Videos: Part 1: Forming Contracts: Video 3: Giving away international flight tickets

Introduction

In 1992, Hoover ran a promotion to increase the sales of its vacuum cleaners and washing machines.  They offered two free flights to Europe (and, subsequently, also to the US) to anyone who bought a Hoover appliance worth over £100 (approximately equivalent to £200 in 2018).  This was an extraordinarily lucrative benefit.  Flying was considerably more expensive in 1992, before the era of Ryanair, than it is today.  The average value of the free flights would have been £400 (approximately equivalent to £800 today).  The result was that very large numbers of individuals bought vacuum cleaners they neither needed nor wanted for the sole purpose of getting the flight tickets.  Hoover ended up facing nearly 600,000 claims for free flights—far more than it had anticipated.  As the video below discusses, the impact on Hoover was dramatic.  It incurred losses of around £50 million, and the company was eventually sold by its parent in the US.  

Watch the video below, and consider the issues discussed in the commentary.

Commentary

1. Analyse the transaction in terms of offer and acceptance, consideration, and intention to create legal relations.

    1. What constitutes the offer of the free flights (as distinct from the offer of the vacuum cleaner)?  At what point is the offer accepted? 
    2. What is the consideration for the promise to provide free flights (as distinct from the promise to provide a vacuum cleaner)?
    3. On what basis can we conclude that Hoover had the intention to create legal relations?

2. As far as offer and acceptance are concerned, it is likely that the advertising material is an offer, which the purchaser accepts by purchasing an appliance which meets the terms of the offer.  Intention to create legal relations, similar, follows from the fact that transactions having a commercial character are presumed to be intended to create legal relations (see the discussion in chapter 4).

Consideration is a little trickier.  There are two ways of analyzing the situation.  Firstly, we can apply Chappel v Nestle [1960] AC 87 (HL), where the Court held that used candy wrappers, which were sent in to claim a reward under a promotion, were consideration for the promise to supply the reward.  Alternately, we can apply Edmonds v Lawson [2000] QB 501, where consideration was interpreted as imputing a requirement of self-interested action.  Either way, the conclusion is that there is consideration.

3. The Hoover free flights fiasco also illustrates two broader dimensions of the law of contract, which are briefly summarized below.

Firstly, it illustrates a key aspect of the doctrine in consideration in operation.  As Chapter 3 has discussed in greater detail, English law states that consideration must be sufficient, but need not be adequate.  It does not matter if what is promised under a contract is out of proportion to the contract price.  As long as the contract meets the tests of offer and acceptance, consideration, and intention to create legal relations, a contract is formed.  Hoover was contractually bound by its promise to offer free flights, even though they were worth several times the value of the vacuum cleaner.  The fact that the benefit Hoover promised was completely out of proportion to the benefit it received was not legally relevant to determining what Hoover’s obligations were.

Secondly, subsequent events also demonstrate the importance of the actual terms of the offer to determining the rights of the parties.   Hoover sought to mitigate its losses by invoking fine print in the terms of its offer.  It denied two types of claims.  If an individual had bought multiple vacuum cleaners, it rejected all their claims, invoking a clause in the terms of its offer under which each household was restricted to a single claim.  Secondly, if the dates of the flights it offered did not suit the customer, it refused to offer alternate dates.  Many people whose claims were rejected sued in the small claims court, and Hoover was still defending actions against it over six years after the promotion.  In general, Hoover tended to win cases where it refused to offer alternate dates if the dates it initially offered were inconvenient.  However, it lost cases where it had refused to provide any flights to persons who had put forward multiple claims.  Judges in small claims courts tended to hold that under the terms of the contract, Hoover had to provide free flights under one of the claims, and could not reject every single claim where multiple claims were put forward.  Hoover’s reliance on small print ultimately led the ASA to revise its code of conduct for promotions, requiring companies to make conditions clear to consumers from the outset.