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City of Bigtown

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You are still working for the City of Bigtown's Counsel, and it seems that your work largely involves shooting down the mayor's "creative" ideas to boost tourism. He is taken with the idea of an advertising campaign developed around auctioning Bigtown on eBay! He thinks that no one will take the auction seriously but that people will come to Bigtown to satisfy their curiosity.
As you and your boss are rolling your eyes at each other, you remember a similar situation - the Pepsi Harrier-Jet case. You offer to provide background information and write an executive summary addressing specific issues around contracts.

Seattle Man Loses in Battle With Pepsi for Harrier-Jet Prize

LEAD STORY-DATELINE:
Wall Street Journal, August 9, 1999.

John D.R. Leonard took PepsiCo seriously when one of their "Pepsistuff" 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, Pepsi jokingly included the Harrier as one of the prizes that could be received with a "mere" 7 million Pepsi points. While that sounds like a lot of points to get from drinking Pepsi products (roughly 190 Pepsis a day for 100 years), the company also allowed customers to purchase points for 10 cents a piece.

Leonard did the math, and discovered that the cost of the 7 million points needed for the jet was a mere $700,000. He then put together a business plan, raised the $700,000 from friends and family, and submitted 15 Pepsi points, the check, and an official order form along with a demand for the Harrier jet.

PepsiCo wrote back, stating: "The Harrier jet in the Pepsi commercial is fanciful and is simply included to create a humorous and entertaining ad. We apologize for any misunderstanding or confusion that you may have experienced and are enclosing some free product coupons for your use."

The free coupons did not satisfy Leonard, who then took PepsiCo to task in court. Finally, on August 5, 1999, a federal judge for the Southern District of New York held that PepsiCo was only joking when it implied in its ad that it was giving away fighter jets. Judge Wood noted that since the jets sell for approximately $23 million each, "no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier jet." Instead, this was a classic example of "a deal too good to be true."

If you wish to find out more about this case (and the rationale underlying Judge Wood's decision) you can view the entire opinion and order.

Write a 1-2 page executive summary answering the following questions:

What are the four elements of a valid contract?

Describe the objective theory of contracts. How does that theory apply to this case?

Why do you think the court held that there was not a valid agreement here?

Are advertisements generally considered offers? Why or why not?

How does this case differ from a reward situation, where a unilateral contract is formed upon completion of the requested act?

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Solution Summary

This solution talks City of Bigtown's Counsel and keeping it within the constraints of law. It explores the boundaries within which the mayor must operate.

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What are the four elements of a valid contract?
The four elements of a contract are offer and acceptance, capacity, legal purpose and consideration. In some cases a written contract is required. It is also important that the intention to create a legal relation is important.
Bigtown is making an offer on eBay. If someone makes a bid, there will be consideration and acceptance of the offer. The person making the bid may have the capacity. However, the person bidding may not be able to establish that auctioning Bigtown is legal. In this case the Mayor may be held responsible for doing something illegal. This may sully his reputation and respect. He may be sued for attempting to do something illegal. Instead of making Bigtown popular he may bring disgrace to it.

Describe the objective theory of contracts. How does that theory apply to this case?
The objective theory of contracts says that the court evaluates what the person actually said or ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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