The Hobbit Contract, Part 3

Our first two posts about the contract in The Hobbit movie brought us through some boilerplate and into the substance of the contract, namely some of Bilbo’s obligations and the nature of the Adventure.  From a legal standpoint we’ve discussed integration clauses, amendments, severability clauses, consideration, defined terms, contract interpretation, and liability waivers.  And we’ve still only begun!

I. More Waivers

The next section is yet another waiver

Burglar holds harmless and without blame in perpetuity the Company and its successors for any notoriety, incarceration, or proceedings brought against, in regard to or as a result of the adventure or any activities related thereto.

Also includes slander, libel, loss of face or of social standing in country of Burglar’s origin.

Remedies shall similarly not be sought for any unlooked-for misfortune befalling Burglar’s home during his absence.

The smaller text is written in the margin or otherwise in smaller writing.  There’s a lot of that kind of writing in the margins that we’ll be referring to as we go through the contract.  For the most part the size of the print doesn’t matter, but there are some contract terms, such as warranty disclaimers, that must be printed conspicuously, which usually means large print or all caps.  UCC §§ 2-316(2),  1-201(b)(10).  At common law we suspect the rules were even looser.

This set of waivers is not particularly objectionable.  As discussed in the prior post, the actual scope of the waiver may not be as broad as the language suggests.  For example, if the Dwarves intentionally burned down Bag End, this waiver would not prevent Bilbo from suing them for the damage.

It may bear mentioning that the slander waiver only protects the Company.  Bilbo could still sue the actual slanderer, of course.  Traditionally this has been easier to do in England than the United States.  At common law, for example, truth was no defense to criminal libel (also known as seditious libel).  Garrison v. Louisiana, 379 U.S. 64, 67-68 (1964).

II. Payment

Now we come to some terms of the contract actually described in the book:

Cash on delivery, up to and not exceeding one fourteenth of the total profit [if any]. Not including any of the gross paid to other parties in lieu of royalties or help and provisions given or loaned.

All traveling expenses guaranteed in any event. But refer to attached and appended conditions, clauses and riders regarding any Return Journey. ‘Traveling expenses’ shall be understood to mean basic fare as seen fit by the Company. ‘Luxury’ catering or accomodation over and above this standard shall be enjoyed only at Burglar’s considerable [but justifiable] expense.

Funeral expenses to be defrayed by us or our representatives if occasion arises and the matter is not otherwise arranged for. Basic funeral to ‘commoner’ or peasant standard is allowed for only. Lavish ceremonies and jewelled (sic) or gilded coffins not provided. Plain pine box is the normal standard. Transport of any remains, in whole or in part, back to the country of Burglar’s origin is not included.

Most of these clauses are fairly straightforward.  In terms of the plot, the more important clause is the one regarding profits.  Already we see part of the definition: it excludes royalties paid to others and anything given or loaned to Bilbo counts against it.  In the margins we see some more relevant terms:

Burglar acknowledges and agrees that each item of the Company’s valuables, goods, money or merchandise which he recovers from the Lonely Mountain [the 'Recovered Goods'] during the term of his engagement with the Company, shall remain the Property of the Company at all times, and in all respects, without limitation.

Furthermore, the company shall retain any and all Recovered Goods until such a time as a full and final reckoning can be made, from which the Total Profits can then be established.  Then, and only then, will the Burglar’s fourteenth share be calculated and decided.

So Bilbo can’t just pick up some treasure that he likes and decide that it’s part of (or the entirety of) his share.  Instead, as provided by yet another clause, he will be paid in gold or its equivalent, in correct weight or of good quality, respectively.  So Bilbo really can’t lay claim to any particular article of treasure.  Indeed, the Dwarves could conceivably purchase gold from somewhere else and pay him with that.  He’s not entitled to any part of the treasure itself as such.

III. Spoilers and Conclusion

In this section we’ll discuss how these contract terms could affect the plot.  The book has been out for about eighty years, but nonetheless, spoiler alert:

As anyone who has read the book knows, the definition of Bilbo’s “fourteenth share of total profits” goes directly to a major issue in the plot, namely Bilbo’s taking of the Arkenstone.  In the book Bilbo feels comfortable taking it, since he figures it’s worth his fourteenth share, and the contract didn’t say which fourteenth he could take.  This contract eliminates that possibility.  We doubt that the plot will actually be modified to take this into account, but it may be an example of the writer of the contract being a bit too clever.

Apart from that issue the contract continues to be reasonably well-written.  There is one major omission that we’ve noticed.  We’ll see what else we find!

45 Responses to The Hobbit Contract, Part 3

  1. The sections discussed in Part I turn out to be relevant as well, since by the time Bilbo returns he’s been presumed dead, and he actually arrives home in the middle of his own estate sale. Though that’s a little soon, surely? He’d only been gone for, what, a year? And given the suddenness with which he left, his friends and neighbors had no way of knowing that he was going to be exposed to deadly peril on the way.

    • They’re relevant in that it’s a nod to that aspect of the plot, but I don’t know if it’s legally relevant. I’m not sure what basis Bilbo would have for suing the Company over the attempt by the Sackville-Bagginses to take Bag End.

    • Given the sort of settled lives Hobbits typically lead, out-and-out vanishment seems to be pretty rare. I’m not surprised that the Shire doesn’t have a years-long waiting period; if you’ve missed more than a few second breakfasts, you’re probably not coming back.

      • Hobbits vanishing is rare, but not unheard of. According to the family trees, one of Bilbo’s own uncles went off on a journey, and never returned, while another went to sea, returning after some unknown period.

        The book also says it took years of legal action for Bilbo to get his presumed death annulled, and he had to buy back some of his own goods from the auction purchasers , which seems plausible enough.

  2. Regarding your spoiler, it may be worth remembering that prior to Bilbo taking the Arkenstone, Thorin rewards him by telling him that Bilbo will be allowed to *choose* his share and choose it first. Wouldn’t that count as an amendment (albeit a verbal one) to that part of the contract? Would it be enforceable? Then again, during a later conversation with the entire company, Thorin reserves the Arkenstone as his from among the treasure (but I can’t remember if this happens before or after Bilbo takes the stone; my recollection is that it happens after). Assuming it happens after Bilbo has selected the Arkenstone as “his share”, based on the earlier verbal promise by Thorin, how would that play under the law?

    • That’s a good point. I had forgotten that detail. I will have to revisit that part of the book and see whether Thorin reserved the Arkenstone before or after Bilbo found it. Then I can ponder what effect Thorin’s statement might have on the contract, if any.

    • Although the wording was a bit awkward I believe that this version of the contract mentioned ammendments and said that they had to be in writing. This was mentioned in Part I.

      Also, while there certainly are exceptions, the general rule is that an ammendment which provides additional value to one party requires consideration from the other party.

      • Good points, though the first would only apply to the movie. We haven’t seen how it treats the Arkenstone issue yet. The book version of the contract doesn’t mention amendments, so we would have to fall back on the default rules provided by contract law.

      • The dwarves give Bilbo the right to pick his share and pick it first as a reward after some particular service or other (I can’t recall the particulars, but I believe it is the rescue from the cellars of the Elven King). In essence, Bilbo has already provided the consideration by going above and beyond what was required of him under the contract (which certainly did not involve the rescue of the entire party from a foreign dignitary in his domain!) and so he is receiving a reward for “services rendered”; wouldn’t that be allowable? (Disclaimer: mathematician speaking, not lawyer)

  3. I just checked; Thorin reserved it for himself after Bilbo had taken it, which in turn was after Bilbo was promised first choice. Bilbo finds the Arkenstone in early Chapter 13 (“Not at home”) and thinks to himself “Now I am a burglar indeed! But I suppose I must tell the dwarves about it — some time. They did say I could pick and choose my own share; and I think I would choose this, if they took all the rest.” Thorin had already described the Arkenstone, but not claimed it. He claims it at the beginning of Chapter 16 (“A Thief in the Night”). “For the Arkenstone of my father is worth more than a river of gold in itself, and to me it is beyond price. That stone of all the treasure I name unto myself, and I will be avenged on anyone who finds it and withholds it.” To complicate matters further, after Bilbo has taken the Arkenstone and kept it secret, he accepts the coat of mithril as part of his payment (later in Chapter 13), and surely he is required to disclose he has already made a selection before accepting further “shares”? (and given its value, the Arkenstone may also be worth well more than 1/14th of the treasure). In any case, it seems like a lot of interesting analysis to come from this; I look forward to it!

  4. Would the one ring also be considered as part of the total profits to be divided?

    • I’ll have to double check, but I don’t think there’s a clause that would imply that the ring is party of the profits. While “total profits” is not precisely defined, two of the major profit-related clauses speaks specifically of “Recovered Goods,” which are defined as items recovered from the Lonely Mountain, which was the ring was not. Further, the ring was found while Bilbo was separated from the party as a result of a side-trip (down to Goblin Town) not intended by Thorin & Co., so arguably it wasn’t part of the Journey in the first place.

      • The Ring would likely fall under the following clause:
        “Specialist equipment required in the execution of duties in his professional role as Burglar shall be purchased, procured, purloined or obtained by Burglar, by whatsoever method Burglar sees fit.”
        Even though Bilbo did not take the Ring intending for it to be used in the quest, being unaware of its properties at the time, he does go on to do so (e.g. in his movements in Thranduil’s halls and in Erebor itself). Likely his use of it in his role would qualify it as specialist equipment.

    • I would say that the answer to that question resides in whether or not the contract prohibits Bilbo from performing any other work while in service to the Company. If it does, then anything he recovers while engaged would be rightfully the Company’s. I don’t think this would be implied by anything we’ve seen so far. However, the question of whether Bilbo has joined the Company as a partner or as an employee looms here. If he is a partner, then he has a duty NOT to take on other work that harms the interests of the Company, and a duty to share business opportunities with the Company.

      • Maybe, but how was he harming the interests of the Company? At the time he found the ring he was trying to rejoin them to carry out his contracted duties. And the ring proved to be of material assistance to the quest.

      • OK, let me explain better. Harming the interests of the party isn’t the branch on which the problem lies.

        What are the purposes of the Company? It seems to have two objectives: 1) recovery of as much of the dwarves’ treasure as is possible, and 2) real estate acquisition. That first one may be generalized to “recover treasure”.

        Now, Bilbo may be seen as acting for the partnership while in Smeagol’s lair, or acting on his own. If he’s acting for the partnership, then the ring is properly the property of the Company, with Bilbo owed a fourteenth share of its value (which, admittedly, wasn’t known at the time and wouldn’t be known for quite some time.) If he’s acting for himself, however, it seems that his individual efforts at burgling represent an opportunity that the whole Company might have wanted the Company to take… meaning that Bilbo has violated his duty to the partnership, and the Company is entitled to damages in the amount of 13/14 of the value of the ring (which Bilbo would have been unable to pay in specie). Either way, it seems that if Thorin’s Company is a partnership, they have a claim on the value of the ring. But wait… one of the evidentiary factors of a breach of duty is how the offending partner handled the opportunity with regard to the other partners… deceit or omission are signs of breach.

      • What are the purposes of the Company? It seems to have two objectives: 1) recovery of as much of the dwarves’ treasure as is possible, and 2) real estate acquisition. That first one may be generalized to “recover treasure”.

        How is that true? That is, if the stated purpose of the company is to recover a specific hoard of treasure, how can you generalize from that to “recover any and all treasure, even treasure not from that hoard” and have that generalization be meaningful?

      • Because you have to consider not just the business that the Company is presently in, but business opportunities that the Company may enter into. That’s covered in BA I.

        Secondly, there’s the little matter of the fact that, before Bilbo recovers the ring, the Company does in fact acquire some treasure that is not part of the Erebor treasury. Bilbo takes Sting as his share.

        Bilbo might have an argument that the partnership was dissolved before he recovered the ring, and re-formed afterwards.

      • Are you thinking of the troll treasure? They don’t seem to treat that as treasure to be divvied up (in book or movie), more like ‘hey, we found this pile o’ stuff. Bilbo, you might find this (to us) dagger to be useful’.

      • Yes, the hoard in the trolls’ cave.

        Think of it this way. Say you have a modern-day treasure-recovery company, whose purpose is to recover the treasure of wrecked ship X. They have records that indicate approximately where they should look, so they put together a partnership of divers, a guy who has a ship, a guy who has other equipment, etc, and together they start looking for ship X. While they’re looking, one of the divers encounters wreckage of another wrecked ship, ship Y. Does it make sense to say that that guy should be allowed to keep this find to himself, and not tell the other partners that there’s another treasure? Now, that doesn’t mean that one of the divers couldn’t, say, leave the expedition, fly to a different site where he’s part of another effort to recover a completely different ship, and keep his profits (if any) from that expedition from his partners in the ship X expedition.
        The casebook case involved an opportunity to buy a building that the defendant kept from his other partners in a real-estate holding company, even though the building offered wasn’t one of the buildings the holding company was invested in; the partner still had a duty to offer the opportunity to the partnership before he could take it as an individual.

        Note that we have not seen the entire partnership agreement, and it may be that Bilbo isn’t even a partner, but an employee (although the characteristics of the contract do seem to indicate partnership, there are also signs that it is not. If Bilbo is an employee, his duties to the Company are substantially different with regards to “outside employment” and similar matters.)

      • James, the contract states that Bilbo is an independent contractor: “Burglar is in all respects an independent contractor, and not an employee, partner or joint venturer or subsidiary of the Company and is not entitled to pledge the credit of the Company. …”
        This is strengthened by the clauses which state that Bilbo is to supply and carry his own tools and weaponry and return his pony before going home. Bilbo is also listed separately in the damages clause.

    • I suspect the exact status of the One Ring under the contract is complex enough to warrant a separate post of its own.

      There’s the additional question of the ring’s actual value; given its accurséd nature, it’s perhaps rather smaller than might be otherwise, making it negligible compared to the overall hoard. On the other hand, given how much those who see it come to desire it, it’s probably equivalent to a few wagonloads of gold based on the standard economics definition of “the value of a thing is what it will bring”.

      • Gandalf didn’t recognize it for what it was for over 60 years. Thus, you’d have to assess it for what all involved thought it was… a ring of invisibility. There must be several such rings lying about Middle-Earth, as Gandalf doesn’t bat an eyelash at Bilbo’s.

        It does open up an old question, though. How come we could see Sauron when he had it on?

      • The point of presently assessed value is a fair point.

        The question of why were able to see Sauron has been speculated as involving the Ring’s interaction with the character of the wearer. Hobbits, by nature, are a folk with “little or no magic about them, except the ordinary everyday sort which helps them disappear quietly and quickly when large stupid folk like you and me come blundering along, making a noise like elephants which they can hear a mile off”. If the nature of the One Ring is to amplify the powers of its bearer, in the case of the hobbits that wore it, it primarily amplifies their inconspicuousness. This, however, doesn’t explain Ilsidur’s reported use for concealment; however, there’s no report of him using it so, save in the battle where such concealment failed. There’s also the Nazgul’s apparent use of the Nine similarly.

        An alternative explanation is that the great Rings extend their mortal bearers into the spiritual realm of Wraiths; however, as a fallen Maia, Sauron exists there naturally, and it instead acts the other way, aiding his manifestation in the material world.

        As to other rings — in addition to the Three, Seven, Nine, and One, the Silmarilion suggests there had been other minor rings forged in Eregion, made by the elvish smiths. Because it is undecorated, bearing no jewel, it would not be mistaken for any of the great rings; but it could pass as a lesser piece of elvish make — at least, until the longevity of it’s bearer begins to hint otherwise. Not exactly commonplace, even so; and should Sauron arise and retrieve the One, having the same potential hazard of domination by the One. However, not an utterly remarkable anomaly; finding Glamdring so far from the fall of Gondolin was far more astonishing.

    • In the book, when Bilbo tells the dwarfs about the ring, they basically go “good on you for finding it”, but they have no interest in it themselves. (Haven’t finished the book yet, but that’s the reaction so far.)

      • There’s a possibility that the definition of “treasure” to be divided by the Company as profits doesn’t include things that are, roughly speaking, tools. Thus, the weapons found in the troll cave are divided by utility (Orcrist to Thorin, Glamdring to Gandalf, Sting to Bilbo) rather than by shares. Thus, a ring of invisibility would naturally go to the burglar.

      • Actually, pace James, it cannot be the case that the definition of “treasure” excludes tools. Bilbo is given a coat of mithril armour from the hoard of Erebor, expressly as part of his share; that’s clearly in the same category of tool as Sting, yet it’s treated as “treasure”. We must therefore assume that the swords and ring were treated differently because they were found outside the Mountain, not because they are tools.

        (After all, the purpose of the company to “recover the treasure of Lonely Mountain” could reasonably be seen as belonging to a business with the purpose of “recovering stolen heirlooms” or “avenging murdered ancestors”, rather than of “salvaging treasure” in and of itself. In that case, even as a partner, Bilbo had no obligation to mention the Ring, since he did not at the time suspect it to be an heirloom.)

      • On the other hand, the gold and jewels that Smaug carried with him were never recovered at all, and were left where Smaug fell. At common-law, “treasure-trove” was limited to precious metals. This definition of “treasure” would include mithril silver armor and the ring, but exclude the swords, which are steel.

  5. I’m curious about your use of the phrase “at common law”; I would expect it to be “under common law” unless the “at” is short for “at a court” or some other phrase. A quick googling suggests your phrasing is not unusual, but I can’t find an explanation; could you explain?

    • At the risk of oversimplifying, contracts are often governed by either common law or the Uniform Commercial Code (UCC). As a very general rule, contracts for the sale of goods are govered are covered by the UCC and contracts regarding other matters like services are govered by common law.

      To again risk oversimplifying, the UCC and common law have a lot in common and a lot of questions would have the same answer under either one (though the justification and what you might cite to as references would change). However, they do differ in some ways that can matter significantly in some cases.

      • That’s true in the US, though I’m trying to use common law rules as much as possible, since a) they’re more likely to be similar to the English common law rule that I think Tolkien had in mind (to the extent he had any legal system in mind) and b) as you say, the UCC (or rather Article 2) concerns itself primarily with contracts for the sale of goods, which this is not.

    • Bryan Garner’s Dictionary of Modern Legal Usage says that the phrase “at common law” is a loan translation of the Law French al common ley and is used idiomatically. For example, we don’t say “at civil law” or even “at equity.” Instead we would typically say “in a civil law system” or “in equity” (e.g. “an injunction is a typical remedy in an action in equity whereas damages are typical in an action at law”).

  6. And the portion they make over to Esgaroth as ransom for the Arkenstone “shall count as the promised share of this traitor”.

  7. The book does note that Bilbo mentally notes that he doubts the Arkenstone was covered by what Thorin meant by 1/14th. This has no bearing on legality with this contract since it’s made very clear it’s not legal, period. However it does mean that the book and contract are not necessarily in conflict.

  8. How would the contract handle the division of the found troll horde? Thorin, Gandolf, and Bilbo take the three elvish swords and the rest of the party buries a chest of gold. Would Sting count as part of Bilbo’s share even though it was given to him by Gandolf and not Thorin? Would it count as part of Gandolf’s share which he then loaned or gave to Bilbo?

  9. Based on the below, I think the illegible word is unlooked
    http://thorinoakenshield.net/2012/10/02/the-hobbit-deciphering-dwarf-documents-part-ii/
    “Remedies shall similarly not be sought for any unlooked for misfortune befalling Burglar’s home during his absence.”

  10. One side issue I had was that of misrepresentation by either Bilbo or Gandalf in their characterization of Bilbo as a “burglar.”

    I bring it up because in the book, the characters speak of “burglar” as though it’s a well defined profession, such that calling yourself (or another) a burglar implies you have a certain body of knowledge/skill/experience, which Bilbo doesn’t have. If so, would the Dwarves have recourse against Bilbo or Gandalf? Does the analysis change based on Bilbo’s performance later in the book?

    • I don’t think there’s any misrepresentation. Bilbo himself declines the appelation of “burglar” and when Gandalf uses it, he indicates that Bilbo has talents and skills of which even Bilbo is unaware, and this claim is true. Combine this with hobbits’ general ability at stealth, and I don’t think a misrepresentation is at work. Note that neither Bilbo nor Gandalf apply an adjective such as “skilled”, “effective”, or “experienced” to “burglar” with reference to Bilbo. Gandalf DOES claim that Bilbo is the best burglar available, which may be seen as “puffery” or may be accurate, in light of later events.

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