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Corbin on Contracts

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

Supp. To CHAPTER 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.4

Supp. to § 2.4 Offer by Publication or Advertisement

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(A) The following cases cite this section or its predecessor:

(1) Leonard v. PepsiCo, Inc., 88 F. Supp. 2d 116 (S.D.N.Y. 1999) . PepsiCo conducted a promotional campaign called ''Pepsi Stuff,'' encouraging consumers to collect ''Pepsi Points'' from specially marked packages of Pepsi and redeem these points for merchandise. Pepsi Stuff catalogs were distributed to consumers, detailing the number of points needed for redeeming each product. The catalog noted that in the event that a consumer lacked enough points to obtain a desired item, additional points may be purchased for ten cents each, but that at least fifteen original Pepsi Points must accompany each order.

As part of its promotional campaign, PepsiCo aired a television commercial. During the commercial, several items were displayed alongside which the requisite number of points necessary for redemption was displayed too. At one point during the commercial, a teenager opened the cockpit of a Harrier Jet and could be seen holding a Pepsi. The following words then appeared: ''Harrier Jet 7,000,000 Pepsi Points.''

Leonard initially set out to collect 7,000,000 Pepsi Points, but soon realized the he could not accomplish such a task. He changed his plans, and through acquaintances ultimately raised $700,000. He later submitted an order form, fifteen original Pepsi Points, and a check for $700,008.50. In the ''Item'' entry of the order form, plaintiff wrote ''1 Harrier Jet''. PepsiCo returned the order form and the check, claiming the Harrier Jet was included merely to create a humorous and entertaining ad. Plaintiff sued for breach of contract and asked for specific performance. PepsiCo moved for summary judgment.

The court granted PepsiCo's motion. In deciding whether the commercial constituted an offer, the court, citing this section, held that the ad was a mere request to ''consider and examine and negotiate.'' The court also cited and heavily relied on § 1.11, concluding that the commercial was an ''act evidently done in jest or without intent to create legal relations.''

This case is also noted in § 1.11 of this supplement.

(2) Dodson Livestock Co. v. United States, 48 Fed. Cl. 551 (2001) . The plaintiff purchased 18 purebred sheep at an auction, later to find that one sheep was diseased, and that the slaughter of the entire flock was therefore necessary. The plaintiff sued for breach of contract, relying upon a flyer which stated, in part, ''enclosed is performance or pedigree information for sale rams and Texel ewes. ... All animals sold will be sound, healthy, guaranteed breeders.'' The court granted the defendant's motion for summary judgment, finding that the plaintiff's interpretation of the defendant's advertising flyer and the sale catalogue was not reasonable, and that even if the documents were ambiguous, the ambiguity would be patent, and the plaintiff would have had a duty to inquire and seek clarification.

In citing the predecessor section to this section of Corbin, the court reasoned that advertisements of goods are seldom to be interpreted as in themselves offers creating a power of acceptance, but that the descriptive statements made as to quality of the goods may sometimes be reasonably understood to be warranties that become a part of a contract for sale of such goods that is subsequently entered into with a buyer. If, however, the reasonable person would take the advertised statements to be mere ''puffing'' or expressions of opinion, then they will not become warranties upon which a buyer can rely. Advertisements are typically understood to be mere requests to consider and examine and negotiate.

In the instant case, expressions made by the seller after the advertisements were published could reasonably serve to modify the expectations of the buyer, which included a publication that ''animals become buyer's risk when sold,'' as well as a warning about possible exposure of the animals to paratuberculosis. Because of the ambiguity of the publications, the buyer had a duty to inquire and seek clarification.

(3) Donovan v. RRL Corp., 26 Cal. 4th 261, 109 Cal. Rptr. 2d 807, 27 P.3d 702 (2001) . This case is fully noted at § 2.2 of this supplement and is also noted at § 4.11 of the supplement and in §§ 28.39 and 28.40 in Volume 7 of the treatise.

(4) Zanakis-Pico v. Cutter Dodge, Inc., 98 Haw. 309, 47 P.3d 1222 (2002) . The plaintiffs, Mary and Thomas Pico, responded to the defendant's prominent newspaper advertisement of a ''NEW '97 GRAND CHEROKEE LAREDO'' priced at $229 per month for 24 months, no cash down, or a total cash price of $20,988. Fine print at the bottom of the add revealed that the price included rebates for recent college graduates and for loyal customers. The Picos attempted to purchase the vehicle on the advertised financing terms but were told they would be required to pay a $1,400 downpayment since the advertised terms were only available to recent college graduates who were entitled to a ''loyalty'' rebate. The Picos brought this action for breach of contract among other claims.

Though the fundamental question of whether such an advertisement could constitute an offer was one of first impression in this jurisdiction, the court quoted numerous examples of the well-established rule in other jurisdictions that advertisements are generally invitations to deal and not binding contractual offers, ''unless they invite acceptance without further negotiations in clear, definite, express, and unconditional language.'' While the quoted language is typical in opinions dealing with this issue, no matter how clear and definite an advertisement, it will not constitute an offer absent some manifestation of commitment. Fortunately, the court also mentions the Restatement (Second) of Contracts, § 26, comment b, which states that ''there must ordinarily be some language of commitment or some invitation to take action without further communication.'' Absent language that can reasonably be interpreted as promissory, an advertisement will not be an offer. The court mentions Corbin's view that advertisements are not presumed to be offers unless they contain unusually clear words to the contrary. The Picos did not have a power or acceptance because the sale was to be on approved credit. Thus, the ad was not an offer. The court noted, however, that a different result would have been reached if the Picos had tendered the $20,988 instead of seeking the advertised financing. A Hawaii statute required advertised vehicles to be available on advertised terms. A consumer would have a justifiable expectation that a particular vehicle would be available at a particular cash price. Thus, a tender of the advertised price would have formed a contract.

(B) The following cases are noteworthy:

(1) Litman v. Walt Disney World Co., 2002 U.S. Dist. LEXIS 5115 (E.D. Pa. Mar. 26, 2002) . The plaintiffs, alleging the defendant's negligence causing injury at Walt Disney World in Florida, brought their action in this Pennsylvania District Court. The plaintiffs claimed jurisdiction under several theories including an alleged contract with defendant via a promotional videotape and related materials sent by a separate but related corporation. The court held that the videotape and materials were advertisements, which generally are not considered to be offers, and the plaintiffs failed to show that these materials should be treated as offers. Moreover, a letter enclosed with the materials instructed the plaintiffs to call the corporation or a travel agent if they had any interest in a Disney vacation. Since there was no power of acceptance created by the advertising materials, the plaintiffs could not prove a contract made in Pennsylvania, which had little if anything to do with any contract plaintiffs may have formed with the defendant. The court held that the proper jurisdiction was the Middle District of Florida.

(2) Sherry v. Board of Accountancy, 2006 Ore. App. LEXIS 612 . The petitioner was an Oregon certified public accountant who advertised by a flyer in a local newspaper stating: ''Professional Service Warranty that guarantees you the largest refund possible with the lowest tax liability or our services are free.'' Clients responded to the flyer and, while no client sought to obtain a refund for the petitioner's services under the terms of the ''professional service warranty,'' the petitioner testified that he intend to perform in accordance with the warranty if a client presented evidence of a lower tax liability. The Board of Accountancy found that the petitioner had violated the statutory preclusion offering accounting services for a contingent fee. The court carefully reviewed the statutory definition of ''contingent fee'' and found that it had been met. The petitioner then claimed that, even assuming his professional service warranty evidenced a contingent fee arrangement, his flyer advertisement was not an offer since advertisements generally are not construed as offers creating a power of acceptance in the parties to whom they are addressed to form a contract. The court recognized this general view of advertisements pursuant to § 26, comment b, of the Restatement (Second) of Contracts, but noted that the Restatement it is possible to make an offer to the general public in an advertisement. The court found that the ''warranty'' was part of the contract between the petitioner and the clients who contacted the petitioner in response to the flyer. The petitioner did, in fact, perform tax services for these clients and the petitioner admitted that he intended to be bound by his warranty of free service if a client proved a lower tax liability though no client had pursued enforcement of the warranty. An alternate analysis of these facts is more than plausible. The advertisement term ''warranty'' is, itself, capable of being interpreted as a promise. Indeed, an express warranty in such an advertisement could easily be said to become ''part of the basis of the bargain'' by analogy to § 2-313 of the Uniform Commercial Code. The term ''guarantee,'' while imprecise, also has promissory connotations as an assurance or commitment. The subject matter would be the fee normally charged for the tax service which is reasonably certain. Nothing artful, therefore, is required for an interpretation of this ''professional service warranty'' that it amounted to a promise to repay the fee charged for a service subject to the condition that a lower tax liability can be shown. Indeed, it is reminiscent of the well-known Carbolic Smoke Ball case noted in the main volume, albeit the language in that advertisement was emphatically promissory. It is, therefore, plausible to suggest that the advertisement herein was an offer that was accepted by clients induced to engage the petitioner's services. At the very least, once a client engaged the services of the petitioner, the express warranty in the flyer would become part of the basis of the ensuing bargain.

Supplement to Notes in Main Volume

3. This section is quoted in Kiley v. First National Bank, 102 Md. App. 317, 649 A.2d 1145 (1994) (letter by bank to depositors stating, ''We're excited about having you as a new First National customer and want to assure you that any changes to your accounts will be to your benefit,'' was at most a mere expression of intent to do an act, not a contract). This case is also noted in § 2.2.

Trell v. Amer. Assn. of the Advancement of Science, 2007 U. S. Dist. LEXIS 36942 (W.D.N.Y. 2007) . The defendant (AAAS) maintains a website (ScienceNOW) designed to receive science ''news tips'' which its news team would investigate and that might lead to a story in the print version of ScienceNOW magazine. Trell was a professor and medical doctor from Sweden who submitted a manuscript designed to solve a famous mathematical problem (Beal's Conjecture) which AAAS declined to publish in ScienceNOW because it was not ''news'' and because it did not appear to solve the problem. The court found that the ScienceNOW website soliciting ''news tips'' was an advertisement that could not be construed as an offer. Like typical advertisements, this advertisement simply invited offers. Citing § 26 of the Restatement (Second) of Contracts, the court held that Trell's submission of the manuscript was an offer which Trell clearly admitted AAAS declined to accept. The court found no distinction between such advertisements communicated through the internet and advertisement communicated by television, radio or newspapers.