecht, without Besitzrecht und Ertragsrecht. I don`t see these land law rules as exceptions to the principle of privity. Because, having studied law in Germany and France first, it is dogmatically completely different from contract law (Vertragsrecht, droit des obligations). In German law concerning property and possession there is also the protection of possession (e.g. of the Mieter) by the Grundrechte. Because the Grundgesetz protects the privacy of the Mieter as if he or she were the owner. Also there is also the principle Eigentum verpflichtet playing a role it situations where the owner might be obliged to respect another party having usus, for example a poor citizen living in one of the owner`s houses. In my opinion in land law or in  a wider approach in droit de biens in general, existing rights, founded by contracts or by law, are more faits juridiques. For me they are not cases where a third party benefits from a contract formed between other parties or that an obligation is imposed upon a third. There is rather an existing right or an existing obligation that has to be respected by the contracting parties. So it`s more the application of the principle of privity of contract, because the contracting parties (e.g. owner and buyer of a house) can not by their contract oblige a third party to do something, for instance the tenant to leave his flat. And it is not an exception to  the principle.

Although for English lawyers, without distinction between law of obligations and law of things, land law might to be treated as an exception to the principle of privity of contract.

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