Videos: Part 1: Forming Contracts: Video 1: Giving away a Harrier Fighter

Introduction

In 1995 and 1996, Pepsi ran a special promotion in the US.  Consumers who bought Pepsi could collect ‘Pepsi Points’, which they could then exchange for ‘Pepsi Stuff’—essentially, Pepsi-branded merchandise such as baseball caps and T-shirts, listed in a Pepsi Stuff Catalog.  The form to send in was also printed in the Catalog.  People who did not manage to collect enough points for the item they wanted could buy extra Pepsi Points for 10 cents a point.

Pepsi ran the following ad on TV to publicize the promotion.  The final scene of the ad shows a character disembarking from a Harrier fighter jet, and carries the caption: “HARRIER FIGHTER 7,000,000 PEPSI POINTS”.  The Pepsi Stuff Catalog did not include the fighter.  John Leonard saw this ad. He raised US$ 700,000 and wrote to Pepsico Inc. claiming the reward of the Harrier Fighter as permitted by the contest rules. Pepsi refused, and the matter ended up in court in the Federal District Court for the Southern District of New York.  The court found against the plaintiff, holding that the ad did not create a binding obligation in relation to the Harrier Fighter (See Leonard v Pepsico Inc. (1999) 88 F Supp 2d 116, available online on Justitia).

At one level, this outcome is intuitive and commonsensical: a fighter plane is not a likely reward to promote a soft drink.  Explaining why the outcome makes legal sense, however, is not necessarily straightforward, particularly when it is put in the context of other ad campaigns that were also run in the 1990s (see videos 2 and 3).  From a strictly legal point of view (as opposed to a layperson’s commonsensical point of view), the specifics of what was said and shown in the ad assume considerable importance in determining whether or not it is an offer.

Watch the ad carefully, and analyze its legal effect in terms of the law of formation.  The points under comment 1 will help you to do this if you find yourself struggling.  The commentary then describes the main grounds on which the court in the US held there to be no contract, and invites you to consider how those issues would have been decided under English law.  

Commentary

1. To consider whether a contract was formed in this situation, you need to work through the elements of formation: namely, offer and acceptance, consideration, and the intention to create legal relations. 

    1. Ordinarily, a situation like this would fall at the first hurdle, because advertisements are usually only invitations to treat, and not offers.  As you will remember from your reading of Chapter 2, however, advertisements announcing rewards are very often taken to be offers.  The transaction is seen as creating a unilateral contract (Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256).  The first question you need to consider, therefore, is whether the advertisement in this case is sufficiently similar to Carlill for it to constitute an offer.
    2. On the issue of consideration, consider the facts of this case in light of Chappel v Nestle [1960] AC 87 (HL). 
    3. On the issue of intention to create legal relations, the key question is whether the ad would objectively be seen as evidencing an intention to take on binding legal obligations (as opposed, for example, to being obviously a joke).

2. In holding that the ad did not constitute an offer, the Federal District Court placed considerable weight on the fact that Pepsico had issued a Pepsi Stuff Catalog, which was referenced in the ad itself.  In consequence, the Court held that it was the Catalog that was the offer, rather than the ad.  Because the Harrier Fighter was not listed as a reward in the Catalog, no offer had been made in relation to the Fighter, and there was therefore no contractual obligation to supply a fighter in exchange for 7,000,000 Pepsi Points.

Consider the extent to which this reasoning applies in English law.  You will, in particular, need to consider the implications of the objective test.  Draw on cases like Storer v Manchester City Council [1974]1 WLR 1403 (CA) and Gibson v Manchester City Council [1979] 1 WLR 294 (HL) to flesh out your reasoning.

3. The Court also held that the ad was obviously a joke, placing emphasis on the ‘callowness’ of the youth, the fact that jets of that nature are not suitable transports to school, and the fact that the deal is ‘too good to be true’.

In English law, the equivalent principle is the intention to create legal relations.  How would the presumptions discussed in Chapter 4 apply to this ad?  Would the circumstances identified by the Federal District Court be seen in English law as negativing intention to create legal relations?  Consider how you might distinguish this situation from the ads in videos 2 and 3.