Contract essay

Question 1. What are the four elements of a valid contract?

Four key elements of a valid contract are (Stim, 2010):

• Agreement (consisting of offer and acceptance)
• Consideration
• Contractual capacity
• Legality

First of all, one subject of the contract should make a valid offer, and the other subject should show acceptance, in order for contract conditions to take place. Consideration means that both sides put some value into this contract, i.e. exchange something that has a value into something else that also has a value (this should not be confused with gifts and donations). The element named “contractual capacity” requires both subjects of the contract to be competent enough to participate in contracts (Emanuel, 2006). Legality implies that the contract does not contradict legal regulations and goals of the contract are legal, too. In the case of Leonard vs. PepsiCo the advertisement of PepsiCo cannot be considered a legal offer, and the court stated that subjects competent enough to have contractual capacity would be able to realize that the advertisement was not a legal offer, but a simple marketing step.

Question 2. Describe the objective theory of contracts. How does that theory apply to this case?

Communications of two parties in the contract needs additional regulation since norms and essence of the contract have to be determined basing on the words of both parties, which might in certain cases lead to misunderstandings. Thus, there should be a certain way to judge the manifestations of each party of the contract in an objective way. Contract law uses objective theory of contracts for these purposes. It is one of key approaches used on contract law; this theory suggests that the words and conduct of offeror of the contract should be judged from the point of view of a generally reasonable subject being in the position of the offeree (Emanuel, 2006).

In the case of Leonard vs. PepsiCo, the court decided that a reasonable person would not suggest that PepsiCo was going to provide a jump jet as a prize, because it’s definitely standing out against other “common” prices in the advertisement. Although “reasonable” is a rather vague concept which is also difficult to measure, it can help in the cases when the perception of the situation by the offeror or by the offeree is to a certain extent distorted.

Question 3. Why do you think the court held that there was not a valid agreement here?

First of all, there was no evidence of an offer made by PepsiCo regarding the jump jet. Three elements are needed to form an effective offer: serious and objective intention of the offeror (which was not present in this case), clear definition of the terms of contract and other conditions (which was to a certain extent true, since other items in the advertisement were really suggested as prizes), and communicative part: the offeror should address the offeree (or target group) with the offer (Stim, 2010). Targeted communication was also missing in the case. Thus, there was no offer of PepsiCo and, consequently, no valid contract. It is very likely that the advertisement on selling AnyTown on eBay will also adhere to the same situation, since from the point of view of a reasonable subject, this is not an offer, but simply a marketing solution.

Question 4. Are advertisements generally considered offers? Why or why not?

Advertisements, in the majority of cases, cannot be considered offers, since they in fact are only the invitations to other side to form an offer (Miller & Jentz, 2007). Advertisements reach a large audience, and are directed to communicating the invitation to offer to the target groups of people. Advertisements lack many characteristics of an offer, and unless an advertisement has a very detailed descriptions of the terms, target group and conditions of the offer and is unambiguously communicated to the potential offerees, it cannot be considered an offer.

Question 5. How does this case differ from a reward situation, where a unilateral contract is formed upon completion of the requested act?

The case of Leonard vs. PepsiCo is formally similar to the situation of a unilateral contract (e.g. reward). For a unilateral contract, the offeror declares the conditions of the potential contract to a large audience, and promises a certain reward if offerees perform some actions or service. In this case, no contract happens until the offeree fulfils the condition (Miller & Jentz, 2007). However, in order to start a unilateral contract, the offeror should still declare a valid offer. PepsiCo did not make a valid offer regarding jump jets, and thus the reward situation is not applicable here. Moreover, the customers of PepsiCo were suggested to exchange their Pepsi points to the prizes (thus, Pepsi points had a certain value). In such situation, there was a possibility of a bilateral contract, and unilateral contract was not applicable in this case. However, there was no bilateral contract, too, due to the absence of a valid offer.