Contract Law and Kidnap Insurance in Proof of Life

Introduction to Contract Law Principles

According to Gilbert's Law Dictionary, a contract is "an agreement between two or more parties which creates legally binding obligations. A valid contract must involve competent parties, proper subject matter, consideration, and mutuality of agreement and obligation." The consideration in a contract is the thing of value that each party agrees to give up in exchange for what they receive. Without consideration, a contract is not binding and enforceable.

Consideration is often treated as equivalent to a bargain. A bargain is an exchange of promises, acts, or both, in which each party views what they give up as the price of what they are getting in exchange. This bargained-for price may include not only promises of acts, but also promises to forbear — and actual forbearance — from performing acts one is legally entitled to perform. The concept that equates consideration with bargain is called the bargain theory of consideration (Eisenberg, 2002).

In order for a contract to form, there must be offer and acceptance. An offer is an expression of present willingness to enter into a bargain, made in such a way that a reasonable person in the position of the person to whom the expression is addressed would believe they could conclude a bargain merely by giving assent in the manner required by the expression. In order to be sufficient as an offer, an expression must meet two criteria: there must be intent to enter into a bargain, and there must be definiteness of terms (Eisenberg, 2002).

The Kidnapping Scenario and Contract Formation

In the movie Proof of Life, Peter Bowman and his wife Alice spent several years living in third-world countries. Peter, an engineer, was building a dam in the country of Tecala in South America. He was kidnapped off a busy street by a group of guerrillas in broad daylight. Panic-stricken, Alice immediately turned to Peter's corporation, Quad-Carbon, for help. They sent in Terry Thorne, an ex-soldier turned kidnap-and-ransom negotiator for a global firm, Luthan Risk Corporation, which collects a commission for rescuing hostages.

Terry had only just begun working on the case when he was pulled off it. It turned out that Peter's company had been trying to cut costs and had cancelled the hostage insurance. Quad-Carbon was also in the process of selling some of its assets to Octanol, which was purchasing the pipeline but not the entire company. With no way to pay Terry's high fee, Alice had to figure out what to do on her own. Terry, burned out and disillusioned, wanted a well-deserved break, but could not leave Alice to fight for her husband alone, so he returned and took the case for nothing. Without the corporation's financial resources to rely on, he had to depend on whatever cash Alice and Peter's family could raise. The kidnappers opened with a demand of $5,000,000 for Peter's release. Terry and a representative of the kidnapping party negotiated back and forth until they reached an agreement of $650,000.

In this movie, an offer was made when the kidnappers demanded $5,000,000 for Peter's release. This transaction meets the conditions of a valid offer because there is intent to enter into a bargain and there is definiteness of terms. This offer was not accepted by Terry and Peter's family, however, so a valid contract was not formed at that point. Instead, a counteroffer was made for a different amount. This offer-and-counteroffer process continued until both sides agreed on $650,000 — an amount offered in exchange for Peter's release. There was intent to enter into a bargain, a definite term, and valid acceptance when both parties agreed to the expression, all of which would ordinarily constitute a valid contract.

Duress, Undue Influence, and Contract Voidability

Technically, one might conclude that a valid contract was formed when there was an offer of $650,000 and acceptance in the form of an agreement to release Peter. Under normal circumstances, all of the necessary elements for a valid, enforceable contract would have been present. Under these particular circumstances, however, this contract would not be considered valid and enforceable. There are times when a contract is not truly a contract. A contract that is illegal at the time it is made is not valid and is not enforceable by law. A contract is considered illegal if either the consideration or the object of the contract is illegal. Some contracts are illegal because they are expressly prohibited by statute; others are illegal because they violate public policy. An example of the latter is a contract made under duress or undue influence (Eisenberg, 2002).

Duress is often defined as a threat of harm made to compel a person to do something against his or her will or judgment, or a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition. Duress may also arise in relation to goods, and the concept of economic duress is sometimes used to negate contracts. A contract is voidable on the grounds of duress where consent was induced by wrongful threats (Eisenberg, 2002).

Undue influence is a doctrine that involves one person taking advantage of a position of power over another. The law assumes that in certain classes of special relationships — such as between parent and child, or solicitor and client — there is a heightened risk of one party unduly influencing the other's conduct and motives for contracting. Where no special relationship exists, the general rule is whether a relationship of such trust and confidence existed that it should give rise to a presumption of undue influence. If a party's assent is induced by the other party's undue influence, the contract is voidable by the victim (Eisenberg, 2002).

In the case of this movie, if Peter had been released or had somehow managed to escape, Terry and Peter's family would not have been required to pay the agreed $650,000, because the contract had been made under duress and thus would be voidable by the victim.

Negotiation in Kidnapping and Extortion Cases

A kidnapper's aim is ransom. The victim's aim is survival and release. The organization's and/or the family's aim is the victim's safe return. The process of communication between kidnappers and those seeking the victim's release is called negotiation. Negotiation in these circumstances is an extremely complex, emotional, and strategic process requiring unique skills. Specialized crisis-control experts who understand the impact of all factors involved are likely to use the negotiation process to wrest control from the kidnappers (McDermott-Lucey, 2006).

Extortionists often leverage vital information the same way kidnappers leverage human lives. Though every threat must be evaluated, the more accurate and specific the information provided, the more potentially significant the threat. If an extortionist provides detailed information about a CEO's residence, daily schedule, and the routines of his or her family, any threat to their safety should be evaluated and handled immediately and expertly. When threatened with extortion — especially when it involves personal threats to loved ones or the release of embarrassing or compromising information — there may be an understandable desire on the part of the victim to avoid involving authorities, which is precisely what the extortionist wants. An experienced kidnap advisor and crisis response consultant can provide an organization with the expert insight and guidance needed to thoroughly evaluate and appropriately respond to extortion threats. As with kidnappers, negotiating with extortionists is a highly specialized skill (McDermott-Lucey, 2006).

Conclusion

The movie raised a number of significant points about contracts and their validity in varying circumstances. In order for a valid contract to exist, all the necessary elements must be present: consideration, offer, and acceptance. The contract formed between Terry, Peter's family, and the kidnappers was technically a valid contract in that it contained all of these elements. In the end, however, it would not have been an enforceable contract because it was made under duress, and therefore would have been voidable by the victim.

Had Peter's company not dropped the kidnapping and ransom insurance it had taken out, the validity of the contract between Terry and the kidnappers would never have been at issue. The costs arising from Peter's kidnapping should have been handled by the insurance company rather than by Peter's family. Because Quad-Carbon dropped the insurance without reasonably informing Peter, the company would be liable for any costs incurred as a result.

The final contract issue raised in the movie concerns whether the new company purchasing some of Quad-Carbon's assets would also be liable for the costs surrounding Peter's kidnapping. Because this debt was not an assignable debt that could be transferred to and accepted by a third party, Octanol would bear no responsibility simply by virtue of having purchased some of the old company's assets. They would have had to be offered the assumption of this debt and agreed to it for any liability to attach.

In the end, Quad-Carbon would have been solely responsible for all debts incurred in connection with Peter's kidnapping and release. The company made several mistakes that would ultimately have cost it far more than simply maintaining the kidnapping and ransom insurance policy in effect. For businesses operating in high-risk environments, insurance coverage and clear communication with employees about benefit changes are not merely administrative obligations — they are fundamental components of responsible corporate risk management.

References

Eisenberg, Melvin A. (2002). Contracts. Chicago: Thompson.

Gilbert's Law Dictionary. (1997). Chicago: Harcourt Brace.

Gilroy, Tony, and Hackford, Taylor. (2000). Proof of Life. United States: Castle Rock Entertainment.

Gordon, Alexander. (2009). Kidnapping and ransom insurance for businesses: Absolute necessity. Retrieved October 16, 2009, from Ezine Articles.

McDermott-Lucey, Jean. (2006). Spotlight on kidnap and extortion. Retrieved October 14, 2009, from ACE INA.