The Hobbit Contract

Ordinarily we don’t discuss legal issues relating to fictional settings that are dramatically different from the real world in terms of their legal system.  Thus, Star Wars, Star Trek, Tolkien’s Middle Earth, etc are usually off-limits because we can’t meaningfully apply real world law to them.  But the contract featured in  The Hobbit: An Unexpected Journey (which comes out this next weekend!) was just too good a topic to pass up, especially since you can buy a high quality replica of it, which is what I’m using for these posts.  The contract is over 5 feet long unfolded and is fairly dense with text, so there will probably be multiple posts about it.

There are a couple of reasons why I’ve decided to break our rule and write about the contract.  First, it seems fairly clear (to me, anyway) that Tolkien wrote the Shire (where hobbits live) as a close analog to pastoral England, with its similar  legal and political structures.  For example, the Shire has a mayor and sheriffs, and there is a system of inheritance similar to the common law.  The common law fundamentals of contract law have not changed significantly since the time that the Shire is meant to evoke, so it makes sense that the contract would be broadly similar to a modern contract (and likewise that we could apply modern contract law to it).  Second, reading the contract it seems likely that a lawyer (or at least someone who had read a lot of contracts or did some research) had a hand in writing it.  We will not have to struggle to find legal issues to discuss here; they pretty well leap off the page.

So, without further ado it, let’s get to it.

I. The Contract in General

As mentioned, the contract is quite long.  This is in contrast with the contract as described in the book, which is very terse.  Its terms amounted to this:

For your hospitality our sincerest thanks, and for your offer of professional assistance our grateful acceptance. Terms: cash on delivery, up to and not exceeding one fourteenth of total profits (if any); all travelling expenses guaranteed in any event; funeral expenses to be defrayed by us or our representatives, if occasion arises and the matter is not otherwise arranged for.

Even in the book’s version we see an issue: the dwarves accept Bilbo’s “offer” but then proceed to give terms.  This is not actually an acceptance but rather a counter-offer, since they’re adding terms.  In the end it doesn’t matter because Bilbo effectively accepts the counter-offer by showing up and rendering his services as a burglar, but the basic point is that the words of a contract do not always have the legal effect that they claim to have.  Sometimes you have to look past the form to the substance.

But back to the movie version.  It has at least 40 major sections and numerous footnotes and digressions in smaller type.  We will begin at the beginning, go on till we reach the end, and then stop, except where the form of the contract requires some jumping around.

II. Entire Agreement Clauses and the Parol Evidence Rule

The contract (titled “Conditions of Engagement”) begins thus:

Agreed hereto, freely and under neither duress nor force nor coercion nor extortion nor threat to life and/or limb and superceding any prior contract, agreement or undertaking, survivable clauses notwithstanding, signed and witnessed below, as set forth hereunder:

This section has two major parts.  First, there is a recital that the contract is entered into voluntarily.  Mutual assent is required for any contract, and although duress would make a contract voidable, the recital isn’t terribly meaningful.  After all, one can just as easily be forced to sign a contract that has such a recital as one that doesn’t, so it doesn’t really prove anything.  However, it’s the sort of “can’t hurt”, boilerplate legalese that sets the style for the rest of the contract.

Next, there is a kind of “entire agreement clause” or integration clause.  This is a very common and important part of many contracts.  The purpose of an integration clause is to make it clear that the contract constitutes the entire agreement between the parties (hence the term).  That is, that all other prior versions of the contract, oral or written negotiations, etc are immaterial.  What matters is only what’s on this particular written contract.  Why is this important?  Because otherwise one party or the other might try to import terms or definitions into the contract from earlier versions or from prior negotiations or discussions.

For example, suppose the contract defines the term “profits” in a certain way, and further suppose that Bilbo and the Dwarves discussed profits at the party before signing the contract.  If there is a disagreement about the meaning of the term, can Bilbo or the Dwarves bring up the prior discussion?  Not if there is a valid integration clause.  This is what’s known as the parol evidence rule.

The integration clause at the beginning of the contract is backed up by another one later on in the contract:

This agreement constitutes the entire agreement between the parties, and replaces and supercedes all prior understandings and agreements, whether written or oral, with respect to the subject matter described and set forth herein.

Now that clause could have been lifted directly from a modern contract (and probably was).

III. Additions and Changes

Next we see a few different places in the contract that refer to changes to or amendments to the contract:

(And as appended to from time to time at the sole discretion of the Director, with the new material being read as if originally included herein)

…

Conditions subsequently appended or added to this Contract are automatically assumed to be agreed upon, as if they were present, read and understood at the signing and witnessing thereof.

…

Burglar may not modify or charge this Contract in any way except by a writing signed and agreed to by both parties hereto.

As you might guess, the first two clauses are highly suspect.  The parties to a contract can always agree to modify a contract or substitute a new contract, but there is still the requirement of mutual assent, and one can’t assent to something that one hasn’t seen.  The third clause is much closer to what one sees in modern contracts, particularly the requirement of a signed writing for any modifications (as opposed to allowing modification by oral agreement).

Since the contract has a couple of blatantly unenforceable terms, does that make the whole thing unenforceable?  Ordinarily it might, but not in this case, thanks to…

IV. The Severability Clause

The contract contains a couple of severability clauses, which allow unenforceable parts of the contract to be severed from the contract without affecting the rest:

If any provision of this Contract is held unenforceable, then such provision shall be modified to reflect the parties’ intention. All remaining provisions of this Contract shall remain in full force and effect.

…

If any part of this Contract is found to be invalid, the remainder of the contract will continue in full force and effect as if the defective and invalid provision or clause or condition had been deleted, provided that the parties to this contract are entitled to negotiate a valid and enforceable provision in replacement of the invalid provision.

Severability clauses (also sometimes called savings clauses) are a common part of modern contracts.  They’re also sometimes included in new laws, so that if part of the law is struck down then the rest of it remains in force.

V. Conclusion

So far the contract is reasonably well written, although it contains a few suspect terms.  We’ve only just scratched the surface, so look forward to more coverage of the contract in the coming weeks!