A contract is an agreement between two or more parties, which is enforceable by law. For a contract to exist, the following elements must be present:
- Offer and Acceptance: this is when a party called the offeror offers a service or anything of tangible value to another party called the offeree who signifies his agreement to such terms in writing, orally or through his actions. Such an offer must be directed to a specific person or group of people who are identifiable and not to the generality of the populace. This must be mutual assent or consensus ad idem(meeting of moinds) (Legal Information Institute, n.d.)
- Consideration: is that something of tangible(legal) value, which a party gives in exchange for a contractual promise. Consideration or a valid substitute is necessary to create a subsisting contract.
- Capacity: is the legally required ability of a party to enter into a binding agreement such as soundness of mind and attainment of majority.
- Legality: means that the parties meant the agreement to be legally binding. As such, the object must be legally contractible e.g., a contract to steal is not binding.
The objective theory of contract is “a principle in U.S. law that the existence of a contract is determined by the legal significance of the external acts of a party to a purported agreement, rather than by the actual intent of the parties” (West’s Encyclopedia of American Law, 2005). This means that the law makes an objective interpretation of the intent of the parties rather than their subjective intentions i.e. the law would look at what a reasonable person would interpret the actions of the parties as meaning. In this case, although Leonard believed the advertised prize to be truly redeemable, an objective person would not believe the company was ready to give out a restricted military jet worth around 23 million dollars to everyone who had the money to buy the promotional points to redeem the prize. The best conclusion that a reasonable person would have reached is that the Harrier jet prize is a big joke and a hyperbolic statement.
In this case, the court held that there was no contract because:
- The advert by PepsiCo does not fit the definition of an offer as it is addressed to the whole populace. The advert is a pre-contractual statement sometimes called an invitation to treat or bargain, it is a call for offers and Leonard’s submission of the check for the prize of the points is an offer to PepsiCo, which they rejected.
- As stated above, a reasonable man would not believe such a statement to be anything but humor.
- In addition, the advert referred to the catalogue for details of the promotion and the catalogue did not contain the Harrier jet prize.
- The parties did not fulfill the condition of writing as the value of the object in contest comes under the provision of the New York Statute of Frauds (John Dr Leonard v. PepsiCo Inc, 2000)
- The Harrier jet was a restricted piece of military technology which could not have been purchased by PepsiCo thus frustrating the contract if there had been one
Advertisements generally do not constitute an offer as they held to be an invitation for offers. The consumer who responds to the advert makes the offer that the advertiser may accept or reject (Carnegie Mellon University, n.d.) This rule is based on the presumtion that it is reasonable to conclude that a seller who has a limited number of items to sell intends to give every person who sees her advertisement, sign, or catalogue the power to bind her to contract (California State University, Northridge, n.d.). However, where an advertisement is specific in wording and direction, it would constitute an offer.
An advertisement offering a reward for lost property such as a pet is an offer for an unilateral contract. In that case, the advertisement is definite and is aimed at a specific audience and returning such an item or performing the requested action would constitute an acceptance of the offer. The leading case for this scenario is the Carbolic Case where a remedy for influenza was sold with a guarantee for £100 if it did not work, the court held in that that the advertisement was a unilateral offer and the use of the remedy by the plaintiff in that acse constituted acceptance of the offer. (Carlill v Carbolic Smoke Ball Company, 1892).
California State University, Northridge. (n.d.). Understand the Roles of Offer and Acceptance in the Formation of a Contract. Retrieved May 2010, from http://www.csun.edu/bus302/Lab/ReviewMaterial/blawoffer.pdf
Carlill v Carbolic Smoke Ball Company, 2 QB 484 (COURT OF APPEAL, QUEEN’S BENCH DIVISION 1892). Retrieved May2010, from Bailii: http://www.bailii.org/ew/cases/EWCA/Civ/1892/1.html
Carnegie Mellon University. (n.d.). Agreements. Retrieved May 2010, from http://www.andrew.cmu.edu/user/sachal/tepper/Notes%20from%20Stefan/04%20-%20Contracts/Chapter%2011%20-%20Agreement.doc
John Dr Leonard v. PepsiCo Inc, 210 F.3d 88 (United States Court Of Appeals For The Second Circuit April 17, 2000)Retrieved May 2010, from OpenJurist.com : http://openjurist.org/210/f3d/88/john-dr-leonard-v-pepsico-inc
Legal Information Institute. (n.d.). Contract. Retrieved May 2010, from Cornell Law School: http://topics.law.cornell.edu/wex/contract
West’s Encyclopedia of American Law. (2005). Objective Theory of Contract. Retrieved 05 08, 2010, from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3437703138.html