We said in Chapter 1 that a contract is a legally binding agreement, but what does a contract do? Just as there are three components of a contract — namely offer, acceptance, and consideration — it can be said that there are three components of a contractual relationship:

      • Performance: Doing what the contract says to do.

      • Privity: The legal principle that only those who agree to bind themselves to perform a contract are, in fact, bound to perform it.

      • Breach: The failure to perform a contractual obligation to which you are bound.

      Together, these three components determine what a contract does. A contract establishes the respective rights and obligations of the persons contracting, allocates risk among them, and provides a legal basis for compensation.

      1. Performance

      Every contract involves a commitment to do something: buy a car, sell a house, repair a computer, exchange currency, trade a hockey player, pay a mortgage, etc. Whatever the case, there is at least one action (and usually more) at the heart of every contract. Consequently, contractual relationships are based, in part, on the performance of that action, meaning doing what the contract says to do.

      For example, in exchange for $100, you agree to tutor a student in mathematics for one hour every Saturday for the next four weeks. Those are what are called the terms of your contract. A term is any provision of a contract that creates both a legal obligation and a corresponding right. (For a further discussion of contractual terms, see Chapter 6.) It is the terms of a contract that “set out” or tell the persons contracting what they must do.

      The terms of your contract with the student obligate you to: (i) tutor that student in mathematics, (ii) for one hour, and (iii) every Saturday over the next four weeks. The student is, per the terms of the contract, obligated to pay you $100 for your services.

      At the same time, the terms grant you a corresponding right to receive $100 in payment from the student for your services. The student has the right to be (i) tutored in mathematics, (ii) for one hour, and (iii) every Saturday for the next four weeks.

      Every contract sets up this mirror image of rights and obligations and, as you can see, when we speak generally of performing a contract, we are not favouring either of the persons involved in the contract. Each has its respective obligations to perform or “discharge” and each has its corresponding rights to claim or “assert.” Together, those rights and obligations add up to everything that is required to be done under the terms of the contract.

      Performing a contract, therefore, means doing what the contract terms obligate you to do with the understanding that each obligation mirrors a right of the other person with whom you have contracted, and vice versa. In this way, every contract establishes the respective rights and obligations of the persons contracting.

      As you will appreciate, writing the terms of a contract down will better ensure certainty about what your rights and obligations are. That is why learning to write your own contracts is so important.

      2. Privity

      The obligation to do something, which you will find in every contract, is an obligation of someone to someone else. Who are those “someones”? The legal doctrine of privity — or just privity, as it is commonly referred — answers this question.

      In contract law, privity says simply that only those who agree to bind themselves to the terms of a contract — each of whom is called a party to the contract — are bound to those terms. Put another way, privity says that if you are not a party to a contract (i.e., you don’t agree to be bound by it), you are neither able to enforce the rights which it confers, nor are you required to discharge the obligations it imposes. Put yet another way, only those who are a party to a contract (i.e., those who agree to be bound by it) can be called on by the law to perform it.

      You can see why privity is a part of every contractual relationship: It determines the persons who must perform the contract.

      For instance, in exchange for a fee, you agree to chauffeur a movie star to a media event being held at a fancy restaurant as part of a local film festival. The person who hires you is the movie star’s manager. She calls you up and you agree on the arrangements. The plan is for you to pick up the movie star at his hotel at a predetermined time and drop him off at the restaurant. Once there, he will sign autographs and answer questions from the press about his latest movie.

      Now suppose that the day of the event arrives and you decide that you no longer wish to chauffeur the movie star to the event, as required by your contract? Perhaps a more lucrative business opportunity has arisen such as a local rap artist who also wants to hire you to drive her around for the entire evening and is willing to pay a much bigger fee. So you simply ignore your obligation to pick up and deliver the movie star to the restaurant. Instead, you choose to provide your chauffeur services to the rap artist. (Incidentally, your actions would amount to a breach of contract, which we will discuss in section 3.)

      More than likely, your decision will upset a number of people. For one thing, the movie star will be angered by the sudden change in plans. So, in addition, the members of the media waiting at the restaurant will be disappointed that they won’t be able to ask the movie star their questions. As well, the owners of the restaurant will be disappointed by the loss of publicity (not to mention losing a large dinner bill for the customer and his entourage).

      Can any of these persons (i.e., the movie star, members of the media, or the restaurant owners) legally assert against you, as the chauffeur, your contractual obligation to pick up and deliver the movie star to the restaurant? Privity says, “no.”

      The only person who can call on the law to enforce contractual rights (and your corresponding contractual obligations) is the movie star’s manager, because she alone is a party to the contract with you. How the movie star’s manager can enforce those rights, is discussed in section 3. For now, it is important to understand that because your contract is with the manager alone — not with the movie star, members of the media, or the restaurant owner — none of them are in a position to enforce the contract against you because none of them can stand before a court and claim privity.

      Now, suppose that, instead of deciding that you will not chauffeur the movie star, his manager tells you that the movie star has decided not to go with you. His manager has hired another limousine for that evening; your services are no longer required. Can you legally require the movie star to accept your chauffeur services? Again, privity says, “no.”

      Your contract is with the movie star’s manager and it is, therefore, against her alone that you can seek to enforce the terms of that contract. The movie star is what is known at law as a third party to the contract, meaning there is no privity between you and the movie star. The members of the media and the restaurant owner are also third parties,