San Diego Business Law: Is Advertising a Unilateral Contract?
As discussed below, under most circumstances, advertisements are not considered “unilateral contracts” in California. When most San Diego business owners think about “contracts,” what comes to mind is probably the standard bilateral contract. As the name implies, “bilateral” contracts are contracts between two parties stating the respective obligations and expectations. However, there is also a type a contract called unilateral contracts. A unilateral contract is one where only one party makes a promise and there is no specific person or business entity on the “other side” of the contract. The contract is formed by the acceptance of the offer and the acceptance comes in the form of performance. As the California Supreme Court recently stated, “A unilateral contract is one that is accepted by performance.” See Cal Fire Local 2881 v. California Public Employees’ Retirement System, Case No. S239958 (Cal. Sup. Court, March 4, 2019). Unilateral contracts are specifically covered and allowed by the California Civil Code, §§1584 and 1586.
The offering of rewards is a good example of a unilateral contract. The California Penal Code authorizes the Governor to offer rewards for information leading to the arrest and conviction of a felon. If, under some circumstances, the Governor were to offer such a reward, such would be an example of a unilateral contract that could be accepted by performance — that is, the capture of an alleged felon. If the state were to fail to pay the reward, suit could be brought for breach of contract. To win the lawsuit, one would need to show the standard legal elements of breach of contract:
- Existence of the agreement including the parties and their obligations
- Breach of an obligation by the other party
- Loss or damage to the party suing
With unilateral contracts, often the legal difficulty is proving that the party actually performed the contract. In our example above, the State/Governor might avoid paying the reward because you did not capture the correct criminal. Under California law, any implied contract can be revoked or modified prior to acceptance — in other words, the “offer” can be changed or revoked prior to the promisee’s performance of the act constituting performance.
There was a time when sending out an advertisement was considered to be a form of unilateral contract. However, California courts narrowed the rule and held that, generally, advertising is an “invitation to bargain” or to engage in negotiations or explore making a contract. There is a narrow exception where an advertisement can constitute a unilateral contract where:
- The advertising calls for performance of
- A specific act
- Without further communication and
- Leaves nothing for further negotiation
A famous California example comes from the case Harris v. Time, Inc., 191 Cal. App. 3d 449 (Cal. App. 1st Dist. 1987). In that case, Time, Inc., a publisher of magazines, sent out a bulk mailer. On the front of the envelope sent to Joshua A. Gnaizda there was a photo of a wristwatch and the following statement: “JOSHUA A. GNAIZDA, I’LL GIVE YOU THIS VERSATILE NEW CALCULATOR WATCH FREE Just for Opening this Envelope Before Feb. 15, 1985.” Mr. Gnaizda opened the envelope as instructed, but never received his free calculator watch. He eventually sued claiming that Time, Inc. had made an offer which created a unilateral contract when he performed as instructed; he opened the envelope before the specified date.
On review, the California Court of Appeals confirmed that, in fact, a unilateral contract had been formed. The offer was not merely an invitation to bargain but specified clearly and precisely how the offer was to be accepted by performance. Since Mr. Gnaizda performed, the contract was formed. That being said, the case was thrown out for other reasons and Mr. Gnaizda never received his free calculator watch. Most advertisers now know to avoid this type of language. An experienced San Diego corporate attorney can help if you need legal assistance.
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For more information, contact corporate attorney Michael Leonard, Esq., of San Diego Corporate Law. Contact Mr. Leonard via email or by calling (858) 483-9200. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Like us on Facebook.