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According to American legislation, a contract is valid if it has the following elements:
- offer, made by one side and acceptance of the other party;
- consideration or any material value;
- legal capacity,
- purpose (Slawson, 1996).
This agreement can be either oral or written, and its terms must be clearly stated and understood by both sides. Additionally, both parties must be well aware of the consequences. So, they also need to be out of age and mentally healthy in order to enter such agreement. If we refer to the case John Leonard vs. Pepsi Co., we may say that the companys commercial had all these characteristics because this enterprise named the reward (a Harriet Jet) and the price, 7 million Pepsipoints. Certainly, this advertisement aimed to produce only humorous effect but from formal point of view it was a valid contract. However, the court overruled the claims, made by John Leonard.
In order to explain the decision of the judge we should discuss the objective theory of contracts. According to this principle, the agreement is real only if a third party believes that the terms are reasonable and objective (Benson, 2001, p 5). In other words, the arbiter had to determine whether this commercial was a genuine pay promise or just a joke to entertain the viewers. The judge concluded that this promise could not be taken seriously because the price of a Harriet Jet was approximately 26 million dollars, while the cost of Pepsipoints was $ 700.000. Moreover, no person could presume that Pepsi would distribute military aircrafts to the civil population. The judge applied this principle while trialing this case. In fact, he relied mostly on common sense and from his perspective, this statement, made by Pepsi Co,, was not a pay promise. This is the main reason why John Leonards suit was unsuccessful.
In this respect, we need to point out that in the vast majority of cases; commercials are not considered as valid contracts because they are not specific. They are usually based on the play of words or even metaphors and this is not acceptable in legal documentation and business communication. Very often they appeal only to a persons sense of humor. It is hardly possible to find any legal contract, which does not specify the rights and duties of the participants. Advertisements seldom do it. The management of Pepsi simply did not expect that their joke would lead to such misunderstanding.
However, there are cases, when advertisements can be regarded as valid contractual agreements (Beale, 2002, p 189). For example, when a firm says that it will return money if the product does not work appropriately, the customer has a right to request a refund (Bolton & Dewatripont, 2005). The client can even suit the company if this enterprise does not fulfill its obligations. Provided that a company or a person makes such a promise, he or she automatically signs a unilateral contract, which means that this individual undertakes the responsibility to pay a certain amount of money or give a certain reward to another person. Nevertheless, in such cases the judge always plays the most important role. If any controversy arises, this person needs to evaluate the offer, made by the party and determine whether it was reasonable or not. Thus, we can argue that modern legislation does not actually offer concise explanation of this question, and the main responsibility for such decisions lies on the shoulders of judiciary officials.
Reference
Beale H. (2002) Contract law. New York. Hart Publishing.
Beale, H.G., Bishop, W.D. & Furmston M.P. (2007) Contract: Cases and Materials. Oxford: Oxford University Press.
Benson, P. (2001). The theory of contract law: new essays. Cambridge: Cambridge University Press.
Bolton, P. & Dewatripont M. (2005) Contract theory. Boston: MIT Press.
Slawson, W. D. (1996). Binding promises: the late 20th century reformation of contract law. Princeton: Princeton University Press.
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