In the first part of our analysis of the contract in The Hobbit movie, we discussed several of its more standard clauses, including the entire agreement clauses and severability clause. Today we’re going to get into the substance of the contract.
I. The Adventure and Consideration
Two clauses describe Bilbo’s primary obligations:
I, the undersigned, [referred to hereinafter as Burglar,] agree to travel to the Lonely Mountain, path to be determined by Thorin Oakenshield, who has a right to alter the course of the journey at his so choosing, without prior notification and/or liability for accident or injury incurred.
The aforementioned journey and subsequent extraction from the Lonely Mountain of any and all goods, valuables and chattels [which activities are described collectively herein as the Adventure] shall proceed in a timely manner and with all due care and consideration as seen fit by said Thorin Oakenshield and companions, numbering thirteen more or less, to wit, the Company.
All contracts require some consideration from all parties to the contract. Consideration, in the contract sense, means a bargained-for performance or promise. Restatement (Second) of Contracts § 71(1). Basically, this is something of value given or promised as part of the agreement. This can be anything that the parties agree is valuable; the classic example is a single peppercorn. Whitney v. Stearns, 16 Me. 394, 397 (1839).
Here, Bilbo is promising to go with the Company to the Lonely Mountain and performing various services there, including extracting the treasure, plus a few more services we’ll get to later. In turn, as we shall see, the Company promises to pay Bilbo one fourteenth of the profits, plus a few other obligations. Thus we have “a promise for a promise,” otherwise known as a bilateral contract.
II. Defined Terms and Illegal Contracts
There are some other details to notice in these clauses. One is the use of defined terms (e.g. “referred to hereinafter as Burglar”). The parties to a contract may define terms however they wish, even in ways that contradict the definition used in statutes or regulations. Restatement (Second) of Contracts § 201(1) and comment c.
The objective of interpretation in the general law of contracts is to carry out the understanding of the parties rather than to impose obligations on them contrary to their understanding: “the courts do not make a contract for the parties.” Ordinarily, therefore, the mutual understanding of the parties prevails even where the contractual term has been defined differently by statute or administrative regulation.
Id. comment c. This is important in this case because of the use of the defined term “Burglar.” As some commenters on the last post noted, contracts to do something illegal are ordinarily unenforceable (e.g. collecting on an illegal gambling debt). But here what matters is not that the parties used the word ‘burglar’ but rather what sort of meaning they assigned to that defined term. As we shall see, the contract doesn’t require Bilbo to do anything illegal (or at least not obviously illegal), and so the contract will probably not fail for use of a questionable term.
III. Contract Interpretation and the Limits of Liability Waivers
These two clauses also pose something of a contradiction. On the one hand we see the first of many liability waivers: “[Thorin has] a right to alter the course of the journey at his so choosing, without prior notification and/or liability for accident or injury incurred.” But on the other hand we see this explicit obligation of care: “[the Adventure] shall proceed in a timely manner and with all due care and consideration.”
Ordinarily “due care and consideration” signifies taking on liability for negligence, so this conflicts with the earlier liability waiver. Perhaps the two can be reconciled by the phrase “as seen fit by said Thorin Oakenshield and companions.” Thorin and Co. could always claim that the amount of care and consideration they saw fit was extremely minimal, though that runs the risk of making the clause meaningless, which courts usually don’t like to do. “As a general proposition, whenever possible, the law favors reconciliation of clauses within a contract which appear contradictory.” City of Columbia v. Paul N. Howard Co., 707 F.2d 338, 340 (8th Cir. 1983). Taken together with the numerous other waivers and disclaimers, I think a court would probably conclude that Thorin & Co. were not taking on any particular duty of care. “A writing is interpreted as a whole.” Restatement (Second) of Contracts § 202(2).
Waivers or disclaimers of liability are an important part of many contracts. These can include waivers of a product warranty (seen all the time in software license agreements) and waivers for liability due to negligence (often required before doing something dangerous like skydiving). But there are limits to liability waivers. While a party to a contract can ordinarily waive liability for negligence (although not in every jurisdiction), one cannot waive liability for gross negligence, recklessness, or intentional misconduct. So the numerous (and sweeping!) waivers and disclaimers may not be as effective as they appear at first glance.
We aren’t quite done with the substance of the contract, but before we get there we have some more boilerplate to cover. There is a lot of standard language in this contract, and this is similar to real-world contracts, particularly form contracts, which tend to have a lot of standardized language surrounding a handful of fill-in-the-blanks. So far the Dwarves haven’t committed any unsalvageable drafting errors or done anything that might jeopardize the validity of the contract. We’ll see if that keeps up!