The exceptions to the privity doctrine.

Generally, a contract operates to confer rights and impose duties only on the parties to the contract and no other parties. The principle that follows from this is that third parties have no rights and, as such, cannot enforce contractual provisions. This contractual relationship is summed up in the term privity of contract. However, in many jurisdictions, there are two exceptions to this general rule: the first is when the original contract provides for rights to be conferred on a third party, and the second is when contractual rights and duties are transferred to a third party at a later date.

When speaking of the first type of situation, lawyers generally refer to third-party beneficiary contracts. The most common form of this type of contract is where party A enters into a valid contract with party B which stipulates that party B shall render performance for the benefit of party C, i.e. the third-party beneficiary. No problems arise if party B performs. But what happens when party B fails to perform? Have rights been vested in party C such that C can enforce the contract, or must party A do so? In many jurisdictions, this problem is addressed through a determination of whether the contract expresses an intent to create a legally enforceable right in the third party. However, must the intent be from both parties to the agreement (A and B) or just the recipient of the promise to be enforced, i.e. the promisee (A) as opposed to the promisor (B)? The courts usually look to the intent of the promisee and ask the question: According to the contract, who was to receive the benefit of the promise. the promisee or a third party directly?

In deciding the promisee's intent, the courts look at the following factors: (1) is the third party identified in the contract?; (2) is performance to be made directly to the third party?; (3) does the third party have any rights (specific or general) under the contract?: and (4) is there any relationship between the promisee and the third party such that it could be inferred that the promisee wished to enter into a contract for the benefit of the third party? Of course, the greater the number of times the court answers 'yes' to the above questions, the more likely it is that the court will rule that the third party is an intended beneficiary, and thus entitled to enforce the contract, as opposed to an incidental beneficiary.

In the second case mentioned above, rights and duties are transferred after the original contract has been signed. If in the original contract the transferring party (A) is owed a right by the nontransferring party (B), then A is known as the obligee and B is the obligor. However, if in the original contract A owes B a duty, then A is known as the obligor and B the obligee, When it is not specified whether rights or duties are being transferred, the term assignor can be used for A, who attempts to transfer his rights and/or duties under the contract to a third party (C, the assignee), If a right is being transferred, C becomes the obligee in place of A, (Although this does not necessarily release A from any obligations to B under the original contract.) If a duty is being transferred, A is known as the delegator, while C is referred to as the delegate. The term assignment of contract can mean several different things. This term is ambiguous, as it does not indicate whether there is both an assignment of rights and a delegation of duties. In everyday usage, it generally means that both are applicable. However, in the interests of precision, the term 'to assign' should really be reserved specifically for the transfer of rights, and the term 'to delegate' should be used in connection with the transfer of duties (and therefore with performance). This distinction is crucial because, while an obligee can rid himself of a right merely by making an effective assignment, an obligor cannot rid himself of a duty by the same means. Generally, in order for the obligor to discharge his duties under the contract through assignment, the obligee must first release him from his obligations under the contract. When this takes place, there is a novation of the original contract. in which the obligor's position is taken on by a new party.

The right to assign is generally governed by an assignment clause in the contract, the enforceability of which depends on many factors, including the particular wording of the clause, the nature of the obligations to be performed and the nature of the contract.