In 1996, Pepsico Inc. ran a TV advert promoting Pepsi to young people with a promise that if consumers collected “Pepsi Points” and sent them into Pepsico they would be rewarded with Pepsi branded gifts that they could choose from a catalogue. Each can of Pepsi equated to one Pepsi Point meaning that kids would need to buy 75 cans of Pepsi (containing 3,450 grams of sugar if anyone is interested in that sort of thing) to receive a t-shirt, or 1,450 cans (69,600 grams of sugar) to get a leather jacket. The TV ad showed kids wearing the various items and ended with a joke (or was it) showing a school boy in a Harrier Jump Jet with a price of “HARRIER FIGHTER 7 MILLION PEPSI POINTS”.
John Leonard saw the advert and decided that Pepsico were making a serious offer to give him a Harrier fighter in exchange for 7,000,000 Pepsi Points. He begun his campaign to acquire his new jet by trying to drink his way to the total, failing to notice that this would require him to drink 19,178 cans of Pepsi every day for a year (that’s 920,000 grams of sugar per day by the way) – or, no more realistically, 192 cans every day for a century. He quickly gave up on this idea and realised that buying Pepsi products to get the points was a fool’s game when Pepsico would happily sell you however many points you needed for just 10 cents per point provided you sent in fifteen Pepsi Points from products and a cheque for the rest.
At the time, Mr Leonard was a 21 year old business student, which makes what happened next quite remarkable. He scrounged around friends and acquaintances somehow convincing them to give him the $700,000 he would need to buy the 6,999,985 Pepsi Points he needed on top of the fifteen he had from buying Pepsi products. It is sad that Mr Leonard didn’t put the $700,000 he managed to raise to some better purpose, but if he had then we wouldn’t have the enjoyment of his court case.
Mr Leonard sent off his fifteen points along with a cheque for $700,008.50 (he remembered to include the $10 delivery charge) and an order form for “1 Harrier Jet”. Faced with an order from an obvious idiot, Pepsico responded gracefully by returning the cheque along with an apology for any confusion caused by their advert and gave him some free product coupons, although why they thought somebody with $700,000 to burn needed free stuff is unclear.
As we assume all Americans are taught to do at school, Mr Leonard had his lawyer write back in the following terms:
“Your letter of May 7, 1996 is totally unacceptable. We have reviewed the video tape of the Pepsi Stuff commercial … and it clearly offers the new Harrier jet for 7,000,000 Pepsi Points. Our client followed your rules explicitly….
This is a formal demand that you honor your commitment and make immediate arrangements to transfer the new Harrier jet to our client. If we do not receive transfer instructions within ten (10) business days of the date of this letter you will leave us no choice but to file an appropriate action against Pepsi….”
Pepsico replied stating what to many of us may seem blindingly obvious, thus:
“I find it hard to believe that you are of the opinion that the Pepsi Stuff commercial (“Commercial”) really offers a new Harrier Jet. The use of the Jet was clearly a joke that was meant to make the Commercial more humorous and entertaining. In my opinion, no reasonable person would agree with your analysis of the Commercial.”
Mr Leonard clearly failed to spot the humour in the advert, even when it was pointed out, and so he did the second thing we assume all Americans are taught at school: he issued proceedings in Florida.
The issuing of proceedings in Florida was a surprise given Mr Leonard lived in the state of Washington and Pepsico was based in New York. The court in Florida, unsurprisingly, found that this case was nothing to do with them and directed that the case be sent to New York where Pepsico had already sought a declaration that they were not obliged to give Mr Leonard a Harrier fighter jet.
The sojourn in Florida resulted in Mr Leonard being ordered to pay Pepsico $88,162 in lawyers’ fees.
Back in New York, Pepsico moved for summary judgment against Mr Leonard. Summary judgment is governed by Rule 56 of the Federal Rules of Civil Procedure, which state that:
“The court shall grant summary judgment if the [applicant] shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
It is for the party seeking summary judgment to identify to the court why it says there is no genuine dispute as to any material fact. In this case, Pepsico were arguing that no contract existed between them and Mr Leonard and so there could be no genuine dispute between the parties. But, Mr Leonard had more than one trick up his sleeve and sought to argue that the advertisement was a promise of reward for performance of a specific act, namely collecting Pepsi Points and sending them into the company and so the New York court found itself traipsing the hallowed legal turf of the London flu outbreak in the 1890s and the promises made to Mrs Carlill in an advertisement by the Carbolic Smoke Ball Company, but we’ll get to that later.
Was there a contract?
To form a contract with somebody there must be an offer made by one party, which must be accepted by the other party and consideration must pass between them. For example, if John knocks on Mark’s front door and offers to clean his windows for £15 then John is making an offer. Mark says, “yes please”; he has accepted the offer and a contract is formed. The consideration that passes between them is the service carried out by John and the £15 handed over by Mark. Now, if John simply drove a van passed Mark’s house advertising “window cleaning, £15 per house” that would be called an invitation to treat, in other words an invitation to come and make an offer to me for my services.
An advertisement can amount to an offer that another person can accept and thus form a contract if the advert is specific enough, although this is rare. In Lefkowitz v Great Minneapolis Surplus Store, the store published an advert in a newspaper stating:
“Saturday 9 AM Sharp, 3 Brand New Fur Coats, Worth to $100.00, First Come First Served $1 Each.”
Mr Lefkowitz attended the store but was refused service because the offer was only open to women. He sued and won, the court ruling that because the advertisement was very specific and left nothing open for negotiation it was an offer that could be accepted by anybody attending the store with $1 and the intention to buy a fur coat thus a contract was formed when Mr Lefkowitz attended the store.
In Mr Leonard’s case, the court concluded that the advert was not specific enough to amount to an offer that could be accepted. The court pointed to the fact that the advertisement directed customers to a catalogue containing all the available products and that the catalogue did not include a Harrier Jet… or indeed any sort of aeroplane. The court actually went further though and concluded that even the catalogue did not constitute an offer. In Lefkowitz, the advertisement had made clear that the offer was on a first come first served basis, something that neither the Pepsi advert nor catalogue made clear. They thought that no shopkeeper would expose themselves to the risk of contracts exceeding their stock and thus even the catalogue could not have been an offer. How this relates to the modern phenomenon of Groupon vouchers is an interesting question. Groupon allows people to buy goods, services and experiences via a website at a discount, known as a Groupon voucher. The purpose being that businesses get exposure to a wider market and hopefully recruit new loyal customers who will return again and again, customers get a nice discount and Groupon take a little slice of each sale. However, there have been many examples of small businesses offering discount vouchers on the Groupon website and being inundated with orders that far exceed their expectations forcing businesses to incur significant losses when restocking to fulfil those orders.
Contract for specific performance
Law students will be very familiar with the case of Carlil v Carbolic Smokeball Company, not only does it have a funny name, but the facts today seem quaint. In the 1890s influenza was rife and it was deadly, not the disease we today, wrongly, associate with the sniffles – between 1889 and 1890 Asiatic ‘flu killed 1,000,000 people worldwide and 30 years later Spanish ‘flu would kill up to 100,000,000 people across the globe, so this was a serious disease and people wanted to avoid it. Up then popped companies like Carbolic Smokeball, which offered their eponymous product, a smokeball, which if inhaled properly would prevent the user being infected with ‘flu. Of course, it didn’t work; however, the people behind the Carbolic Smokeball Company had offered a significant amount of money to anybody who bought their product, used it as required and who still caught ‘flu. They even went as far as announcing that they had deposited £1,000 at the Alliance Bank to show their sincerity – this is at a time when the average weekly rent was six shillings, or 72 pence. Louisa Carlil bought her smokeball, used it but still caught ‘flu. When she claimed the money promised her the Company refused to pay out and she sued.
Carbolic argued that there first that there was no contract between the parties but that if there were a contract then that it was either a gambling contract, in which case it would be void, or it was an insurance policy, in which case the contract was bad as it relied on whether or not there would be an occurrence of an uncertain event.
Lord Justice Lindley wasn’t swayed by the arguments that this was either a gambling contract or an insurance policy:
“I will begin by referring to two points which were raised in the Court below. I refer to them simply for the purpose of dismissing them. First, it is said no action will lie upon this contract because it is a policy. You have only to look at the advertisement to dismiss that suggestion. Then it was said that it is a bet. Hawkins, J., came to the conclusion that nobody ever dreamt of a bet, and that the transaction had nothing whatever in common with a bet. I so entirely agree with him that I pass over this contention also as not worth serious attention.”
The court concluded that the Carbolic Smokeball Company had made an offer to the entire world and that Mrs Carlil’s use of the smokeball constituted her acceptance of the offer. The court said,
“[I]f a person chooses to make extravagant promises … he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them.”
Carbolic Smokeball Company is an example of a case known as a unilateral contract, or specific performance contract, where the offer is made to the whole world and is capable of acceptance by anybody who performs the specific action set out in the contract – indeed, Carbolic is the foundation of this area of contract law.
The law developed in a typically American way, with a cowboy and a conspiracy theory!
Mr Turilli, the owner and operator of the Jesse James Museum, was convinced that the famous cowboy Jesse James did not die in 1882 but in fact lived on under the alias of “J. Frank Dalton”. He offered a reward of $10,000 to “anybody who could prove me wrong” on the subject. Sadly for Mr Turilli, his challenge was accepted by Mrs James, the daughter-in-law of Jesse James. She demonstrated at trial that the cowboy James had been killed in 1882. The court found that Mr Turilli had made an offer capable of acceptance by anybody who could perform the specific act of proving him wrong, which Mrs James had done. He was therefore ordered to pay the $10,000.
Back in the 1990s, Mr Leonard decided to argue that the advert showing a Harrier jet for 7,000,000 Pepsi Points was a unilateral offer to the world that could be accepted by anybody who collected sufficient Pepsi Points. This argument could be easily disposed of because the advert directed people to the catalogue for information on how to redeem their Pepsi Points and the catalogue made no mention of any fighter aircraft being available. Thus, the Pepsi advert can be distinguished from that in Carbolic Smokeball Company because this was an invitation to people to make offers to the company via the order form contained in the catalogue. It could also be distinguished from James v Truilli for the same reason that the challenge by Mr Truilli was capable of being accepted as it stood while the Pepsi advert merely invited offers to be made for items contained in the catalogue.
The court went on to find that it was clear that the offer of a fighter jet for 7,000,000 points was not serious and that no reasonable person could have concluded it was: “An obvious joke, of course, would not give rise to a contract”.
The courts reasoning is worth reading, if for no other reason that to enjoy the judicial description of the advert:
“Second, the callow youth featured in the commercial is a highly improbable pilot, one who could barely be trusted with the keys to his parents’ car, much less the prize aircraft of the United States Marine Corps. Rather than checking the fuel gauges on his aircraft, the teenager spends his precious preflight minutes preening. The youth’s concern for his coiffure appears to extend to his flying without a helmet. Finally, the teenager’s comment that flying a Harrier Jet to school “sure beats the bus” evinces an improbably insouciant attitude toward the relative difficulty and danger of piloting a fighter plane in a residential area, as opposed to taking public transportation.
Third, the notion of traveling to school in a Harrier Jet is an exaggerated adolescent fantasy. In this commercial, the fantasy is underscored by how the teenager’s schoolmates gape in admiration, ignoring their physics lesson. The force of the wind generated by the Harrier Jet blows off one teacher’s clothes, literally defrocking an authority figure. As if to emphasize the fantastic quality of having a Harrier Jet arrive at school, the Jet lands next to a plebeian bike rack. This fantasy is, of course, extremely unrealistic. No school would provide landing space for a student’s fighter jet, or condone the disruption the jet’s use would cause.
Fourth, the primary mission of a Harrier Jet, according to the United States Marine Corps, is to ‘attack and destroy surface targets under day and night visual conditions.’… The jet is designed to carry a considerable armament load, including Sidewinder and Maverick missiles. As one news report has noted, “Fully loaded, the Harrier can float like a butterfly and sting like a bee albeit a roaring 14-ton butterfly and a bee with 9,200 pounds of bombs and missiles.”… In light of the Harrier Jet’s well-documented function in attacking and destroying surface and air targets, armed reconnaissance and air interdiction, and offensive and defensive anti-aircraft warfare, depiction of such a jet as a way to get to school in the morning is clearly not serious even if, as plaintiff contends, the jet is capable of being acquired ‘in a form that eliminates [its] potential for military use.’
Fifth, the number of Pepsi Points the commercial mentions as required to “purchase” the jet is 7,000,000… The cost of a Harrier Jet is roughly $23 million dollars, a fact of which plaintiff was aware when he set out to gather the amount he believed necessary to accept the alleged offer. (See Affidavit of Michael E. McCabe, 96 Civ. 5320, Aug. 14, 1997, Exh. 6 (Leonard Business Plan).) Even if an objective, reasonable person were not aware of this fact, he would conclude that purchasing a fighter plane for $700,000 is a deal too good to be true.”
So, after all that, Mr Leonard lost on the predictable basis that no sensible person would believe they could obtain a fighter jet using Pepsi Points. But, the one question that sticks out from this case is one we’ll probably never have an answer to: why?
Mr Leonard was the face of this case and he somehow managed to raise a huge sum of money in a very short time, which is surprising in itself. What is outright suspicious of some other motive though is the fact that the $700,000 cheque sent to Pepsico at the very start of the case was drawn not on his account but on that of his lawyers! It seems Mr Leonard had instructed lawyers long before this ever turned into a legal case.