Enforcing Warehouse Possessory Liens against Floating Charges
Possessory warehouse liens defeat crystallized floating charges when continuous physical custody predates formal default notice under valid trade association terms.
Privity of Contract
Meaning
Fundamental principle of commercial law stating that a contract cannot confer rights or impose obligations on any person who is not a party to it. This privity of contract ensures that only the signatories to an agreement can sue or be sued for its breach. It limits the scope of liability to the known participants in a transaction.
Absence Boundary
Exclusion of a direct agreement between a project owner and a sub tier supplier prevents the supplier from claiming payment from the owner. Maintaining privity of contract requires that disputes be handled through the immediate chain of command. If a component fails, the buyer pursues the seller rather than the original manufacturer.
Legislation Exception
Recognition of third party rights in some jurisdictions allows a contract to name a beneficiary who can enforce its terms. Even with these exceptions, the core idea of privity of contract remains the starting point for determining standing in a court of law. Lenders often use collateral assignments to create a legal link that would otherwise not exist.
This allows the bank to step into the shoes of the borrower if a default occurs.
Limitation Clause
Protection offered by indemnity terms only covers the parties who have signed the specific document. Because of the rules around privity of contract, a company must ensure that its protections are mirrored in all downstream and upstream agreements. This creates a series of connected contracts rather than one large multi party arrangement.
The structure prevents a stranger to the deal from interfering with the agreed upon performance or claiming a share of the benefits.