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, which is really to say no party to the contract at all.
Privity is another component of every contractual relationship because it determines who may legally assert the rights under the contract (or be legally bound by its obligations). Before we consider how those rights may be asserted, there are three important matters to consider regarding privity.
2.1 Capacity
We touched briefly on the subject of capacity in Chapter 1, where we considered why a court might find that a contract was void ab initio, even where offer, acceptance, and consideration are present. What follows is a more detailed review of capacity, based on what we now understand about privity.
2.1a Individuals
Most everyone can be a party to a contract, which is to say, most everyone can legally bind themselves to contractual terms. The “freedom to contract” is a cornerstone of most democracies and market economies. Where that freedom is restricted by law (e.g., in the case of guaranteeing a minimum wage), it is usually done in the form of restricting contractual terms and not the persons who can enter into contracts.
That being said, there are two notable classes of persons whom the law says cannot be legally bound by a contract, even if they have entered into it knowingly. These are minors and those who lack the mental capacity to contract. It is important for you to recognize the legal risks of doing business (from the point of view of contracting) with persons who belong to these classes.
Minors
A minor, generally speaking, is anyone younger than the age of 18 years old. (Note: the age of majority can vary by jurisdiction.) Most jurisdictions have laws that a contract entered into with a minor will not be enforceable because, in the eyes of the law, such persons generally lack the maturity and knowledge to protect themselves from unscrupulous commercial behaviour. The one exception to that rule is where a minor enters into a contract for necessaries. In some cases, the law will enforce a contract for necessaries against a minor (or his or her parents or guardians).
For example, if you sell a video game to a minor and, after having discussed it with his parents, they determine that he cannot really afford that purchase, the minor will be able to return the game and receive his money back from you. There is no meaningful sense in which a video game can be considered a necessary so it is likely that no court would enforce the contract (to purchase the video game) against the minor.
Needless to say, there are standards of reasonableness that a court will consider. For example, the minor wouldn’t be allowed by a court to come back to you six months later and demand his money back. Too much time will have passed.
Suppose, however, that the minor had purchased food or clothing instead of a video game. These, it could reasonably be argued, are necessaries. We require food and clothing to survive. Then again, are a bottle of soda and a baseball cap necessaries? They may simply be momentary indulgences, despite the fact that they are otherwise food and clothing. A court could overturn a contract
