Contract and Employment Law
The publisher of a newspaper has no special immunity from the application of general laws. He has no special privilege . . .1
Contracts are used in virtually every arena of mass communications practice. Consider the release and waiver defenses in defamation and copyright infringement, for example. A release is a contract. Well drafted, that contract or release can save you from a successful lawsuit. Poorly drafted, the release may not provide any defense at all. Principles of contract law also cover the purchase of all the goods and services used in our profession, including our own professional services. When bartering our skills and effort for payment from our employers or clients, we all are using principles of contract law. In short, virtually everything we do in mass communications is covered by some component of contract law.
Contract law is extensive and complicated; we do not even attempt to cover all of its nuances here. What we do is present some basic concepts to help you understand how and when a contract may be created or enforced. In particular, we discuss the requirements for written contracts, problems associated with contracting with minors, and how to avoid unwittingly entering into a contract. We also provide enough background so readers will understand the concepts behind employment agreements, which are, we believe, the most important application of contracts in most mass communications practices. In the discussion of employment contracts, we include a summary of the concept of agency because it seems particularly important to those working in advertising and public relations. The discussion of employment law also summarizes the limited protection of whistleblowers and employers’ rights to terminate.
Through this brief introduction to the topic, we hope to help you understand when and why contracts are important. We certainly do not aspire to teach you enough that you can draft and evaluate contracts. Our objective is to give you enough information so that you know when you are forming a contract and to know when you should seek the advise of counsel to draft a contract properly or to evaluate a contract obligation.
In the copy of BLACK’S LAW DICTIONARY on our desk, the definition of the word contract begins on page 394 and ends on page 397.2 Obviously, it would take far too long to explain all the intricacies of contracts. For our purposes here, we simply note that a contract is a legally enforceable agreement between two or more people. As you read this chapter you may note that some of the cases cited date back to the 15th century. Some of the very earliest questions presented to courts involved contracts and many of the principles of contract law were formed at times when many parties were illiterate and when business practices and concerns were very different than they are today. The antiquity of some decisions and principles still followed may contribute to the complexity of contract law. Here we concentrate on contemporary issues and law as it exists in the 21st century.
Elements of a Contract
The elements required to create a contract are well established but each require some explanation. They are shown in Exhibit 11.1. Most authors say that a contract is created when two parties have a meeting of the minds and there is consideration. The meeting of the minds means that the parties agree to be bound and the agreement is specific enough to be enforceable. Many jurisdictions use the concepts of offer and acceptance to show this meeting of the minds. So it can be said that a contract is created when an offer and acceptance shows the parties have agreed to be bound, and when there is consideration.
Meeting of the Minds
Usually an agreement or meeting of the minds is formed in negotiations. Those negotiations take the form of one party making an offer or proposing terms of an agreement and the other party either rejecting or accepting those terms. If the offer is rejected, there is no contract. If the offer is accepted and there is also consideration, the parties have a contract.
For an offer to be sufficient, it must be so specific that all the other party need do for both to understand exactly what is expected is to say “I agree.” Therefore, offers may not be conditioned on things beyond the control of the person making the offer. For example, if your friend says, “I will give you $20 to wash my car if my parents send me money this week,” you may not have a meeting of the minds because neither of you really knows whether the parents’ check will arrive. As a practical matter, if you seek to form a contract, keep your offer very specific. For example, “I will pay you $20 immediately after you wash my car today.”
Offers may be express or implied. Express offers are presented either orally or in writing and detail the terms of the offer. Implied offers are communicated by the conduct of the offeror.3 If your sorority or fraternity held a charity car wash, your conduct in putting up signs, actually washing cars, and accepting payment is an implied offer. A person could simply drive his or her car in and say, “I accept.” From the person’s conduct, it would be obvious he or she was saying “I accept your offer to wash my car for the price stated on the sign.” When evaluating implied offers, it is important to note that conduct does sometimes create the impression of a gift rather than an offer. What must be made clear in the implied offer is the idea that the offeror does expect to be paid for the service rendered. In the example given earlier, the sign stating the price and the act of accepting payment gives this impression. However, one does need to be sure that the expectation of payment is known to everyone. If one is providing services to a church, synagogue, or mosque, for example, the organization may expect that those services are donated rather than presented as part of a negotiation for payment. The test for an implied contract is “Would a reasonable person expect the conduct to create an obligation to pay?”4
Many advertising messages also create an offer. For an advertisement to be a legally valid offer, it must contain enough specificity to be enforceable. Everyone who functions in a capitalistic society knows that if a product is advertised for sale at a particular price not everyone who sees the advertisement could possibly accept the offer. No store is expected to have an unlimited supply of goods and no one is expected to sell goods today for prices that were advertised years ago.5 However, if an advertisement contains language like “first come, first served,” it is specific enough to constitute a legally binding offer and the advertiser may be contractually bound to honor the advertised price and terms to a reasonable number of customers who fit the category “first come.”6 Offers may also be withdrawn at any time before they are accepted. This means that if someone mistakenly advertises a product far below market value, the offer can be voided by advertising a withdrawal of that offer as long as it is done before customers arrive at the store to accept the offer.7 It should be noted that in order to avoid charges of fraud or deceptive advertising, the original advertisement must be an honest mistake and an honest effort must be made to communicate withdrawal of the offer.
An acceptance must be a simple accession to the original offer. If the acceptor adds terms or modifies the offer in any way, that is not an acceptance. It is a new offer.8 In order to be binding, an offer must be so specific that all the other party need do for both to understand exactly what is expected is to say “I agree.” If the other party says “I agree but . . .”, then the parties may not understand exactly what is expected. Furthermore, the person who made the original offer may not accept the new terms or conditions. This exchange of offer and acceptance, often called contract negotiations, is not complete until all the contract’s terms are fully understood and the final party in the exchange simply says “I agree.”
The person making the offer may also specify the form of the acceptance. He or she could say, “I offer to sell you my car for $100, but you have to accept by standing on your head.” Of course, offers like this are extraordinarily unusual, but offers that contain terms like “you must accept in writing” or “you must accept within 30 days” are very common and those conditions are absolutely enforceable. An acceptance that does not comply with the terms specified in the offer is not a binding acceptance. Also, the intent to accept is completely irrelevant. In order to accept an offer, one must communicate that acceptance to the person who made the offer.9 Even signing a written acceptance is not a legally enforceable acceptance. Where a written and signed acceptance is required, it must actually be delivered to the offeror before the “meeting of the minds” is complete.10 Delivery does not need to be physical. For example, you may accept by placing your acceptance in a mailbox11 or by sending it by telegraph or fax.12 The standard is that you have effectively delivered the acceptance as soon as you put it beyond your control.13 In other words, as soon as you no longer have the power to stop the acceptance from reaching the offeror you have accepted. Since you cannot legally stop a letter once it is mailed and you cannot stop a telegram, fax, or e-mail transmission once it is sent, those are effective acceptances. If it is possible to “overtake” the acceptance you can withdraw it. You might, for example, mail an acceptance, but before it reaches the offeror, you could call or e-mail her or him and withdraw your acceptance. When you seek to withdraw an acceptance in this way, you must be able to prove that your withdrawal actually reached the offeror before your acceptance. Remember, as soon as the acceptance is received, the “meeting of the minds” part of contract formation is complete and you cannot simply “change your mind.”14
To illustrate the rules of offer and acceptance, consider the case of William Lyon who attempted to purchase an advertising company in 1985. Edward Sherman owned an advertising company called Adgraphics. Sherman, through a real estate agent, offered to sell his business. Lyon attempted to accept the offer but in his acceptance he proposed a price lower than Sherman’s offer. Lyon’s proposal was not an acceptance; it was a counteroffer and it did not create a contract; it started the negotiations anew. At this point, Sherman could have simply said “I agree” and created a contract on the terms proposed by Lyon, but he did not. Sherman made still another counteroffer proposing a new price. Lyon liked this last offer and attempted to accept. First, he signed the offer indicating his acceptance. Then he had his signature notarized to prove his commitment. He then took the signed and notarized acceptance to Sherman’s broker at 9 a.m. the next morning. Just before Lyon arrived with acceptance, Sherman called his broker and withdrew his offer. The state court of appeals that reviewed the case said that Lyon had not successfully accepted because he did not deliver his acceptance to Sherman before the offer was withdrawn.15 In this case, Lyon took the acceptance to Sherman’s broker himself. Therefore, the acceptance was never out of his control right up to the minute when he arrived at Sherman’s broker who told him the offer was withdrawn. Had Lyon placed the acceptance in the mail the night before, his acceptance would have been placed beyond his control before Sherman withdrew the offer and today Lyon would probably be the owner of an advertising business.
In addition to a meeting of the minds, a contract must involve an exchange of consideration. That means that something of value must be given to the bargain by each of the parties. Put another way, a bare promise by one person or a gift from one person to another is simply not enforceable because it is not a contract.16 A common mistake made by mass communications practitioners may help illustrate the requirement for mutual consideration. Often, communications professionals ask subjects, news sources, and others for releases. Sometimes, these agreements carefully explain that the subject gives permission to use his or her image or information and that the subject agrees not to sue the reporter or photographer for use of the information or image. Frankly, such a release is not worth the cost of the paper to produce it. Unless the reporter or photographer also agrees to give something of value, the release, which is a contract, is not enforceable. It is only a “bare promise.”
If a teacher promises to give a student his or her car, no matter how specific that promise may be and no matter how specifically both parties understand the terms of the promise, the student cannot enforce that promise unless it also involves a commitment of something of value from the student. However, the requirement for consideration does not require an equal exchange. If the teacher was extraordinarily generous, he or she might agree to sell the student the car for $ 1. If the student accepted that offer and both parties understood it to be a legitimate offer, a legally binding contract could be created. Many contracts begin with language that says something like:
For consideration of $ 1, in hand paid, the receipt and sufficiency of which is hereby acknowledged.
This language is included because the person who drafted the contract wanted to be sure it was binding. The language guarantees that the person who signs the contract has acknowledged that she or he has received something of value from the party to whom a promise was made and that the consideration was sufficient to justify enforcement of his or her contractual obligations.
Legal texts are full of odd examples like exchanges of estates for peppercorns. The only requirement is that both parties invest something in the exchange. A contract exchanging payment for naming a child after the offeror was upheld17 and, in one of the best-known and bizarre exchanges, a contract exchanging an uncle’s estate for a nephew’s promise to refrain from drinking, smoking, and playing cards was upheld.18 For those in mass communications, it is important to note that intangibles like information or publicity can also be consideration. If one agrees to exchange publicity on behalf of the source for the source’s permission to use his or her photograph, mutual consideration occurs. Even more important, if one agrees not to divulge the source’s name in exchange for information, the agreement not to divulge the source’s name is consideration and the information is consideration. This contract exchanging information for silence can be legally enforceable.
Some contracts, often called executory contracts, are exchanges of promises to do things of value in the future. These too can be legally binding. Returning to the example of the generous teacher with the car: if he or she promises to give the student the car the first of next month if the student promises to take out the trash each day for the next 2 weeks, a mutually binding executory contract to perform those acts has been created.
There are some restrictions on the obligations that may be exchanged. Of course, a valid contract obligating a party to perform an illegal act or to do something that is literally impossible or completely beyond the person’s control cannot be created. One of the most common mistakes made in attempts to construct contracts is to include a past event as consideration. For example, a reporter cannot enforce a promise made by his or her editor to pay a bonus for exceptional reporting in the previous year. Since the reporter has already done the work for last year, he or she is not putting anything of value into the contract being created today.19
Requirement for Written Contract
When we listed the elements required to create a contract, we said absolutely nothing about the physical form of the contract. Under most circumstances there are no requirements for a specific form. Contracts may be implied by conduct, they may be express and oral or they may be expressed in writing. There are, however, some situations in which contracts cannot be enforced unless they are written. This requirement for written contracts is called the Statute of Frauds. Both the Uniform Commercial Code and the Restatement of Contracts list six kinds of contracts that must be written, but these requirements do vary from jurisdiction to jurisdiction. The contract types are listed in Exhibit 11.2. For example, some jurisdictions add contracts that cannot be performed within the lifetime of one party and some permit oral leases for up to 1 year.20
Most of these are irrelevant to the mass communications professionals but others often do impact our business. For example, many public relations and advertising campaigns take more than 1 year to complete. Contracts for goods with clients, suppliers, and contributing professionals in these campaigns should be written. Other contracts requiring a writing that are seen in mass communications include office leases. Often, when a public relations or advertising contract is transferred from one agency to another, the acquiring agency is asked to accept obligations created by the old agency. These contracts also should be written. Generally, there is a logic to deciding what contracts should be written. The longer the term of the contract, the more likely the parties are to forget the original agreement and the more complex the agreement the more likely it is that a misunderstanding will arise. For both long-term and complex agreements, a written contract will keep all the parties informed and honest and, if necessary, will help a judge decide what terms were actually part of the agreement.
- Contract of an executor or administrator to answer for a duty of the decedent
- Contract to answer for the duty of another (Suretyship)
- Contract made upon consideration of marriage (Prenuptial Agreement)
- Contract for sale of an interest in land
- Contract that is not to be performed within one year
- Contract for sale of goods over $500
Most people think of a written contract as some monstrously complex document filled with the ritualistic language lawyers use to confuse laymen. The Statute of Frauds requires only “a writing.” It does not require a specific form of writing and it does not require professional language. All that is required is a permanent record that is understandable and that specifies the terms of the agreement. Things that have been used to meet the requirement for a writing include a letter,21 a telegram,22 a receipt,23 an invoice,24 a check,25 or even the minutes of a meeting at which the agreement was discussed.26 What a judge is typically looking for is some evidence that records the agreement so that she or he does not have to rely on the memory and testimony of the parties.
Even for contracts that are covered by the Statute of Frauds there are times when a written contract is not required. These are times when other evidence serves the same purposes that would be served by a written document. Part performance meets this requirement. Part performance occurs when one party does what he or she believes the contract required and the other party accepts those goods or services. When this happens, the courts typically will say that accepting the goods or services is the same as accepting the contract and the actions of the parties substitute for the written contract.27 The reason for requiring a written agreement is to help understand what agreement the parties reached. When the terms of the contract can be determined from the parties’ conduct, the court does not need the document.
Finally, the writing can be communicated by electronic means. We may think of the Internet as presenting novel legal questions but some of those same questions have been addressed when courts were confronted with much older technology. More than 130 years ago, courts were asked to decide if written contracts could be created through electronic media. Dealing with the then-new technology of the telegraph, a New Hampshire Appellate Court set a precedent that is still in place. That ruling said the medium used to communicate thought to paper is irrelevant. What matters is that the parties to the contract caused their thoughts to be reduced to some tangible form.28 A legally enforceable and written contract can be created by telegraph and it can be created by e-mail.
Some people cannot form contracts or, if they do enter into contracts, are given the right to avoid their contractual obligations. People without the capacity to form binding contracts can create problems for several communications practices. One of the most common is the problem of securing a binding contract of release from a child. Less likely to be an issue in the practice of mass communications are limitations on contracting with people who are mentally incompetent and contracts that deal with prohibited subjects.
Contracting with Minors
Historically, people under the age of 21 were considered too young to understand the significance of their agreements. Today, most jurisdictions have lowered this age to 18 to be consistent with voting laws.29 When a minor enters into a contract, he or she is free to disaffirm that contract and completely avoid its obligations. Although the minor can avoid her or his obligations under the contract, an adult party to a contract with a minor is obligated to meet his or her contract duties. In most jurisdictions, that means a minor can avoid contract payments or providing goods and services even if the other party has fully performed her or his duty under the contract.30 For example, a minor can disaffirm a release or contract not to sue.31 An advertising producer using a model under the age of 18 or a photographer securing a release from a subject under 18 could conceivably pay for a release and then have the model or subject sue for damage to her or his reputation or for lost profits. One should be very careful when contracting with a minor.
Contracting with minors is further complicated by the fact that some states even allow a minor who lies about his or her age to escape contract obligations.32 The only solutions to this problem are to avoid contracts with anyone who even might be young enough to disaffirm a contract or to consult with local counsel to learn the rules for contracting with minors in your jurisdiction. Finally, there are some contracts that even minors may not disaffirm. Contracts for necessities like food and shelter cannot be disaffirmed in most jurisdictions. Also, minors who are conducting their lives as adults, called emancipated minors, cannot disaffirm contracts in most jurisdictions. Evidence that minors might be emancipated include marriage, full-time employment, and living outside their parents’ homes.
Contracting with People Who are Mental Incompetents
It is at least possible that an ethical practitioner in a field of mass communications may have to form a contract with a person who is mentally incompetent. A reporter, for example, might need a release from a homeless person who is mentally ill or a public relations practitioner might have to contract with an intoxicated client. Because these situations seem unusual, we treat this area very briefly.
In most jurisdictions, the test for mental incompetence is whether the person forming the contract is able to understand what he or she is doing. If he or she does not understand the terms of the contract, that person cannot form the requisite “meeting of the minds.”33 This is a difficult standard to prove or to challenge, so it is advisable to seek legal advice for the rules in one’s jurisdiction before entering into a contract with anyone who seems mentally incapacitated or confused. Finally, it should be noted that in most jurisdictions, the mental incapacity must be involuntary. That means if you volunteer to make yourself incompetent through drug or alcohol use you may not be able to avoid obligations under contracts you enter into while intoxicated.
Contract Subject Limitations
Unless there is some policy reason, people are usually allowed to contract for anything they like. Policy justifications have been used to prohibit contracts for illegal acts, for usurious interest rates, or to contract away some legal rights. Most of these limitations do not impact mass communications professionals but one seems worthy of note. In many jurisdictions it is illegal to contract away the implied warrant of merchantability. In other words, no matter what kind of release or contract you try to fashion, you cannot avoid the obligation to guarantee that products are fit for the purpose for which they are sold. Other limitations imposed for policy reasons include an obligation to disclose very specifically the terms of a contract.34 People working in public relations and advertising need to be careful that advertisements and messages about commercial products disclose any sale terms that limit liability based on how a product can be used.
Acceptance, Breach, and Remedies
Once a contract is created, each party has an obligation to deliver the consideration she or he put into that agreement. Acceptance, in this context, refers to the one party’s acknowledgment that the other party has delivered the consideration. Acceptance is particularly important to people in mass communications because often the consideration they put into contracts is their work as writers, photographers, or electronic producers. Usually, they agree to produce “acceptable” writing or “appropriate” photography or “workmanlike” productions. The other party to the contract may refuse to accept the work by saying it does not meet his or her standards. We therefore begin this section by describing the standards of acceptance for subjective or artistic works.
Acceptance of Performance
If the consideration in a contract is money or specific goods, then the contract obligation is performed when that money or the goods are delivered. If the consideration is some kind of performance that is subject to fancy, taste, or judgment courts have given a great deal of discretion to the person to whom that consideration is owed. For utilitarian services like auto repair, the standard of acceptance is reasonable performance. A court trying to evaluate the performance asks itself, “Would a reasonable person accept this performance?” Usually, those in mass communications are not contracted to provide utilitarian services. They are more likely to contract to provide artistic work like writing, photography, and electronic productions. In these cases, the standard is “honest evaluation.”35 The person deciding whether to accept the performance is not obligated even to be reasonable. He or she is only required to be honest when interpreting the work.36 Although an individual may have a contract to provide reporting, advertising, or public relations services for a year, if the quality of the writing, advertising production, or public relations work is not satisfactory, in the honest judgment of the client, he or she could cancel the contract before the year is over.37 For artistic types of work, all that is required to avoid payment is that the work does not meet the expectations of the employer.38 Finally, it is important to note that when hiring an expert or tradesman in a particular professional field, the employer is legally entitled to assume that tradesman is competent in his or her trade.39 This means that even in a contract where the subjective judgment standard of approval is not used, the acceptance may still be withheld if the work is not done to the standard of a competent professional. To avoid problems with having your work rejected, an individual should not describe him or herself as a writer, photographer, or researcher unless he or she really is a competent tradesman in those fields.
Breach and Remedies for Breach
Breach is the legal term used to describe the situation when one party meets his or her obligations under a contract and the other does not. If, for example, you contract to sell your textbook to a fraternity brother for $50 and you deliver the book but he does not pay the $50, he is in breach of contract. Most questions concerning breach of contract are not so simple. They often involve partial performance, for example only delivering some of the textbooks you agreed to sell to your roommate, or the existence of some term in the contract that creates a condition for performance. Conditions are created by statements in the contract like, “I will pay you if I get the advertising contract.” Contracts subject to conditions or suits for partial performance are often complicated and their analysis usually requires the assistance of an attorney. If the other party to a contract breaches her or his obligations there are several options, called remedies.
One remedy is specific performance. To exercise this option you must sue in equity to secure a court order that compels the other party to actually meet his or her obligation under the contract. Specific performance is only available when the other party’s obligation involves some truly unique object or action. The most common application of specific performance is to enforce contracts for the sale or lease of real estate. Courts have consistently ruled that one office, home, or farm cannot be substituted for another. Examples of contracts in the practices of mass communications that could be enforced by an order for specific performance might include contracts not to compete and contracts for exclusive information. If someone has contracted not to compete with your business or to provide exclusive information, your attorney could ask a court to enter an affirmative injunction demanding that they actually give you the information or refrain from competition with your business. In part, because it involves a great deal of the court’s resources to enforce such actions, specific performance may be difficult to obtain and is usually impossible when the breach can be corrected by payment of money. It should also be noted that because of the abhorrence in the United States to indentured service, specific performance is never required for personal service contracts. In other words, even if you have already paid someone, a court will not order that person to work for you. This does not mean the person you have paid completely escapes his or her liabilities. The individual may be ordered not to work for anyone else, not to compete with you and to return your money but, he or she will not be ordered specifically to work for you.40
The court may also either grant rescission of the contract or construct a new contract called a novation. If the contract is rescinded, that relieves each party of all their obligations to the other. Simply put, if a rescission is granted because the other party did not perform his or her obligation, you are not required to make payment or perform any other act that the contract may have required of you. A novation is This is done where there was a partial performance or if some condition prevents one party from meeting his or her obligations. The principle that guides a novation is quantum meruit. Quantum meruit means “as much as he deserves” and refers to the practice of courts to require payment for the value of actual services or goods delivered. Assume, for example you contracted to write, in exchange for $1,000, a unique news release for each of 10 newspapers as part of a public relations campaign, but you only completed 8 of the releases. A court exercising the principle of quantum meruit would not excuse payment to you, but would require that you be paid the fair value of the eight releases you actually delivered. It is important to note that under the doctrine of quantum meruit the court may not order a payment of the amount expected or for any subjective or emotional value. The court will award only the actual market value of the goods or services actually delivered, less any damage or loss caused by your failure to complete your obligation.41
Other remedies include payment for detrimental reliance losses. This is significant in public relations and advertising because it may result in an order to pay more than the original contract required. Detrimental reliance losses are money spent or value lost by one party because that party relied on the contract performance of the other. In public relations, such a loss might occur if a client contracts with you to provide publicity and encourage attendance at a business opening. If the client pays caterers, agrees to pay extra staff, and incurs other obligations relying on your publicity and you fail to notify the target publics, the client may not only refuse to pay you, he or she may also sue you for the money spent preparing for the crowd that never appeared.42
Lost bargain or expectation damages are like reliance losses because they can lead to a requirement to pay more than the original contract obligation. Expectation damages are the money a contract party would have made had the contract been honored. Such a situation can arise when you contract to perform part of a larger campaign or project. You may contract with an advertising agency to produce the Web page for an agency client and your Web page may be part of an expensive campaign being done for the client by the agency. If you fail to produce the page and the agency loses the client, you might be obligated for the loss of the entire campaign contract.43
Because there are several options for determining damage in the event of contract breach, many contracts contain clauses called liquidated damages. Liquidated damages are predetermined remedies for breach. When such a clause is included in the contract the parties decide, as part of the negotiations, what would be a reasonable payment for a breach and they include a description of this payment in the contract. Liquidated damages must be a reasonable reflection of the loss that will result from breach. Some people have attempted to create punitive clauses or requirements to pay exorbitant amounts in the event of a contract breach. Most courts reject these punitive damage clauses and refuse to enforce them.
Before we leave the idea of damages, we should note that even when another party breaches a contract you do have a duty to mitigate damage. If your subcontractor fails to produce the Web page for which you contracted you cannot simply sue him or her for the loss of your client. You do have a duty to try to find another Web designer. Before you can sue anyone for breach of contract, you must show that you have performed your obligations under the contract and that you have made every reasonable effort to lower or “mitigate” the damage caused by their breach.
The simplest defense to an allegation that someone breached a contract is to show that there was no contract. Therefore, defenses include the absence of an offer, an acceptance, or mutual consideration. Demonstrating that one of the parties lacks the legal capacity to contract is also a valid defense to a suit for breach of contract. So if an individual can show that he or she was underage, mentally incapacitated, or incompetent, he or she may be able to avoid obligations under an alleged contract. Other defenses include mistake, impossibility, fraud, and duress. These defenses are summarized in Exhibit 11.3.
Remedy or Result
No contract because of
There is no enforceable obligation
Lack of capacity to contract because of
Voluntary mental incapacity
Infant can disaffirm There is no enforceable obligation
Illegal act or purpose
No enforceable obligation
There is no contract; all obligations are void
Relief depends on circumstances
Contract is void
Duress because of
Improper threat that would induce a reasonable person to agree to contract
Contract is void
The defense of mistake is based on a misunderstanding of facts that prevented an informed meeting of the minds. In effect, it is an assertion that there never was a valid contract. The term mistake, as used in contract law, does not mean what most laymen think when they hear the word mistake. A mistake is not simply an error in judgment or a poor decision; it must be a mistaken understanding about some fact.44 Further-more. to be a legal defense to a contract obligation, a mistake must be an honest misunderstanding about facts that is so significant that it prevents the contract parties from creating a meeting of the minds.45 Mistakes may be mutual or unilateral. A mutual mistake occurs when both parties to the contract do not understand facts that are essential to their agreement and a unilateral mistake occurs when one party misunderstands but the other party is accurately aware of all the facts. When describing mutual mistake, contract teachers in law school typically use the example of a contract to sell a cow that both parties believe is barren and unable to bear calves. Such a cow is far less valuable than one who is fertile and can bear calves. When, after the sale of the supposedly barren cow, it gives birth to a calf both the buyer and seller realize they made a mistake about the cow and her value. The result of this mistake is that the contract for sale is void. The buyer must return the cow and calf, and the seller must return the purchase price. They simply did not have a contract because they did not have a meeting of the minds.46
Today, there is some variation in how mutual mistakes are treated from jurisdiction to jurisdiction, but generally, if the mistake is about a fact that is central to the contract agreement and if the mistake was not caused by the party who seeks to void the contract, the mistake will nullify the entire contract. Just like the situation with the barren cow, all the exchanged goods and payments must be returned and any services rendered are paid for based on quantum meruit.47
Where the mistake is unilateral, courts do not seem as willing to void the contract. If, for example, someone miscalculates the fee for a public relations campaign, he or she may not be able to void the contract and seek a higher payment even though he or she made an honest mistake. Even in these situations, the decisions are not consistent. For example, some jurisdictions do permit revision of contracts if bids were produced under a great deal of time pressure. Some courts believe that if one party puts the other under so much pressure that the probability of mistake is increased, he or she should not benefit from mistakes created by that pressure. On the other hand, if work has begun or if a party has invested resources in reliance on a mistaken bid before he is told of the mistake the contract may be enforced as agreed.48
A contract is “impossible” when some event occurs that prevents one party from meeting his or her contract obligation. Obviously, if one of the parties dies or becomes disabled it may be impossible for him or her to perform.49 The destruction of property necessary for the contract performance also makes the contract impossible. For example, if a public relations practitioner contracts for a display space at a convention in order to present a client’s new products, he or she cannot hold the convention center liable for not meeting their contract obligation if the center burns to the ground before the convention.50 Because contracts may not require illegal conduct, if the laws change after a contract is formed such that the contract obligation would now require an illegal act, then the contract has become impossible.51
It is not necessary that the obligation be absolutely impossible. In fact, many judges and legal commentators use the term impracticability rather than the word impossibility to describe this defense. However, a contract obligation cannot be escaped simply because it has become more difficult or more expensive. Increased cost alone does not make a contract obligation either impossible or legally impractical. Individuals are required to use alternative means of meeting their obligations if they are available. If, for example, your computer equipment crashes while you are attempting to complete an advertising or public relations campaign you may be required, at your own expense, to rent or purchase new equipment and to pay your staff overtime to complete a contracted project. Increased cost and inconvenience are usually not a defense. In some extreme cases, courts have ruled that massive increases in cost do make contract performance legally impracticable but all of these cases involve increased expenses of several times the original costs.52
Fraud and Duress
Fraud is the intentional creation of a unilateral mistake. It is a misrepresentation that creates such a significant misunderstanding in the mind of the other party that a meeting of the minds is impossible. It voids the contract completely and may justify other remedies including multiple damages. Multiple damages mean that the party who committed the fraud may be required to pay double or triple the actual damage suffered by the other party.
Duress is the use of threat to induce a person to enter into a contract. The threat must be so significant that it deprives the other party of his or her “free will.”53 In order to use duress as a defense to avoid a contract obligation, four elements must be proven. First, there must have been a threat. Second, the threat must have been improper. Third, the threat must have actually induced the person to agree to the contract, and finally the threat must have been sufficiently grave that it would induce a reasonable person to agree to the contract.54 Usually, the party who wants to use duress as a defense has the burden of proving all four of these elements.
Although warranties, releases, and other contracts are important in the professions of mass communications, we believe it is the employment contract that is most important to mass communications practitioners. The remainder of this chapter focuses on problems and issues associated with employment contracts.
Employment and Agency Law
Employment and agency deal with the responsibilities employees and employers owe one another. Employment law includes concepts like the prohibitions against discrimination and sexual harassment and requirements to provide handicapped access and work place safety. Although these are certainly important, they are beyond the scope of this book. We limit our discussion of employment law to those components that are particularly important, if not unique, to people working in mass communications.
Those individuals who work as reporters, advertising executives, or public relations practitioners deal directly with the clients who pay their employers. They are quite literally the agents of their employers. Under a principle called respondeat superior, their employers can be held liable for their misconduct and may be forced to honor agreements they make with clients or news sources. Furthermore, newspapers, broadcast stations, advertising agencies, and public relations firms are very visible. They are, more than most businesses, the subject of suits in a litigious society. Therefore, it is essential for practitioners to know when their actions may create legal obligations for their media or communications employers or clients.
Employment at will and Termination for Cause
Employment at will