Contract Law: Legal Factors in Contract Formation and Objective Theory

This report analyzes key legal factors in contract law, focusing on offer, invitation to offer, acceptance, unilateral contracts, consideration, and legal intention. It examines a scenario involving a soft drink company's advertisement offering a Harrier jet as a prize, arguing that it constitutes an invitation to offer rather than a valid offer due to the unrealistic conditions and lack of legal intention. The report applies the objective theory of contract, emphasizing the perspective of a reasonable third party to determine the validity of the agreement. It references case law such as Carlill v Carbolic Smoke Ball Co and John D.R. Leonard v. Pepsico, Inc. to support its arguments. Furthermore, it distinguishes between offers and invitations to offer and explores the nature of unilateral contracts, highlighting the importance of legal intention and reasonable conditions. The report concludes with recommendations for companies making aggressive advertisement campaigns, suggesting disclaimers and potential legislation to prevent misleading practices.

Running head: CONTRACT LAW
CONTRACT LAW
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The key legal factors present in the recent scenario are offer, invitation to offer,
acceptance, unilateral contract, consideration and legal intention of the parties to the contract.
The four key elements of a contract comprise of an offer, acceptance, legal intention and
consideration of the contract. In the present scenario, a soft drink company makes an invitation
to the people at large be means of television commercials that a Harrier jet will be given as a
prize when any customer will be able to earn 7 million company points. This is not an offer yet
an invitation to offer. However this although refers to a unilateral promise as held in Carlill v
Carbolic Smoke Ball Co [1892] EWCA Civ 1, [1893] 2 QB 256 by the Court of Appeal of
England and Wales. However in the present case, it was a puff as the soft drinks company never
to award the fighter jet literally and no intention was there to result into a contract to be legally
bound. For that purpose only the condition behind such offer was near to impossible to perform.
Thus the condition of the case is almost impossible to fulfill by any reasonable person. Thus no
valid contract is created by the company.
The objective theory of contract refers to a doctrine that states that an agreement between
parties to a contract will be considered valid only when a reasonable person who is not the party
to the said contract has opinion that an offer has been made in the contract and it has been validly
accepted (Wilkinson-Ryan & Hoffman, 2015). This doctrine is used since 19th century to
determine the intention of the parties in relation to the agreement. This objective theory replaces
the previous theory called as the subjective theory of the contract called the meeting of the minds
that was applied in the early 1800s (Knapp, Crystal & Prince, 2019). Thus here importance is
given to the opinion of the third party who is not a party to the contract regarding the objective
and external activities of the parties together with the associated situations regarding whether an
offer is made and its acceptance. This theory was summarized by Judge LEARNED HAND of

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New York in a famous quote pertaining to a case decided in 1911 known as the Hotchkiss v.
National City Bank, 200 F. 287 [S.D.N.Y. 1911].
In the present case, if the objective theory is applied a third person will consider the
advertisement commercial made by the soft drink company and the conduct of the Seattle man
regarding the offer (Wilkinson-Ryan & Hoffman, 2015). From the commercial it is clear that the
offer was nothing but a puff. The advertisement stated that the commercial will offer a high tech
Harrier Jet that was used by the US marines in case any consumer is able to earn 7 million
points. It means that to claim it about 190 drinks are to be bought every day for about 100 years.
The consideration of the agreement is far from reality although the company has allowed people
to buy points for 10 cents. Any person can understand that the soft drinks company does not have
any legal intention to affect the contract. Thus if the objective theory is applied in the present
case, no valid offer was made by the company as it lacked legal intention to execute the contract
(Knapp, Crystal & Prince, 2019). Hence no acceptance can take place. No reasonable person will
find the advertisement realistic and believe it to be true in good faith. This type of observation
was made in John D.R. Leonard v. Pepsico, Inc. 88 F. Supp. 2d 116, (S.D.N.Y. 1999), aff'd 210
F.3d 88 (2d Cir. 2000), popularly regarded as the Pepsi Points Case.
The court in this case there was no valid agreement as it found the advertisement
unrealistic and unreal. In this case the court applied the objective theory of contract and found
that any reasonable person can understand that the soft drinks company does not have any legal
intention to affect the contract. Hence when the objective theory is applied in the present case, no
valid offer was made by the company as it lacked legal intention to execute the contract. Hence
no acceptance can take place. No reasonable person will find the advertisement realistic and
believe it to be true in good faith.

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An offer is usually different from an invitation to the same as the in the former proposal
is made to a particular party whereas in the latter, invitation is made to the people at large and
not to any particular person as found in Partridge v Crittenden [1968] 1 WLR 1204. Moreover,
an offer when is accepted a valid agreement is formed whereas when an invitation is accepted, an
offer is made. Advertisements are generally not regarded as offers but as invitation to the same
as in advertisements, invitation is made to the people at large and not to any particular person.
This can be supported by Harris v Nickerson (1873) LR8QB 286.
In a unilateral contract, an agreement is formed by making an offer which can be
accepted only by means of performance of the condition mentioned in it. In this type of contract,
an offer is expressly made by one party that acceptance will be done only when a certain
condition will be satisfied by the other party. A leading example of the unilateral contract is the
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1 where an advertisement was made
by a company that 100 pounds will be paid to any person who will be attacked by influenza after
taking smoke ball for the specific period. Similar type of situation was seen in O'Brien v MGN
Ltd [2001] EWCA Civ 1279 where also a unilateral contract is made. In these cases the
acceptance of the offer can be done by performing according to the condition mentioned in the
offer. This can be supported by Brogden v Metropolitan Railway Company (1876–77) L.R. 2
App. Cas. 666. Similar type of observation was found in Weatherby v Banham (1832) 172 E.R.
950. However in the unilateral contract, the party making offer has legal intention to execute the
contract and the condition to be fulfilled is reasonable and realistic.
In the present case, although apparently it seems that a unilateral offer is expressly made
by the company such that its acceptance can be done only when conditions are satisfied as in
Carlill v Carbolic Smoke Ball Company. However there is no unilateral contract as the parties

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lack legal intention to execute the contract and the condition to be fulfilled is unreasonable and
unrealistic. Here, it was a puff as the soft drinks company never to award the fighter jet literally
and no intention was there to result into a contract to be legally bound. For that purpose only the
condition behind such offer was near to impossible to perform. Thus the condition of the case is
almost impossible to fulfill by any reasonable person. Thus no valid contract is created by the
company as laid in John D.R. Leonard v. Pepsico, Inc.
The recommendations that can be given to any company involved in making aggressive
advertisement campaign by giving expensive and high end items are as follows; firstly
disclaimer stating that there is no legal intention to give effect to such campaign can be given by
such company so that people do not take it seriously leading to unnecessary litigations. Secondly,
legislation can be enacted to prevent the company to make this kind of marketing campaign.

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References:
Brogden v Metropolitan Railway Company (1876–77) L.R. 2 App. Cas. 666.
Carlill v Carbolic Smoke Ball Co [1892] EWCA Civ 1, [1893] 2 QB 256
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Harris v Nickerson (1873) LR8QB 286.
Hotchkiss v. National City Bank, 200 F. 287 [S.D.N.Y. 1911].
John D.R. Leonard v. Pepsico, Inc. 88 F. Supp. 2d 116, (S.D.N.Y. 1999), aff'd 210 F.3d 88 (2d
Cir. 2000)
Knapp, C. L., Crystal, N. M., & Prince, H. G. (2019). Problems in Contract Law: cases and
materials. Aspen Publishers.
O'Brien v MGN Ltd [2001] EWCA Civ 1279
Partridge v Crittenden [1968] 1 WLR 1204.
Weatherby v Banham (1832) 172 E.R. 950.
Wilkinson-Ryan, T., & Hoffman, D. A. (2015). The common sense of contract formation. Stan.
L. Rev., 67, 1269