👁️Sauron v. Frodo: a Law Student's Analysis

[LawOfTheRings]

The following law school prompt was made by and for law students in preparation for their Contracts final.

Sauron v. Frodo
Frodo possessed a plain gold ring. One day, Gandalf told him to throw it into the fire. Retrieving it from the fire, Frodo noticed fiery markings appearing on the surface of the ring. They said:

TERMS OF USE​

The Dark Lord Sauron expressly conditions his consent to let you wear the One Ring to Rule Them All (“One Ring”) on your assent to the following terms and conditions. By wearing the One Ring, and in valuable consideration of its powers, you agree:

1. That the One Ring may be used without notice, at any time, in any place, by any means, and by anyone,
   1. To rule you;
   2. To find you;
   3. To bring you and in the darkness bind you.
2. You do not own the One Ring but rent it on an at-will basis. Your rent for the One Ring is payable only in service to the Dark Lord. You agree that the Dark Lord Sauron or his agents may freely reclaim the One Ring at any time, in any way, in any place, and by any means.
3. To submit your will in total, not resist in any way, nor obstruct in any way any efforts by the Dark Lord or his agents to accomplish the goals of sections (1) and (2).
4. To acknowledge that the One Ring is not an item for personal, household, or family use but is a weapon of spiritual warfare and domination.
5. To release the Dark Lord Sauron and all his agents from all claims and liability, including, but not limited to, any and all claims related to negligence, recklessness, intentional harm, stalking, stabbing, burning, arson, torturing, trespass on land and property, false imprisonment, kidnapping, warmongering, anything related to or resulting from war, invisibility, and anything related to or resulting from invisibility.
6. To never willfully, knowingly, recklessly, or negligently destroy the One Ring or attempt to destroy the One Ring nor give it to anyone who you have reason to believe would willfully, knowingly, recklessly, or negligently destroy the One Ring or attempt to destroy the One Ring.
   1. This provision includes, but is not limited to, dropping or attempting to drop the One Ring into the fires of Mount Doom.
7. That any violation, in whole or in part, on your part of this agreement will warrant
   1. An immediate forfeiture of your willpower and soul to the Dark Lord Sauron and his agents;
   2. Service to the Dark Lord Sauron and his agents in perpetuity as an at-will Ringwraith; and
   3. Wearing black robes at all times.

Frodo then flipped the ring over and saw another glowing section written on the inside surface:

ARBITRATION AGREEMENT​

You agree you must settle any and all claims or suits between you and the Dark Lord Sauron or his agents by binding and mandatory arbitration in the land of Mordor, applying commercial Mordor law, and adjudicated by a Ringwraith. All costs of arbitration will be paid by the One Ring wearer, not Sauron.

Frodo put a letter in the mail addressed to the Dark Lord Sauron stating “Frodo agrees to wear the One Ring provided that he has free, unimpeded, and full ownership and all disputes are settled in Rivendell Court under commercial Rivendell law.” Sauron never replied. Frodo then wore the One Ring. He was then caught attempting to destroy the One Ring, resisting the One Ring, and resisting efforts by Sauron’s agents to reclaim the One Ring. Frodo has preemptively raised defenses in Rivendell Court, against which Sauron moves to compel arbitration in Mordor, or else moves for summary judgment for breach of contract, and asks for specific performance under section (6), or else return of the One Ring under section (2).

The State of Mordor and the State of the Shire are signatories to the CISG and apply the UCC to supplement the common law.

What is the applicable law? What are the terms of the contract? What is the appropriate remedy, if any?

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Answer
Applicable Law
First, we must examine what law governs the terms of the contract because each party battled over differing terms by “expressly conditioning” their assent to Frodo wearing the Ring.
Does the CISG apply to resolve the differing terms? The CISG applies to signatory countries and to the sale of goods. The CISG defines goods as moveable tangibles that are not bought for personal, family, or household use. Goods also do not include those transactions for which the preponderance of the obligations on the seller’s part consists of labor or services. The Shire and Mordor are CISG signatories. The One Ring is tangible and moveable because it is a wearable gold ring. The preponderance of the obligations on the seller’s part, here Sauron, is not services nor labor but the consent to wear the Ring.

Finally, Frodo and Sauron will likely argue over whether Frodo possesses the Ring for personal, family, or household use (and Sauron knew or should have known that fact at the time of the agreement). If the answer is yes, the CISG does not apply and the terms of the agreement are determined by the UCC. The UCC would eliminate all terms on paper and the contract terms are those that arise out of the parties’ conduct. But if the answer is no, the CISG applies and dictates that Frodo’s letter to Sauron is an unaccepted counteroffer, for which the contract terms of subsequent performance are governed by Sauron’s original terms.

Here, Frodo will argue that he received the Ring for personal use from Bilbo, who used it for himself as a self-made burglar. Frodo will argue that rings are, by nature, for personal use as an accessory on the hand. Frodo will finally argue that Sauron should have known this when he made a ring, and therefore the Ring is for personal use which Sauron should have known about. However, Sauron will argue that, given the explicit terms of section (4), he understood, and made the receiving party aware, that the Ring is not an item for personal use like a mere accessory but is a weapon of spiritual warfare and domination. On balance, Sauron’s argument is stronger because the Ring is no ordinary gold ring; although it bears a physical resemblance, its making and power betrays that its nature is more than for mere personal use. Even if Frodo did not understand this, it is enough that Sauron did not know Frodo would use it as a personal accessory nor should have known because Sauron was aware and made explicit the Ring’s different nature. Therefore the CISG applies to govern the differing terms of consent between Frodo and Sauron.

Terms of the Contract
The CISG states that a reply purporting to accept an offer but containing additions or limitations is a rejection and counteroffer. If the new terms do not materially alter the original offer’s terms, then they are deemed incorporated regardless of acceptance. Material terms deal with price, payment, liability, and arbitration. Finally, if (1) the differing terms are material, and (2) the original offeror does not accept the counteroffer, but (3) the parties still perform as if there is a deal, then the contract is governed by the original terms of the offer.

Here, Frodo replied to Sauron with a purported acceptance because he said “Frodo agrees to wear the One Ring.” But Frodo included additions and limitations such as being the full owner of the Ring and changing the terms of arbitration. Frodo therefore rejected Sauron’s terms and issued a counteroffer. These differing terms were material because they dealt with payment (which Frodo disavowed and asserted full ownership) and arbitration. Sauron never accepted these material terms. Nevertheless, Frodo began acting as if he had a deal because he began to wear the One Ring. Therefore the contract is governed by Sauron’s original terms of use because Sauron did not accept Frodo’s counteroffer and Frodo went through with the deal anyway.

Enforceability of the Terms
Frodo can raise two public policy defenses relating to Torts and Unconscionability. First, Frodo can object on public policy to the enforceability of section (5) which waives liability for intentional tort claims. In examining public policy defenses, we ask three questions:

1. Is there an authoritative source recognizing the public policy? Here, there is an authoritative source recognizing the public policy against enforcing intentional tort liability waivers. That source of authority is the body of tort law itself, which punishes those who intentionally inflict harm on others.
2. Does the enforcement of the contract conflict with that public policy? As a subquestion, we ask whether the contract’s restriction is reasonable by examining whether the restraint is greater than, equal to, or less than what is necessary. Here, the enforcement of section (5) conflicts with this public policy because it makes intentional tortfeasor immune to tort law’s punishment and deterrence. Additionally, the restriction is unreasonable because intentional torts are rarely, if ever, justifiably necessary and therefore the contract’s sweeping waiver of liability is grossly and unreasonably in excess of what is necessary.
3. Are there countervailing policies that support enforcing the agreement? Here, there is always the countervailing policy of freedom of contract. Freedom of contract urges that parties should be free to agree to and enforce whatever terms they wish. Sauron will likely raise a freedom of contract argument.

On balance, the policy considerations of enforcing Tort law far outweigh Sauron’s freedom of contract argument because society has a great interest in discouraging intentional harm. Therefore, all terms waiving intentional tort harm in section (5) are void and unenforceable.

Second, Frodo can object to the terms of (1), (2), (3), and (7) as unconscionable. Unconscionability can be proven when there is both procedural unfairness (such as adhesion contracts on a take-it-or-leave-it basis) AND gross substantive unfairness in the terms. Here, there is procedural unfairness because Frodo never had an opportunity to bargain on the terms of the contract. The terms came literally etched in gold on a take-it-or-leave-it basis. Second, there is gross substantial unfairness because the terms of section (1) open Frodo up to broad vulnerability to be ruled, found, and bound. Section (2) is a service-for-rent scheme with suspicious similarity to sharecropping. Even the rental basis of possession gives Frodo little security in his possession of the Ring because Sauron retains broad power to reclaim it “at any time, in any way, in any place, and by any means.” Section (3) purports to strip Frodo of any reasonable resistance or objection to the gross unfairness of sections (1) and (2). Section (7) requires Frodo to surrender his entire will, soul, and service in perpetuity for any violation in any way. This price is substantively and grossly unfair and excessive to any conceivable breach on Frodo’s part. In addition, section (7) is also unenforceable because it is a punitive liquidated damages clause. Liquidated damages clauses specify the damages in case of breach, but courts will never enforce damages of service because it has slavery implications. Finally, section (6)’s restrictions on the destruction of Sauron’s Ring is quite reasonable because most property owners when they rent out their property have reasonable concerns about its destruction.

Regarding the arbitration clause, courts almost always uphold arbitration clauses except when they too are unconscionable. Unconscionable arbitration clauses have terms inconsistent with the principle of mutuality, that are inequitable regarding the costs of arbitration, and that select a prohibitive forum for arbitration. Here, the arbitration clause is inconsistent with the principle of mutuality because Sauron selected an arbiter obviously favorable to himself without Frodo’s input. Second, the arbitration clause inequitably distributes the costs because Frodo is responsible for all of it. Third, the Mordor forum is prohibitive on Frodo because the Shire and his home is about as far as one can get from Mordor without crossing the sea. Thus, the arbitration clause is unconscionable and unenforceable.

In conclusion, sections (1)–(3) and section (7) are unconscionable and unenforceable. What remains of the contract is section (6).

Legal Substitutions of Unenforceable Terms
When essential terms of a contract are unenforceable, as we have in large part here besides section (6), the law supplements predefined reasonable and enforceable terms. Here, the law must substitute terms for the price of Frodo’s rental of the Ring and for Sauron’s discretion with regard to Frodo’s continuing rental.

When there is no remaining agreement on price, the law substitutes a reasonable price at the time of delivery. Here, Frodo is likely to argue that the reasonable price of the Ring is the gold it is made from. Because it is a small gold ring, Frodo will argue the price of his rental is minor and should be equal to its weight in gold. However, Sauron will urge that the Ring is priceless because he poured a portion of his essence into it, as well as his malice, hate, and will to dominate. Sauron will urge that because the Ring is magic, indestructible, and possesses powers beyond mortal valuation, a reasonable price would be everything Frodo has and more, in perpetuity, including his soul and service as a Ringwraith.

A court is likely to strike a middle ground. Rental of the Ring is clearly worth more than its mere weight in gold. A court is likely to reject Sauron’s argument regarding pouring his essence and malice, hate, and will to dominate into the Ring. This is likely sentimental attachment without reasonable bearing on the Ring’s value in of itself. Even though the Ring is magic and beyond mortal valuation, a court also cannot enforce, nor will it easily be persuaded is reasonable, that Frodo should pay with his soul and service in perpetuity. Although a court will likely concede that the Ring is priceless, it will likely strike a middle ground by making Frodo pay with something similarly priceless that is not his soul and service. For instance, Frodo has mithril chainmail, a metal more valuable than gold, virtually indestructible like the One Ring, and is also priceless based on Gandalf’s testimony (it’s worth more than the Shire, after all). Even though the mithril chainmail is not magical like the Ring, Frodo is not paying for ownership of the Ring but for a rental: therefore his payment must be substantially less than an equivalent exchange. The law will therefore substitute the reasonable price of the Ring’s rental at Frodo’s mithril chainmail.

When a party is given discretion under a contract to do or not do something, the law substitutes reasonable terms of good faith and fair dealing. Good faith and fair dealing requires that a party does not use their discretion arbitrarily, irrationally, capriciously, or inconsistently with the reasonable expectations of the parties. Here, Sauron must exercise his discretion under the rental contract with good faith and fair dealing. Although Sauron and Frodo do not see eye-to-eye on much, Sauron must use his discretion within the bounds of the reasonable expectations of the parties. There are two reasonable expectations of the parties: first, that Frodo not destroy or attempt to destroy Sauron’s Ring, and second, that Frodo gets to wear and use the powers of the Ring during his rental.

When there is no enforceable agreement regarding the place and manner of resolving disputes, such as in arbitration, courts will step in. Traditional courts are the default dispute resolution mechanism. Therefore this Rivendell court is a proper forum to hear and resolve the dispute.

In conclusion, the remaining terms of the contract are, in gist, as follows:

1. Frodo will give and grant the title of his mithril chainmail to Sauron as consideration for renting the One Ring, including the right to wear it and use its powers.
2. Frodo agrees to not destroy or attempt to destroy the One Ring.
3. Sauron agrees to exercise his discretion to terminate the rental agreement with good faith and fair dealing given the reasonable expectations of the parties under sections (1) and (2).
4. Any dispute arising out of this contract can be settled in any court of law.

Remedy at Bar
Admittedly, Frodo breached the contract when he violated Sauron’s reasonable restriction on attempting to destroy the Ring. The question then is the permissible remedy. Here, Sauron first asks for enforcing section (7). As stated previously, section (7)’s liquidated damages clause is unenforceable because it is unconscionable and implicates slavery by forcing service on the breaching party.

Second, Sauron asks for the return of the Ring. This is a request for specific performance, as opposed to damages. Courts by default favor monetary damage remedies, but they will enforce specific performance when damages are not adequate to protect the expectation interest of the injured party. Factors that indicate the appropriateness of specific performance include when unique items are involved.

Here, the One Ring is indisputably unique. It is in its very name: there is only one, and it is unlike any other ring. Because the Ring is unique, and because monetary damages would not be appropriate to compensate Sauron’s expectations that Frodo will not try to destroy the Ring, specific performance is appropriate in this case.

Therefore the Rivendell court will likely order specific performance that Frodo return the One Ring to Sauron.