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Excerpt from: CONTRACTS

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July 2002 California Bar - Question 4

-- Written by Dennis P. Saccuzzo and Nancy E. Johnson.
Non-copyrighted material provided by the California Bar on their web site www.calbar.ca.gov.

Travelco ran a promotional advertisement which included a contest, promising to fly the contest winner to Scotland for a one-week vacation. Travelco's advertisement stated: "The winner's name will be picked at random from the telephone book for this trip to 'Golfer's Heaven.' If you're in the book, you will be eligible for this dream vacation!"

After reading Travelco's advertisement, Polly had the telephone company change her unlisted number to a listed one just in time for it to appear in the telephone book that Travelco used to select the winner. Luckily for Polly, her name was picked, and Travelco notified her. That night Polly celebrated her good fortune by buying and drinking an expensive bottle of champagne.

The next day Polly bought new luggage and costly new golfing clothes for the trip. When her boss refused to give her a week's unpaid leave so she could take the trip, she quit, thinking that she could look for a new job when she returned from Scotland.

After it was too late for Polly to retract her job resignation, Travelco advised her that it was no longer financially able to award the free trip that it had promised.

Polly sues for breach of contract and seeks to recover damages for the following:

1. the cost of listing her telephone number;
2. the champagne;
3. the luggage and clothing;
4. loss of her job; and
5. the value of the trip to Scotland.

1. What defenses should Travelco assert on the merits of Polly's breach of contract claim, and what is the likely outcome? Discuss.

2. Which items of damages, if any, is Polly likely to recover? Discuss.

JULY 2002, QUESTION 4

CONTRACTS

-- Written by Dennis P. Saccuzzo and Nancy E. Johnson

Commentary:

As in all Bar questions, it is important to be responsive to the question. Notice that there are two calls. The first asks for defenses. A weak response to this question would be one that followed an outline and talked about offer, acceptance and consideration without framing these issues in terms of Travelco's defenses, e.g. the lack of an offer, lack of consideration, and so forth. Call 2 asks for damages for 5 different items. As always when the Bar gives multiple items or parties, it is essential to distinguish among the items to demonstrate knowledge of the subtleties of the law.

This was a difficult contracts question because there are at least two theories of offer and no clear facts giving rise to acceptance. The Bar looked favorably on answers that found an offer, and the key to offer was establishing that there were definite and certain terms. The model answer that follows considers 2 possible offers, the offer of a chance to win a trip (the advertisement) and the actual notification that P had won. However, both selected answers considered only one possible offer, which was sufficient for a high score.

The next big issue was whether there was consideration. Again, the analysis of consideration was not a simple matter because it was necessary to look at what Travelco was actually bargaining for. It was arguable whether Travelco was bargaining for P to put her name in the phone book, and they certainly did not bargain for her to make the various purchases that she did. Therefore Travelco's defense of lack of consideration is strong.

To get a high score on this question, it was necessary to thoroughly analyze the alternate theory of promissory estoppel. A strong answer would enumerate the elements of promissory estoppel and within a sub-headnote for each element, discuss the facts that go to it.

Finally, as indicated, it is essential to distinguish among the various items for which Polly sought damages. Notice that the main issues were reasonableness and foreseeability; the 5 items differed in terms of their reasonableness and foreseeability. Finally, it was possible to distinguish between damages as a result of breach of contract and those that would result based on reliance theory, as illustrated in the answer that follows.

Model Answer

Applicable Law
The common law applies to all contracts except those covered by the UCC. The UCC applies to contracts for the sale of goods, with goods defined as movable personal property. The contract at issue involves a prize of a trip to Scotland, which is not a good. Therefore, the common law applies.

Call 1. Travelco's Defenses to Breach of Contract

Travelco's main defense is that there was no contract. Valid contract formation requires offer, acceptance, and consideration.

Lack of Offer
An offer requires manifestation of present intent to enter a bargain, communicated in definite and certain terms. An offer confers the power to create a contract by taking specific action.

Normally, public advertisements are not considered offers, but rather invitations or proposals soliciting offers. Travelco will argue that their ad was not an offer, but merely a solicitation to attract customers who would then offer to buy their services. The problem for Travelco is that their terms were very definite and certain: the contest winner's name would be picked from the telephone book, there would be only one winner, the prize was a trip to Scotland, and anyone in the phone book was eligible. Under an objective theory, such definite terms usually indicate to an ordinary person that she would have the power to create a contract by taking specified action.

Because the terms were definite and certain and reasonably conferred on Polly the power to create a contract by acting to put her name in the phone book, Polly has a strong argument that there was a valid offer of a chance to win a trip to Scotland. Even if the ad itself was not an offer, when Travelco notified Polly that she had won, they again presented in definite and certain terms an offer of a trip. In either case, there is an offer and this defense will fail.

Lack of Valid Acceptance
Under the common law, valid acceptance is an unconditional assent to be bound by the offer. Polly has a problem in that no facts indicate acceptance.

If the offer stems from the definite and certain terms of the ad, then she can argue that the Travelco ad was a unilateral contract in that it called for acceptance by performance rather than acceptance by a counter-promise, as in a bilateral contract. Where there is a unilateral contract, part performance creates an option contract so that the offer cannot be withdrawn. The issue is whether listing her number in the telephone book constituted performance. No clear facts indicate that Travelco actually solicited new telephone listings, so this is not Polly's best argument.

If the offer was the notification that she had won, Polly's argument that she validly accepted is stronger. Her subsequent conduct in purchasing champagne, luggage, and clothing indicate that she accepted the offer of the trip.

Lack of Consideration
Travelco's best argument is that there is no contract because there was no consideration. Consideration involves bargained-for exchange and legal detriment by both parties.

Travelco will argue that both their ad promising to fly the contest winner to Scotland and their notification that Polly had won were both nothing more than gratuitous promises in that they did not bargain for any legal detriment from Polly. Nor did Polly suffer any legal detriment. Again the issue is whether Travelco bargained for Polly to put her number in the phone book. If they did, then Polly's act of listing her number constituted both acceptance and consideration, because providing a telephone listing to the public leads to numerous unsolicited calls, including marketing calls from travel agencies such as Travelco.

Polly can also argue that there was bargained-for exchange when she accepted the offer of a trip. Travelco was bargaining for publicity and received it when it publicly awarded a valuable prize. However, Travelco has a good argument that it was not bargaining for the detriment Polly incurred when she purchased the champagne, luggage, and clothing. Even if Polly loses on the consideration argument, she will prevail on the alternate theory of promissory estoppel.

Promissory Estoppel
When consideration is not found, the court will still enforce promises under a theory of promissory estoppel. It requires a promise and reliance that is reasonable, detrimental, and foreseeable. The court will enforce the promise as necessary to prevent injustice.

Promise: Travelco promised to award a trip to Scotland and then promised the trip to Polly when they notified her she had won.

Reliance: Polly had no reason to doubt Travelco, so her reliance was reasonable. She suffered detriment with all of her purchases and, as discussed below, at least some of the detriment she suffered was foreseeable.

Enforcement Necessary: As discussed below, Polly was damaged and enforcement will be necessary to redress the harm.

Because Polly can meet the elements of promissory estoppel, Travelco will be estopped from asserting the defense of lack of consideration. As discussed below, the court will award either contract/expectation damages or reliance damages.

Other Defenses
Travelco will also fail under other possible defenses. Revocation of offer will not work because they had made the offer when they notified her that she had won, and she had accepted before Travelco had a chance to withdraw, as discussed above.

Unilateral mistake is generally not a defense and the narrow range of exceptions that allow it to be a defense normally apply to mistakes by contractors and are not applicable here.

No facts indicate impossibility; simply not being financially able to award a free trip would not make this objectively impossible for Travelco unless they were bankrupt. Likewise, commercial impracticability is not indicated by the facts.

Finally, the Statute of Frauds is irrelevant here because the contract, if it exists, can be completed within one year.

Call 2: Polly's damages.
Polly's damages will depend in part on whether a contract is found or whether her claim is based on promissory estoppel (reliance). If promissory estoppel is applied, Polly may get either her expectation or reliance damages, based on what best serves the interests of justice.

1. Listing her number in the telephone directory
If a contract is found, then listing the number could be considered part of the consideration and Polly would not be entitled to recover the cost. Moreover, under a contract theory Polly would be awarded her expectation, the value of the trip. Because listing her number is an expense she would have incurred as part of the bargain, she would not be entitled to reimbursement.

On a promissory estoppel theory, the issue would be whether the promise of a chance at winning a trip could reasonably and foreseeably have induced detrimental reliance, and whether justice would require that Polly be compensated. Given the wording in the ad, "if you're in the book, you will be eligible for this dream vacation!" it is foreseeable that some individuals would have their numbers listed in order to be eligible. Making the listing is reasonable, given the value of the prize, and it is detrimental because it incurs not only a fee for the change but also some loss of privacy. Unless Polly is given the value of the trip she won, justice would require her being reimbursed for her reliance.

2. Expensive bottle of champagne
Under a contract theory, the champagne was not part of the bargain and would not be awarded as expectation damages. However, the champagne could be construed as a consequential damage (i.e., reasonably foreseeable at the time of contract). It is reasonably foreseeable that if someone wins an expensive dream vacation, she might buy an expensive bottle of champagne to celebrate. Therefore, under a contract theory she would not only be awarded her expectation (the value of the trip), but she could also recover the cost of the champagne as a consequential damage because she lost money she would not otherwise have spent.

Under a reliance theory the analysis would again be similar in that the purchase of expensive champagne is reasonably foreseeable reaction and Polly suffered detriment. However, if she is awarded the trip, the interests of justice may not require reimbursement for the champagne because she would have incurred this expense anyway.

3. New luggage and costly new golfing clothes
Under contract theory, Polly did not bargain for luggage and clothing, so these would not be considered part of her expectation damages. As consequential damages, the issue would be whether the new luggage and costly new golfing clothes were reasonably foreseeable. Although new luggage may be reasonably foreseeable, costly golfing clothes may not. It does not seem objectively reasonable or foreseeable to buy costly clothing to be used for a one-week trip.

Under a reliance theory, the analysis would be similar. Polly is not likely to be compensated for costly new golf clothes but may receive the cost of the luggage as an out-of-pocket expense, unless she is awarded the trip.

4. Quitting her job
Quitting a job for a one-week vacation is not reasonable and not foreseeable. Polly will not be compensated for this regardless of the theory used.

5. The value of the trip to Scotland
As indicated, the value of the trip would represent Polly's expectation damages and would be awarded under a contract theory. Because money damages would be adequate to compensate Polly, she would not be entitled to specific performance.

Under a reliance theory, Polly would be entitled to her reasonably foreseeable out-of-pocket expenses as discussed above, but may not get the value of the trip. She would certainly not get both. Contract allows recovery of expectation plus consequential damages and incidentals. Reliance damages are more limited and are designed to put the person in the position they would have been in had there been no contract. Compensating Polly for the expenses she incurred would accomplish the goal of reliance damages. However, in the court's discretion, she could be awarded the value of the trip and not the out-of-pocket expenses that she would have incurred anyway had she been awarded the trip.

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