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Privity is established when there is a substantive legal relationship between two or more parties. Typically, this relationship involves a mutual interest, such as the same loss, the same measure of damages, or the same or nearly identical issues of fact and law. 

In civil procedure, a prior judgment will bind nonparties in privity because nonparties’ interests are viewed as adequately presented in the original action. However, as the privity between the party and nonparty becomes less close and more adversarial, the nonparty in privity may have more opportunities to bring suit.

In property law, privity may be established by consensual substantive legal relationships between two or more parties. For example, landlord-tenant relationships, grantor-grantee relationships, and receiving land from a common grantor all establish privity because each relationship shares a substantive mutual interest. 

When two or more parties in a contract are in privity, all parties are bound by the contract and are obligated to each other in some way. For instance, one party may receive remedies for breach of contract or force fulfillment of the contract as a result of privity of contract.

[Last updated in September of 2021 by the Wex Definitions Team]