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A classic example of a deal that was too good to be true.

In 1999, a Seattle man took a popular soft-drink company seriously when one of its commercials made an offer of a Harrier jet, the famous high-tech jump jet used by the U.S. Marines. In a TV commercial that aired in 1995, the company jokingly included the Harrier as one of the prizes that could be received with a mere 7 million company points. Although that sounds like a lot of points to get from drinking the soft drink company's products (roughly 190 drinks a day for 100 years), the company also allowed customers to purchase points for 10 cents each.
The man did the math and discovered that the cost of the 7 million points needed for the jet was $700,000. He then put together a business plan, raised the $700,000 from friends and family, and submitted 15 points, the check, and an official order form along with a demand for the Harrier jet.

The company wrote back, stating that the Harrier jet in the commercial was simply used to create a humorous and entertaining advertisement. They apologized for any misunderstanding or confusion people may have experienced and enclosed some free product coupons.

The free coupons did not satisfy the man, who then took the soft drink company to court. Finally, a federal judge for the Southern District of New York held that the company was only joking when it implied in its ad that it was giving away fighter jets. The judge noted that because the jets sell for approximately $23 million, no one could have concluded that the commercial actually offered consumers a Harrier jet. Instead, this was a classic example of a deal that was too good to be true.

Discuss the following questions:

â?¢What are the four elements of a valid contract?
â?¢What is the objective theory of contracts?
â?¢How does the objective theory of contracts apply to this case?
â?¢In your own words, why do you think the court held that there was not a valid agreement here?
â?¢Are advertisements generally considered offers? Explain.
â?¢How does this case differ from a reward situation in which a unilateral contract is formed upon completion of the requested act?

The following equation well illustrates in concise form the difference between the four elements of contract:-

Distinction between Agreements and Contracts:-

Offer + Acceptance = Agreement;
Agreement + Enforceability at law = Contract

If A and B two parties enter into an agreement intending to be bound by it, a court of law applying ether of the theories, subjective or objective, would arrive at the same conclusion indicating that the parties did enter into a binding contract.

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. Here we have to consider the actual intent of the parties rather than the legal significance of the external acts of a party to a purported agreement.

The present case has been rightly summed up by the honorable Federal Judge of the Southern District of New York as "classic example of a deal that was too good to be true". Factually it was incapable of performance and anyone in his perfect state of mind can straight away view it nothing more than a joke.

The above makes amply clear that the case falls within the objective theory of contracts. Another point worth noting here is : "An agreement the performance of which is physically impossible is void ab initio that is from its very inception. If a person agrees to touch the sky is void ab initio".

The consideration should be lawful with a lawful object and the parties must be competent.

In the famous case of Carlill v. Carbolic Smoke Ball Co., it was held that there was a binding agreement between the company and Mrs.Carlill although she had not communicated her acceptance of the offer to the company but had accepted it by her conduct.

Where an offer is made to the public at large or even to the whole world, any member of the public can accept the offer in which case there will be a binding agreement between the proposer and the member of public accepting such offer.

However, if a person returns the article has not in reality has read the advertisement and is not aware of the reward, can not later on claim the reward after returning the article as he was not aware of the reward. He had not read the advertisement and had no idea that performance of such act attracts a reward also. He did not even know of its existence.

In this case there was no offer hence no acceptance.

In reward situation the act is capable of being performed, not illegal ab initio, offer is factual, amount of reward is fixed and the person undertaking to perform the duty is aware of the existence of reward which is realistic.

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SOLUTION:

â?¢What are the four elements of a valid contract?

Four elements of a valid contract are:
Legal requirements of formation of a contract are:

1) Offer,
2) Acceptance,
3) Agreement, and
4) Consideration.

To be enforceable in the court of law the following also must be present in a valid contract:

1. Proposal and acceptance
2. Consideration - lawful consideration with a lawful object
3. Capacity of parties to contract - competent parties
4. Free consent
5. An agreement must not be expressly declared to be void.
6. Writing and Registration if so required by law
7. Legal relationship
8. Certainty
9. Possibility of performance
10. Enforceable by law.

Distinction between Agreements and Contracts:-
Offer + Acceptance = Agreement;
Agreement + Enforceability at law = Contract

What is the objective theory of contracts?

Learned Judge of New York, Samuel Williston summarized the objective theory of contracts quoting from a case, "Hotchkiss v National City Bank" 1911 as follows:-

"A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party when he used the words intended something else than the usual meaning which the law imposes on them, he would still be held, unless there were mutual mistake or something else of the sort"
.
The difference between these two contradictory theories of contract, objective and subjective, does not say that ordinarily every day agreement would be a considered as a binding contract in common in view of one theory but not of the other.

If A and B two parties enter into an agreement intending ...

Solution Summary

The four elements of Law of Contract are essential to form a valid contract. All the ten characteristics of a valid must be present to make it enforceable in the court of law. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent, unless there was mutual mistake or something else of the sort. The difference between these two contradictory theories of contract, objective and subjective, does not say that ordinarily every day agreement would be a considered as a binding contract in common in view of one theory but not of the other.
The principle of the theory clearly states 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. Here we have to consider the actual intent of the parties rather than the legal significance of the external acts of a party to a purported agreement
An offer to be complete must be communicated.

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