Contract law principles and applications

¶ … court ruled that the commercial was not an offer to enter into a contract. Explain the court's reasoning and holding.

In principle, a valid contract requires an offer, acceptance of that offer, sufficient specificity as to the substance of the agreement (i.e. time frame for delivery or execution, amount of payment, terms of agreement, etc.), and the payment or transfer of valuable consideration. Once an offer is proffered, the party or parties to whom that offer is extended (the "offeree") may accept that offer by communicating that acceptance to the party making the offer (or "offeror") or by performing a specific act specified by the offeror as a form of acceptance. Once an offer is accepted by the offeree, it can no longer be withdrawn by the offeror without incurring potential liability in contract to the offeree.

Generally, an advertisement (including a television commercial) is not considered an offer. According to The Restatement (Second) of Contracts (1979),

"Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists and circulars, even though the terms of suggested bargains may be stated in some detail."

Instead, under modern contract law, a typical advertisement is considered to be merely a public notice or an invitation to make an offer or to negotiate. Therefore, when a company publishes a public advertisement, unless it specifies additional terms sufficient to establish an offer, the sequence of contract actually begins when a member of the public responds to the advertisement by coming in to the store to offer to purchase the goods advertised. It is the merchant who may then accept the offer of the customer to create a binding contract.

There were also additional factors considered by the Court in determining that the advertisement was not an offer that could have been accepted to create any contractual obligation. Specifically, the Court determined that an "objective reasonable person" would not have believed that the scenario depicted in the commercial (i.e. The award of a $23 million jet fighter) was actually one of the items available to Pepsi customers redeeming Pepsi reward points. Furthermore, the rules established and published by Pepsi for redeeming reward points specified that they had to be redeemed using the form provided by Pepsi. That form depicted photographs of 53 items available in connection with points redemption and the fighter jet was not listed among them. Therefore, the Court presented three different rationales for finding that the commercial was not an offer capable of having been accepted by the plaintiff: First, the general rule of advertisements holds that they are merely invitations to make an offer rather than offers themselves. Second, the content of the commercial was clearly, by the "objective reasonable person" standard, meant as a joke rather than to be taken seriously. Third, the specified manner of redeeming points precluded redemption for any item not listed on the redemption form.

2. Do you agree or disagree? If you were the judge, how would you have ruled? Would the Christian worldview affect your reasoning?