Contract Law-Rights and Obligations

Answer

1. Contract Law-Rights and Obligations

   Following a soft-drink company’s offer (through one of its commercials) of a Harrier jet to a customer with 700 million company points, a Seattle man raised money worth the specified points (which could be bought for ten cents each). He submitted 15 points, the check for the amount and an official order form, demanding for the jet. The company wrote back explaining that the Harrier jet notion in the commercial had only been one way of making it entertaining and humorous. It thus apologized to the man and sent him some free coupons. The man sued the company, but the judge held that it had only been joking about giving away Harrier jets. This paper discusses the legal factors present in the scenario and explores whether or not there existed a contract between the company and the man (or its customers). It also looks at the objective theory of contracts and how it applies to this case. Further, relevant legal concepts and cases are analysed and a recommendations given to any company considering an aggressive marketing campaign with giveaways of high value items.

   To start with, it is important to state that  the man moved to court believing it was his right to be given the Harrier jet by the company, which was (at least according to him) obligated to do so. The legal factors present in the scenario include a need to determine when summary judgement is proper especially in the context of contract formation as well as what standard is applied in evaluating particular communication to determine whether it constitutes an offer. In addition, there is need to establish whether an advertisement is an offer.

   In order that the above issues be determined, it is imperative to comprehend how contract law applies. By understanding what a contract is, it would be easier to determine whether the company acted in breach of contract. A contract is defined as an agreement with a lawful object voluntarily entered into by two or more parties, with each of them intending to be legally obligated to each other (Frier, & White, 2005). Such parties create legal obligations between them. The four elements of a contract are offer, acceptance, consideration, and intention to create legal obligations/relations.  As for offer and acceptance, an offer to contract on particular terms must be given by one party (the offeror) to another party (the offeree), who must indicate acceptance of the said terms. The notion of offer and acceptance points to a moment of formation in the context of a contract when the involved parties are of ‘one mind’. When making the offer, the offeror expresses willingness to contract on particular terms with the intention that such an offer can become binding the moment it is accepted by the party to whom it is offered (Clark, &Ansay, 2006). Simply stated, an offer constitutes a statement of the terms under which the offeror is willing to be bound. It can be communicated through a newspaper, letter, email, and an advertisement just to mention but a few. The point is to communicate the grounds on which the offeror is ready for the contract. Another element, consideration, is the notion of legal value in the context of a contract. It refers to anything of value that one party promises another and it can take the form of money, goods, services, or promised actions (Ewan, 2005). In this respect, consideration to have a legally enforceable contract includes a bargained for legal detriment that the promisee incurs, or the promisor’s legal benefit. Concerning the intention to create legal obligations/relations, it is the intention by the parties to have their agreement be subject to, or governed by the law of contract, so that their agreement has legal consequences. Therefore, in a contract, involved parties accept legal obligations, such that each seek a remedy if the other acts in breach of their agreement (Frier, & White, 2005).

   In the case under focus, the elements of a contract gain relevance since they form the basis of its analysis in determining the issues mentioned earlier on. One would wish to know whether there was a contract between the company and the man. Was there offer, acceptance, consideration, and intention to create legal relations? Notably, the judge held that no reasonable person could have inferred the company’s commercial constituted an offer for the said Harrier jet. Importantly, whether there was an offer made by the company is dependent on the objective reasonableness of the man that the advertisement was meant/intended to imply it constituted an offer. Going by the definition given, the advertisement seems to have been an expression for an offer, but the notion of it being an offer is negated when one considers the objective reasonableness.

   The objective theory is of central importance in this case. A principle in law, it presents that whether a contract exists or not is determined by the legal significance of a party’s external acts to a purported agreement, as opposed to the actual intent of the involved parties (Perillo, 2000). In the case under focus, this theory would require that the judge takes into consideration the external acts of both parties to determine if or not a contract exists. However, in as much as it is arguable that the objective theory is central, some elements of subjectivity cannot be ignored. Nevertheless, the theory is important in exploring the grounds in which the company denied the existence of a contract, or has avoided it, for it defended itself on the basis of its intentions.  More precisely, the theory informs why the court failed to find the existence of a contract. It is clear the company did not intend to be bound and the man was expected to have known that it (the company) never intended to enter a binding agreement when it released the commercial. This brings one to the question: is an advertisement an offer? The answer is negative. Even from the case under focus, it is clear courts do not consider advertisements as offers. Quite contrary, they are regarded as an invitation to start negotiations. An example to illustrate this point is an advertisement on fruits it implies are delicious. If a customer buys the fruits and finds out they are not delicious, he cannot sue for such, otherwise advertisements would be offers. However, offers can be communicated through advertisements.

   Arguably, the decision by the court was to a great extent based on objective reasonableness. The judge ruled basing his argument on the contextual understanding of a reasonable person in the manner that related to contractual intent. He determined the company’s intent by examining the understanding of a reasonable person, having looked at all relevant aspects of the case. He held that the company had made no serious offer for the said jet, because such an offer would be unreasonable considering the cost and use of the Harrier jet. To borrow from Lucy v Zehmer, where there is no indication that an offer has been made in jest, and an objective reasonable person finds the offer to be serious, an offer would exist under law even if the offeror was acting in subjective jest (Ewan, 2005). The man (Leonard) had submitted that the court decides his belief was reasonable. The court rejected his argument, noting that the commercial was improbable considering its use and cost. There exists a disposition to this case/judgement in Carlil v Carbolic Smoke Ball Co., another contractual law case (Chirelstein, 2008). Here, the court held that a commercial constituted a unilateral offer and was adequate to render a contract valid/binding merely by its terms performance without notice. The kind of contract in the case, a unilateral contract, is one where the offeree agrees to the contract, or accepts the offer, by performing acts which indicate such an agreement (to the bargain). This contract differs from a bilateral contract which entails an exchange of promises by the involved parties. In other words, a unilateral contract is that where the promisor pays after a certain task or act is complete, whereas a bilateral contract gives room for an upfront exchange (Ewan, 2005).

   The case under discussion is a wake-up call for companies planning aggressive marketing campaigns with giveaways of high value items to be careful. These two recommendations are worth considering:

   1. Take into account the likelihood of such marketing campaigns being misinterpreted to mean offers in the context of contractual law, and as such make it clear if they intend to be legally bound or not. Such consideration would prompt companies to state and make clear the terms of their ‘offers’ or invitation to offers which would otherwise be interpreted as offers (in the legal context) by reasonable persons. They should indicate their intention (or lack of it) to be legally bound as such would make it clear if the advertisements imply offers that are legally binding. The rationale for this recommendation and argument is that not everyone is as sufficiently knowledgeable in legal matters as to distinguish when there is an offer and when there is not. In the same respect, it is highly likely that most people think advertisements are offers.
   2. Apply the concept of ‘reasonable person’ to themselves first as opposed to waiting for it to be a remedy in court. The rationale for this recommendation has its basis in the manner the said notion is applied in common law, and more specifically contract law. It is employed in determining contractual intent. Under it, the intent of a party is determined through an examination of the expected understanding of a reasonable person. All relevant circumstances are considered and the expectations, actions and omissions of a reasonable person evaluated. For instance, in the case being looked at, the judge considered that any reasonable person would have just known that it was impossible for the company to offer a Harrier jet worth $23. Its use and cost could tell any reasonable person not to expect it from the company. For the firm, it was a great win in court because the judge decided it was a big joke, implying it was ‘unreasonable’. One would expect the company to be more reasonable in its advertisements. The case is no different from a winery claiming in an advert that if anyone who is HIV positive takes a certain brand of its wine then they will be free of the virus. The wine may be good but the company must be reasonable in its advert.

   To conclude, there are many issues revolving around the law of contract that arise in the case under focus. Unfortunately, the scope of this construction cannot allow for an exhaustive discussion of each one of them. Nevertheless, it is one’s belief that what has been discussed thus far is appreciably informative.