ABSTRACT
In an action for breach of contract, the doctrine of privity of contract provides that only the parties to the contract can sue or be sued on it. The difficulty is to determine who is a party to the contract. A strict application of the doctrine ignores the economic problem of externalities, namely that the economic relations of the parties to a contract can adversely affect a third party. This is especially so in cases where a contract between A and B is specifically intended to benefit a third party, C.
