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.