Contracts
Writers need to understand the basics of contract law, since many aspects of publishing—including arrangements with publishers, agents, other authors, and illustrators—involve contracts. The terms of a contract vary depending on the situation, but in every case, the nature of legally binding agreements is the same. This chapter describes the basic elements common to all contracts.
The word contract commonly brings to mind lengthy, complicated documents replete with legal jargon, but this need not be the case. A simple, straightforward contract can be just as valid and enforceable as a complicated one. A contract is nothing more than a promise or set of promises that become enforceable because the parties have agreed to provide something of value to each other. The promises are known as offers and acceptances, depending on which party has made them, and the something of value is known as consideration. Once a contract is formed, both parties have a legal duty to perform it and may be subject to liability in the event they fail to perform.
OFFERS
The first stage of the formation of a contract is the offer. An offer is a statement that indicates the willingness of a party to enter into a binding agreement. Once an offer has been accepted, the contract is considered formed and the person making the offer cannot afterward alter the terms without the consent of the other party.
Offers should be distinguished from expressions of intent, predictions, opinions, or statements indicating the desire to conduct preliminary negotiations. For example, a statement by a publisher to a writer expressing the opinion that a manuscript is excellent and will likely warrant an advance of $25,000 is not an offer, because it merely expresses the publisher’s opinion. At most, it suggests an interest in negotiating a publishing agreement. Conversely, if the publisher states that it will publish the book on the terms set forth in a proposed agreement, this will constitute an offer that the writer may either accept or reject.
Typically, a writer’s submission of material to a publisher for review will be considered an invitation to the publisher to make an offer. If the price and publishing terms are specified in the submittal—for example, North American First Serial Rights for $5,000—then the submission could be construed as an offer.
Sometimes the distinction between an offer and a non-offer is unclear, so determining if a given statement is an offer will depend on whether a reasonable person would consider it to be an offer. Such considerations depend on the content of the statements, as well as the circumstances under which they were made. In addition, reasonableness is to be viewed from the perspective of the person to whom the statements are made. So if you know a statement is not truly an offer or is being made by someone without the ability to actually make an offer, then even though someone else might not be sure if the statement were an offer, it is not an offer to you.
Length of Time an Offer Stands
Once an offer is made, unless it states otherwise, it is considered to be open for a reasonable amount of time, unless it is revoked by the person who made the offer prior to its acceptance. What constitutes a reasonable amount of time will depend on the circumstances. At some point in time, an offer will be considered so stale that the person making it will no longer be legally bound.
In some cases, an offer will be irrevocable for a period of time. The most common instance of this for writers is the option contract. An option contract is one in which the person who made the offer agrees not to revoke the offer for a given length of time, perhaps indefinitely. Common situations in which option contracts are used are in book publishing contracts, where the writer agrees to submit his or her next work exclusively to a particular publisher for evaluation. That publisher, in turn, is given the right to make an offer regarding the work. If the manuscript is rejected, the writer is free to have it published elsewhere. However, the initial publisher usually retains the right to match any other publisher’s offer. This type of offer is irrevocable for the time stated in the option clause.
Another situation, not often encountered by writers, is irrevocable offers under Article II of the Uniform Commercial Code (UCC). These are written offers made by sophisticated parties for the sale of goods that provide some assurance that the offer will be open for a stated time, or if no time is stated, for a reasonable time. However, Article II of the UCC is limited to tangible goods and does not apply to intellectual property. Most publishing agreements involve the sale of rights, which are not considered goods under the UCC. Transactions between a writer who is self-publishing and a printer may, however, fall under the UCC.
IN PLAIN ENGLISH
The Uniform Commercial Code is a body of commercial law that has been adopted in every state for the purpose of unifying the business relations between parties subject to it.
ACCEPTANCE
An acceptance is a statement agreeing to the terms of the offer. Once the acceptance is made, the parties have created a legally binding relationship. Both the offeror and the acceptor are legally bound to do what they have promised to do, as long as there is consideration, which is discussed below. One party or the other may refuse to go through with the deal, but that would be a breach of the contract and would make the refusing party liable to the other for any damages caused by the refusal.
The manner in which the offer may be accepted is subject to few fundamentals. The general rule is that an acceptance is valid as long as it is made by a reasonable method of communication. The exception to this rule is when the offer places conditions on how the acceptance must be communicated. For example, if a celebrity specifically requires that a ghostwriter accept an offer to procure literary services within five days by singing telegram, the ghostwriter must comply with that direction for the acceptance to be valid.
The question of whether acceptance was made within a reasonable time is determined by common sense. A writer who waits for a year before responding to a publisher’s offer probably has not accepted within a reasonable time. However, a writer who responds within one month has likely met this requirement. Whether an acceptance has been made within a reasonable time may also be affected by the business customs within the book publishing industry or by past dealings between the parties.
The issue of whether an acceptance is made in a reasonable manner is also determined by common sense. If, for example, the publisher submits an offer by mail, a reasonable manner of communicating the acceptance would include not only mail, but also telephone, email, or facsimile. In addition, acceptances may be communicated by actions, such as beginning performance of the contract, provided that the other party reasonably understands that such action is being taken to reflect acceptance. For example, a celebrity who offers a writer several thousand dollars to ghostwrite his memoir would likely understand that the offer has been accepted when he becomes aware that the writer is working on the project.
CONSIDERATION
Consideration is a legal term meaning something of value. For a contract to be valid, the parties must agree to exchange consideration. Each side promises to give something of value. The most obvious example is the agreement to pay money, but consideration can also consist of things such as an agreement to waive one’s legal right (e.g., the right to file a lawsuit or to compete against a former employer), an agreement to alter a legal relationship, or an agreement to provide a service. Consequently, in the vast majority of agreements, a promise made by either party will be considered sufficient consideration to support a binding contract.
The requirement of consideration is what distinguishes legally enforceable contracts from unenforceable promises. For example, an offer by a distinguished writer to his unpublished nephew to present the nephew’s manuscript to his own publisher constitutes nothing more than a promise, because the nephew has provided no consideration. If the writer fails to present the manuscript, the nephew will not be able to legally enforce the writer’s promise.
For a contract to be binding, however, the consideration does not necessarily have to be substantial or even equivalent to the fair market value of the promise received. For example, if the nephew in the previous example offered to wash the writer’s car in exchange for the writer presenting the nephew’s manuscript to the publisher and the writer accepted, the writer would be legally bound to present the manuscript. In this case, a contract is created because consideration (the service of washing the car) was provided in exchange for the presentation of the manuscript.
FORM OF CONTRACTS
In most instances, once the requirements of offer, acceptance, and consideration are met, a contract is formed and is legally binding. There are generally no legal requirements that the contract contain specific terminology, be printed in a particular way, or be arranged according to a particular format. However, the practical aspects associated with enforcing contracts make it easier to enforce those that clearly describe the obligations of the parties and are memorialized in writing.
Implied Contracts
Contracts that are not explicitly stated in words may be implied by conduct. For example, suppose that a writer submits a manuscript to a publisher, which publishes the manuscript but does not compensate the writer. Even though they did not sign a contract, there is an implied contract between them. The terms of that contract depend upon the relationship between the writer and the publisher. If the facts indicate that the writer submitted the manuscript with no expectation of payment, then none would be due. On the other hand, if the writer has historically submitted manuscripts to this publisher and received payment from the publisher for publishing them, it is likely that the writer expected to receive compensation and that a promise by the publisher to pay would be implied. The implied terms of the contract would be legally enforceable. But absent a clear written agreement the parties could be faced with lengthy and expensive litigation to determine the amount due and other issues.
Oral Contracts
An oral contract is one in which the parties have verbally agreed to something, but have not recorded the agreement in writing. Most oral contracts are valid and enforceable, although some kinds of agreements are legally required to be in writing to be enforceable. As a practical matter, oral contracts are often difficult to prove in court, since the main evidence is usually the conflicting testimony of the parties. It has been said that oral contracts are not worth the paper they are written on. While not technically correct, this adage does reflect the harsh reality that many worthy claims cannot successfully be enforced because oral agreements lack the strength of written ones.
Written agreements should adequately describe the obligations of the parties and the consideration involved. The practice of some drafters to describe the consideration in generic terms (for just and valuable consideration) should be avoided. Such language can create ambiguity about whether consideration was involved at all. Courts generally will not enforce agreements that describe a fictitious consideration or one that was not actually exchanged. Custom dictates that written contracts be signed and dated by the parties.
Under the Electronic Signatures in Global and National Commerce Act (ESIGN) and various state laws, transactions executed electronically, such as by email, cannot be invalidated solely because an electronic signature or electronic record was used in their formation. An electronic signature is any identifying mark, such as the sender’s name at the end of an email or email address in the header. Some kinds of documents, such as wills, are typically covered by these laws, as are most publishing agreements.
Some types of agreements are legally required to be in written form. The Statute of Frauds, a law adopted to inhibit fraud and perjury, provides that any contract that cannot be fully performed within one year must be in writing in order to be legally binding. This rule has been narrowly construed to mean that, if a contract can conceivably be performed within one year of its making, it need not be in writing. Assume that a writer has agreed to submit two manuscripts to a publisher—one within eighteen months after the contract is signed and the second within eighteen to twenty-four months thereafter and no earlier. In this situation, the terms of the agreement make it impossible for the writer to complete performance within one year. If, however, the writer agrees to submit both manuscripts within twenty-four months, it is possible that the writer could submit both manuscripts in the first year and the requirements of the Statute of Frauds would be satisfied.
The fact that the writer might not actually complete performance within one year is immaterial. So long as complete performance within one year is possible, the agreement need not be made in writing. The Statute of Frauds applies to other kinds of contracts as well, but these rarely involve writing activities. For instance, the UCC requires that contracts for the sale of goods costing over $500 must be in writing, but there is no such requirement for service contracts (such as publishing agreements).
For a contract to be enforceable, the parties must be capable of understanding their contractual obligations. Minors are deemed by law to have diminished capacity to contract. A person is legally a minor until the age of majority. This age varies from state to state, but is either eighteen or twenty-one years of age in most states. This fact is relevant to writers, since a writer might wish to contract with a minor for an interview or use a minor as a model for an illustration. A contract entered into by a minor is not necessarily void, but such a contract is generally voidable. This means that the minor may be free to rescind the contract until he or she reaches the age of majority, but that the other party is bound by the contract if the minor elects to enforce it. In some states, a minor over eighteen years of age must restore the consideration or its equivalent as a condition of rescinding or getting out of the contract.
Persons who are so disabled by mental illness that they are unable to understand the nature of the transaction in a reasonable manner also lack the legal capacity to enter into a contract. However, the fact that a person may suffer from a mental disorder does not necessarily preclude their ability to understand the nature of a contract, so not all such agreements are voidable. Persons afflicted with temporary incapacity, such as intoxication, may be able to void some contracts, especially if the other party was aware of the incapacity. Courts are reluctant, however, to void contracts with fair terms when the other party was unaware of the incapacity.
Persons who have the capacity to enter into contracts and who sign written agreements are generally bound to the terms of those agreements, irrespective of whether they read or understood the agreement before signing. The law imposes the burden on the parties to read proposed agreements and understand the terms prior to signing them. The fact that an agreement was lengthy, obtusely drafted, or complicated will seldom justify rescission, except when the terms are unconscionable or against public policy.
ACCEPTABLE FORMS FOR WRITTEN CONTRACTS
Written agreements do not have to be in any particular form to be legally effective. Courts have upheld memoranda, letters, and telegrams as valid and enforceable writings, as long as they adequately describe the agreement, identify the parties, and are signed. Many contracts contain considerably more information than the bare minimum necessary to comply with the Statute of Frauds. The typical contract will recite the basic terms of the agreement and may also include various covenants, conditions, and warranties.
A covenant is an absolute, unconditional promise to perform. Failure to perform a covenant is a breach of contract in and of itself. In a writer-publisher contract, the writer’s promise to submit a manuscript is generally a covenant. Failure to submit a manuscript by the specified date will result in a breach of contract, and provides the publisher with the right to cancel the contract (unless it has agreed to an extension).
A condition, on the other hand, is a fact or event that creates the duty to perform the contract at its occurrence, and the failure of which to occur extinguishes the duty. Conditions can be either precedent to an agreement or subsequent to the agreement. A condition precedent is one that must occur before the agreement becomes effective or binding. A condition subsequent is a future event, the nonoccurrence of which may give one party the right to abandon its contractual promises.
For example, in addition to being a covenant, the writer’s promise to submit a manuscript for publication may be a condition precedent to the publisher’s promises to pay and publish. In such a case, the publisher’s promises to publish and pay are not enforceable until the writer has, in fact, submitted a manuscript. Once the writer submits a manuscript, however, a failure to pay or publish would be a breach and would likely make the publisher subject to liability. This would not be true in a situation in which the publisher has agreed to give the writer an advance before the manuscript is completed. In this type of arrangement, the agreement to submit the manuscript might be seen as a condition subsequent, which, if not performed, could result in a revocation of the writer-publisher contract.
Warranties are statements that provide some sort of assurance about the quality of the subject of the contract. They may be either express or implied. When making a warranty, a writer is assuming all responsibility that the work contains the represented quality, irrespective of the writer’s absence of actual knowledge.
For example, a writer who warrants that her work is original and that she is the copyright owner will be liable, even if she unconsciously copied another work or believed in good faith that her work was not derivative of another. Such a warranty can be (and often is) made explicit by inserting it into a publishing agreement. If the parties are commercially sophisticated, such as an established publisher and an experienced freelance journalist, this kind of warranty would likely be considered made by implication. This is because both parties realize the importance of originality and ownership of the copyright.
All warranties, express or implied, can be disclaimed. Express warranties can be disclaimed by words or conduct that negate the warranty when it would be reasonable and fair to do so. For example, a warranty of originality could be disclaimed by inserting text into the publishing agreement that reads, “the writer has disclosed to the publisher a list of his sources in preparing the work.”
Mere statements of opinion, called puffing, will not create a warranty. If a publisher, when offering a book contract to a writer, exclaims that the book is a potential bestseller, then such a statement would likely be construed as puffing—not a warranty. The publisher is not making a statement of fact, but is merely stating an opinion. The distinction, however, may not always be clear.
In ambiguous situations, whether a given statement will be considered one of fact or mere puffing depends upon whether the statement becomes part of the basis of the bargain. Although the phrase basis of the bargain is hard to define precisely, it is reasonable to say that a given statement becomes part of the basis of the bargain if a contract to purchase is, to a large extent, induced by that statement. In the example of the enthusiastic publisher, the publisher’s statement would probably not have been a determining factor in making the sale and therefore was not a warranty, but mere opinion.
ILLEGAL CONTRACTS AND LITERARY PROFITS LAWS
If either the consideration or the subject matter of the contract is illegal, the contract itself is illegal. The law generally treats an illegal contract as void, meaning that it is not binding on either party and neither will be permitted to enforce the agreement against the other. For example, if a writer and publisher sign a book contract to publish a book of images that violate a state or federal statute with respect to the prevention of child pornography, the contract would be void because it is illegal to possess or distribute such images. The publisher could not sue the writer if the manuscript was not prepared, nor could the writer sue to force the publisher to publish the book after the manuscript was delivered.
It is not illegal for a publisher and a convicted criminal to enter into a publishing agreement for a written account of the crime. However, many states impose restrictions on such contracts, patterned after New York’s Son of Sam law. These laws are known generally as literary profits laws and have been found unconstitutional in New York, California, Massachusetts, and Nevada. However, many states still have laws modeled on the New York law. Depending on the language of the particular laws, some courts have found similar laws constitutional. Under the law as originally enacted, a copy of the contract had to be submitted to a special board, as well as the monies owed to the criminal under the contract. The money was then placed in an escrow account for the benefit of any victims of the crime. The escrow account was maintained for five years, during which time the victims had to obtain a money judgment against the criminal in a civil lawsuit. New York has subsequently amended its law in an attempt to avoid a ruling that it is unconstitutional.
Under the federal law, the attorney general can take legal action requiring the forfeiture of money owed to a criminal for the literary or dramatic depiction of federal crimes that injured third parties. To be compensated, a victim must win a judgment in a United States district court within five years of the criminal’s conviction. Any money left in the escrow account at the end of five years must typically remain in a special crime victims fund. Some state laws allow the criminal to claim any money remaining in the escrow account at the end of the five-year period.
IN PLAIN ENGLISH
A writer who anticipates entering into a contract with a criminal to write his or her story would be well-advised to consult a lawyer prior to doing so.
UNCONSCIONABILITY
The law generally gives the parties involved in a contract complete freedom to contract. Thus, contractual terms that are unfair, unjust, or even ludicrous will generally be enforced if they are legal. This freedom is not without limits—the parties are not free to make a contract that is unconscionable. Unconscionability is an elusive concept, but the courts have certain guidelines in ruling on it. A given contract is likely to be considered unconscionable if it is grossly unfair and the parties lack equal bargaining power.
New authors are typically in a weaker bargaining position than publishers, and therefore are more likely to win an allegation of unconscionability—especially where the writer has simply signed the publisher’s form contract. If the form contract is extremely one-sided in favor of the publisher, and if the writer was given the choice of signing the contract unchanged or not contracting at all, the courts may find that the agreement was unconscionable. If that happens, the court may either treat the contract as void or strike the unconscionable clauses and enforce the remainder. Unconscionability is generally set up as a defense by the party who is sued for breach of contract, but beware: this defense is rarely successful.
REMEDIES
The principle underlying all remedies for breach of contract is to satisfy the aggrieved party’s expectations. That is, the courts will attempt to place the aggrieved party in the same position that the party would have enjoyed had the contract been fully performed. Courts and legislatures have devised a number of remedies to provide aggrieved parties with the benefit of their bargains. Generally, this will take the form of monetary damages. However, when monetary damages fail to restore the aggrieved party to the position the party would have enjoyed under the contract, the court may order specific performance.
Specific performance means the breaching party is ordered to perform as he or she promised. This remedy is generally reserved for cases in which the contract involves unique services or goods. In publishing, a court might specifically enforce a writer-publisher contract by compelling the writer to deliver the manuscript to the publisher, but only if the manuscript has been completed. A court would not likely compel a writer to create a manuscript or complete an unfinished manuscript as a means of satisfying the aggrieved publisher, since the Thirteenth Amendment of the US Constitution prohibits one from being forced to perform labor against one’s will. Thus, for breach of a contract for services to be performed in the future, monetary damages are generally awarded.
The question of a publisher’s obligation to publish a work for which it has contracted is more perplexing. In Zilg v. Prentice-Hall, Inc., a court, in a case brought by an author against a publisher, found that a publisher had breached its contract and awarded the author damages when, in response to criticism and complaint by the DuPont family, which the book targeted, it shrank the book’s advertising budget, reduced the number of copies printed, and shortened its print run. Expert witnesses testified about the royalties the author would have likely received if the contract had not been breached, and the court concluded that the author had proved that he would have made additional book sales if the publisher had published more copies.
Similarly, in Chodos v. West Publishing Company, a publisher was found to have breached its contract with an author when it decided not to publish a book it had contracted with the author to write, not because it was deficient in form or content, but because the publisher believed that it would not be successful. The court believed that because of the wording of the written contract and under the factual circumstances, the author was entitled to be compensated under the legal theory of quantum meruit for the time and effort that went into writing the book, but not for a guess as to the royalties he might have received, since such damages were too speculative and therefore not recoverable.
Cases brought by authors have resolved the other way as well. In Kirschten v. Research Insts. of America, Inc., an author’s numerous claims against a publisher were ruled to be unfounded based on the written agreement entered into by the parties. The court summarized the case as involving “the anger of a proud, talented author who was unable to have a work published that met her own strict standards and, unfortunately, has sought to remedy the problem in court, suing on a contract that as written does not provide her with the niceties she would like.” In Brabec v. Delmar Thompson Learning, the court again relied on the language of a publishing contract to determine whether a publisher breached its duties to the author of a textbook on community nursing. The contract provided that the author had to tender a manuscript that was “acceptable for publication,” a determination that was to be made “in its sole judgment.” The author’s claim that the publisher’s decision not to publish her book was due to the fault of the publisher’s editors was rejected by the court; since no express contractual language required the publisher to edit the book, it was up to her to deliver a satisfactory manuscript.
As is well illustrated by the foregoing case examples, the language of a publishing contract is critically important. Great care should be taken in drafting or reviewing such contracts.