Introduction to Business Law - Case Study Example

Business Law - Case Study Name: University: Date: Business Law – Bill V Massive Freak Drink Co Introduction Bill was continually mocked and laughed at by his fellow students because of his weight. Therefore, ‘Massive Freak’ advertisement offered Bill a good opportunity to gain weight. According to the ad, the product guaranteed 20% weight gain as long as it was taken according to the directions. In case the user follows the direction but fails to gain 20% of their body weight in the required 14 days, then they would be paid $5,000. Bill consumed the product according to the direction, but failed to gain the required 20% weight; therefore, he has the right to the $5,000 pay. However, ad maintains that the reward was a “mere sales puff”, and the offer has been revoked before Bill had finished the challenge. In Australia, advertisements normally contain puffery, but the reaction of the consumers to such descriptions relies on their knowledge about the product.1 An advertisement cannot be considered as a mere tool for persuading or informing; instead, it is a tool that can be utilised to offer something to the end-users. In this regard, advertisements can create a contract between the consumer and the advertiser. Still, the contract existence depends on the valid laws of the offer and acceptance. In this case, Bill accepts the offer; therefore Massive Freak Drink Co (the offeror) should adhere to what they have offered. Under the common law, misleading or false statements with regard to a service or product being offered is prohibited.2 In consideration of the common law, this essay seeks to determine whether there is a valid and legally binding contract between Massive Freak and Bill, and if there are grounds for suing the company for the breach of contract. Argument Basically, once the advertiser and the customer enter into a contract, they are bound by the contract’s terms and conditions and other laws associated with the contracts. In case, one party breaches the terms of the contract, the other party has the right to seek compensation. There is a binding contract between Bill and Massive Freak Drink Co because; there was an offer, an acceptance (the company supplied the product), and consideration (payment for the product). According to the ad, there was a reward of $5,000 for any customer who fails to gain 20% of their body weight in 14 days; therefore, the reward offer makes Massive Freak Drink Co liable based exclusively on Bill’s actions.3 As evidenced in Leonard v PepsiCo case, the defendant (PepsiCo) had run an advertisement, whereby there were different rewards depending on the number of ‘Pepsi Points’ that had been collected from particularly marked Pepsi packages. In the advertisement’s final scene, the viewers are shown a young boy flying a Harrier jet fighter, after getting to the school, the teenager emerges with a Pepsi written ‘7,000,000 Pepsi points’. Leonard after watching the commercial decided to buy the 7,000,000 points in order to get the jet fighter. However, the company rejected his order of $700,008.50, and decided to sue the company for breaching the unilateral contract. In its ruling, the court ruled that the Pepsi advertisement did not amount to an offer due to the ad’s comical nature. Therefore, it was reasonable that the company was not offering the Harrier Jet fighter to the person who had successfully gathered 7,000,000 points. Without a doubt, the ‘Harrier Jet fighter’ was a ‘mere puff’ and there was no legally binding contract between Pepsi and Leonard since there was no offer. The case between Bill and Massive Freak Drink Co is similar to the Carlill v. Carbolic Smoke Ball case, where the court ruled that there was a unilateral offer; therefore the contract was enforceable.4 In Australia, consumers are protected from deceptive or misleading conduct by the Australia Consumer Law (ACL). A company can engage in misleading through statements, promotions, advertisements, quotations or representations. When an offer is made through advertisement, it can create a valid and legally binding contract if accepted.5 Comparative advertising in common law is considered as a harmless puffery. Still, a representation at common law is differentiated from a mere puff and a statement that could translate into a contractual term. Therefore, representations have been divided by the common law into fraudulent and innocent.6 The case of Bill can be viewed from a fraudulent misrepresentation perspective, whereby Massive Freak Drink Co made a reckless statement about a false reward, which was considered to be true by Bill. In Derry v Peek case, the defendant had offered a statement that the carriages could be moved by a steam power with the permission of the Board of Trade. According to the company’s directors, the special Act allow the company to use steam rather than horses. The strength of this statement lured the complainant to buy shares, but the Board of Trade declined to assent to the utilisation of steam; therefore, the company was liquidated. The accuser sued the company for deceit.7 However, the House of Lords that there was no proof to cast liability on the accused; therefore, no tort of deceit was established because according to Lord Herschell the misstatements were not made fraudulently. The Trade Practices Act of 1974 prohibits business organisations from engaging in conduct, which is deceptive or misleading. Section 52 of the Act indicates that a person can sue company if the company fails to compensate for damage or loss.8 The Carlill v. Carbolic Smoke Ball Company case provides proof that there is a valid and legally binding contract between Bill and Massive Freak Drink Co. In this case, Carbolic run a commercial introducing a new wonder drug called ‘smokeball’ that could cure the flu. The commercial pointed out that if a buyer fails to heal, he/she would be given £100. When the product failed to work, numerous people sued the company. In its defence, the medical firm argued that the commercial was a mere ‘puff’; therefore, should not be taken as a legally binding offer. However, the court ruled that a serious offer had been made by the company since people had made good ‘consideration’. The words used in the advertisement according to Lord Justice Lindley were clear and perfectly unmistakable. In view of this case, it is evident that for a contract to be legally binding, one party makes a bargain offer, which is accepted by the other party. In Balfour v. Balfour case, Mr. Balfour had agreed to offer Mrs. Balfour £30 for maintenance every month while staying in Sri Lanka. After leaving for Sri Lanka, Mr. Balfour stopped making the payments because they were separated. Mrs. Balfour decided to sue her husband, and the Court held that the agreement was not enforceable since the promise was not legally binding.9 Basically, puffery is crucial to both contract law and marketing, because it can determine whether the customers are misled and deceived consumers, and in contract law, whether it constitutes an enforceable promise. In case, Massive Freak Drink Co commercial’s puffery is a representation, which was detrimentally depended on by Bill, then it cannot be deemed as mere sales talk.10 While ruling on the JJ Savage & Sons Pty Ltd v Blakney case, the High Court ruled that a collateral contract must have three elements; there has to be a representation or statement; the maker of the statement has to show an intention, wherein the truth is guaranteed; and there has to be a reliance by plaintiff purporting that there exists a contract.11 Conclusion In conclusion, this paper has determined whether there is a valid and legally binding contract between Massive Freak and Bill, and if there are grounds for suing the company for the breach of contract. As evidenced by the numerous cited cases, when there is a contract between the advertiser and the customer, then the plaintiff can successfully accuse the defendant for breaching the contract. For this reason, there is no need for Bill to search for other legislative avenues such as the Trade Practices Act in order to be compensated. Massive Freak Drink Co can be sued under the legislative provisions provided by the common law for breaching the contract. As evidenced in the essay, there is a legally binding contract between both parties since the three elements that make up a contract are existent: offer, acceptance and consideration. The case of Massive Freak Drink Co and Bill is much similar to the Carlill v. Carbolic Smoke Ball, where the court ruled that there was a unilateral offer; therefore the contract between the company and Carlill was enforceable. Although Massive Freak Drink Co argues that the reward was a mere ‘sales puff’, the content of the commercial is clearly biding. The argument that the offer was revoked before Bill finished the challenge is irrational because the offer was revoked after its acceptance. Bibliography Barton, Philip, 'The Effect of Pre-Contractual Representations' 2013 Legalwise Contract Risk Management Seminar1. Carter, John W., Elisabeth Peden, and Greg Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 2007). Clarke, Gay R., 'Product Liability Actions In Australia: Is The Collateral Contract Remedy An Option? 1989 Queensland University of Technology Law Journal 111. Cohen, Lindsay E. 'The Choice of a New Generation: Can an Advertisement Create a Binding Contract?' 2000 65(2) Missouri Law Review553. Hogg, Martin, Promises and Contract Law: Comparative Perspectives (Cambridge University Press, 2011). Logan, Catherine, 'What is Puffery and When Will It Get You Into Trouble?' LegalVision (Online), 10 November 2015 . Otevrel, Alexandra, Introduction to Business Law in Australia (Thomson Reuters Australia Limited, 2016). Stone, Richard, James Devenney and Ralph Cunnington, Text, Cases and Materials on Contract Law (Routledge, 2011). Toombs, Dan, 'Advertising in Australia' LawBuddy (Online), 26 March 2014 . Xu, Alison Jing and Robert S. Wyer, 'Puffery in Advertisements: The Effects of Media Context, Communication Norms, and Consumer Knowiedge' 2010 37 Journal of Consumer Research 329. Read More