GCC The Case of The Offer Too Good to Be True Discussion

You’re On the Jury: The Case of the Offer too Good to Be True

David Smith, by mistake, opened up a letter with his neighbor’s address on the front but left in his mailbox. The letter, from a major automobile manufacturer, read as follow: “Dear Mr. Jones or Occupant: We offer to sell you one of our deluxe luxury automobiles for $100.00*. Use the enclosed card to indicate your acceptance and return it to us together with your check in the amount of $100.00”. The asterisk was printed on the reverse of the letter next to the following language: “*provided you are the winner in a drawing to be held in one month. Your check will only be cashed on winning.”

Omar never saw the language on the reverse side. He returned the acceptance card together with his check and never received the deluxe luxury car. His check was never returned to him but neither was it cashed. He sued the car manufacturer for breach of contact.

The Trial

During the trial, the manufacturer’s representative explained that this type of advertising had been used for many years by many different types of companies and that everyone knew that this type of offer was limited and usually dependent on a person being selected in a drawing. He explained that the offer had been sent out to a limited number of people, chosen because of their prior ownership of the manufacturer’s vehicles. He introduced in evidence a copy of the letter, showing that all the details of the offer had been printed in large-size type. David explained that even though the letter was not meant for him, there was no name at the top of the letter, and he assumed the offer was meant for the general public. He stated further that he never looked at the reverse of the letter because the offer on the front was clear.

The Arguments at Trial

The manufacturer’s attorneys argued that an offer was never made to David, only to his neighbor, and thus David could not have accepted the offer. Also, the offer was not made to the general public but to a limited group, and thus the offer could only be accepted by a member of that group. They argued further that the offer and qualifying statement were in clear language and printed in large-size type so that a potential buyer would understand the nature of the offer. David’s attorney argued that because a name did not appear at the top of the offer, the offer should be considered as having been made to the general public, and therefore David had a right to accept the offer. She further argued that the qualifying statement should have been printed on the front of the letter and not on the reverse side where it might not be read. She claimed that a valid offer had been made and that the offer had been accepted properly by David.

Questions to Discuss

1. If you were the judge or jury deciding this case, for whom would you decide? Why?
2. Would your answers to any of these questions be different if the neighbor’s name and address had been printed at the top of the letter or if the qualifying statement had been printed at the bottom of the first page of the letter? Why?
3. What remedies should be awarded to the prevailing party? Why?

Business Law
Text & Exercises
Ninth Edition
Roger LeRoy Miller
William Eric Hollowell
CHAPTER 21 CONSUMER PROTECTION
Learning Outcomes
LO1
Define deceptive advertising.
LO2
Recognize what information must be
included on labels.
State the Truth-in-Lending Act
requirements.
Describe health and safety
protection.
LO3
LO4
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2
LO1
LO1
Deceptive Advertising (1)
▪ Deceptive advertising: advertising
that misleads consumers.
– Federal Trade Commission
investigates deceptive ads, and
determines what constitutes a
deceptive practice.
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3
LO1
LO1
Deceptive Advertising (2)
▪ Deceptive advertising:
– As defined by FTC, generally means
the advertisement may be
interpreted in more than one way
and that one of those
interpretations is false or
misleading.
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4
LO1
LO1
Deceptive Advertising (3)
▪ False statements or claims.
▪ Statements about a product’s
quality, effects, price, origin, or
availability.
▪ Omission of important
information.
▪ Half-truths.
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Deceptive Advertising (1)
▪ Bait and Switch Advertising.
– Advertising a product at a very
attractive price (bait) and informing
the consumer the product is not
available or is poor quality. The
customer is then urged to purchase
(switch) a more expensive item.
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6
Deceptive Advertising (2)
▪ Online Deceptive Advertising.
– Claims made must be
substantiated.
– FTC guidelines on Internet
marketing also call for “clear and
conspicuous” disclosure of any
qualifying information.
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Deceptive Advertising (3)
▪ FTC Actions against Deceptive
Advertising.
– If complaints are widespread, the FTC
will investigate and perhaps take action.
– If, after its investigations, the FTC
believes a given advertisement is unfair
or deceptive, it drafts a formal
complaint, which is sent to the offender.
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8
Deceptive Advertising (4)
▪ FTC Actions against Deceptive
Advertising.
– Cease and desist order: administrative or
judicial order prohibiting a person or
business firm from conducting activities
that an agency or court has deemed
illegal.
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Deceptive Advertising (5)
▪ False Advertising Claims under the
Lanham Act.
– A successful claim must establish:
• Company suffered injury in reputation or
sales.
• Injury was directly caused by false or
deceptive advertising.
• Company lost business from consumers who
were deceived.
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10
LO2
LO2
Labeling Laws (1)
▪ Labeling and Packaging Laws.
– Labels must be accurate and use words
that are understood by ordinary
consumers.
– In some instances:
• Specify raw materials.
• Carry a health warning.
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LO2
LO2
Labeling Laws (2)
▪ The Fair Packaging and Labeling Act.
▪ Food product labels must identify:
▪ The product.
▪ The net quantity of the contents, size of
a serving.
▪ The manufacturer.
▪ The packager or distributor.
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LO2
LO2
Labeling Laws (3)
▪ The Energy Policy and Conservation
Act.
– Information label on new cars must include
EPA’s fuel economy estimate.
▪ The Nutrition Labeling and Education
Act.
– Food labels must include standard nutrition
facts.
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13
Consumer Sales (1)
▪ Statutes for disclosures, the
regulation of door-to-door sales,
mail order.
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14
Consumer Sales (2)
▪ Telephone and Mail-Order Sales.
– FTC provides specific protections for
consumers.
• Merchants required to ship within time
promised.
• Merchants must issue a refund within a
specified period of time for cancelled
orders.
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15
Consumer Sales (3)
▪ Online Sales.
– FTC protects consumers from
fraudulent and deceptive sales
practices conducted online.
– FTC has brought a number of
enforcement actions against those
who perpetrate online fraud.
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16
Consumer Sales (4)
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17
Credit Protection (1)
LO3
▪ Truth-in-Lending Act.
– Title 1 of the Consumer Credit
Protection Act (CCPA), 1974.
– TILA: essentially a full disclosure
law, found under Regulation Z.
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Credit Protection (2)
LO3
▪ Truth in Lending Act.
– Application.
• TILA requirements apply only to
those who, in the ordinary course of
their business, lend money, sell on
credit, or arrange for the extension
of credit.
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Credit Protection (3)
LO3
▪ Truth in Lending Act.
– Disclosure Requirements.
• Regulation Z: a set of rules that
implements the Truth-in-Lending
Act.
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Credit Protection (4)
▪ Equal Credit Opportunity Act.
– Prohibits the denial of credit
solely on the basis of race,
religion, national origin, color,
gender, marital status, or age.
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21
Credit Protection (5)
▪ Credit Cardholder Protection.
– Liability of card holder who
solicited the card is $50 for
unauthorized charges made
before the bank is notified.
– If unsolicited, card holder is not
liable for unauthorized charges.
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22
Credit Protection (6)
▪ TILA Amendments (2010).
1. Cardholders protected from
retroactive interest rate increases on
existing card balances, unless the
account is sixty days delinquent.
2. Cardholders must be notified at least fortyfive days before changes are made to their
credit-card terms.
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Credit Protection (7)
▪ TILA Amendments (2010).
3. A monthly bill must be sent to a
cardholder at least twenty-one days
before the due date.
4. The interest rate charged on a
cardholder’s balance can be increased
only in specific situations, such as
when a promotional rate ends.
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Credit Protection (8)
▪ TILA Amendments (2010).
5. Over-limit fees can be charged only in
specific situations.
6. Cardholders’ payments in excess of
the minimum amount due must be
applied to the higher-interest
balances first.
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Credit Protection (9)
▪ TILA Amendments (2010).
7. Finance charges cannot be based on a
previous billing cycle (known as
double-cycle billing, under which a
cardholder is charged interest on the
balance from a previous cycle even
when it has been paid in full).
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26
Credit Protection (10)
▪ The Fair Credit Reporting Act.
– The FCRA covers all credit bureaus,
investigative reporting companies,
detective and collection agencies,
and computerized information
reporting companies.
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Credit Protection (11)
▪ Fair and Accurate Credit
Transactions Act (FACT).
– Established a national fraud alert
system for identity theft.
– Requires credit reporting agencies to
provide consumers with free copies of
credit reports every twelve months.
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Credit Protection (12)
▪ Fair and Accurate Credit
Transactions Act (FACT).
– Requires account numbers on creditcard receipts to be truncated.
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Credit Protection (13)
▪ Fair Debt Collection Practices Act.
– In 1977, Congress passed the Fair
Debt Collection Practices Act
(FDCPA) in an attempt to curb what
were perceived to be abuses by
collection agencies.
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Credit Protection (14)
▪ Fair Debt Collection Practices Act,
prohibits:
1. Contacting the consumer at his
place of employment.
2. Contacting third parties.
3. Using harassment and intimidation.
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Credit Protection (15)
▪ Fair Debt Collection Practices Act,
prohibits:
4. Further communication with a
consumer after receipt of a notice
of refusal to pay the debt.
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LO4
Protection of
Health and Safety (1)
L O 4
▪ The Federal Food, Drug, and
Cosmetic Act.
– Establishes food standards,
specifies safe levels of potentially
hazardous food activities, and
provides classifications of food
and food advertising.
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LO4
Protection of
Health and Safety (2)
L O 4
▪ Health-Care Reforms.
– Patient Protection and Affordable
Care Act of 2010.
– After 2014, PPACA prohibits
certain insurance company
practices, helps more children get
health coverage.
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LO4
Protection of
Health and Safety (3)
L O 4
▪ The Consumer Product Safety Act.
– Protects consumers from unreasonable
risk of injury from hazardous products.
– Consumer Product Safety Commission:
sets standards for consumer products and
can ban the manufacture and sale of
products that pose unreasonable risk.
© 2019 Cengage. All rights reserved.
35
Business Law
Text & Exercises
Ninth Edition
Roger LeRoy Miller
William Eric Hollowell
CHAPTER 34 BANKRUPTCY
Learning Outcomes
LO1
LO2
LO3
LO4
Describe three common types of
bankruptcy relief.
List the duties of a bankruptcy
trustee.
Identify the debtor and procedures in
a Chapter 11 reorganization.
Explain how a Chapter 13 plan differs
from Chapter 7 and Chapter 11 plans.
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2
Types of Bankruptcy Relief (1)
LO1
▪ Bankruptcy provides different
relief:
– Chapter 7: Liquidation.
– Chapter 11: Corporate
reorganizations.
– Chapter 13: Adjustment of individuals’
debts with a payment plan.
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3
Types of Bankruptcy Relief (2)
▪ Voluntary Bankruptcy.
– Any person (including corporation)
can file.
– All debts are liquidated
(discharged).→
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4
Types of Bankruptcy Relief (3)
▪ Voluntary Bankruptcy.
– The Voluntary Petition.
– Grounds for Dismissal.
– Order for Relief.
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5
Types of Bankruptcy Relief (4)
▪ Involuntary Bankruptcy.
– Debtor’s creditors force debtor into
bankruptcy proceedings.
– Debtor has twelve or more
creditors, three or more with claims
totaling $15,325, or
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6
Types of Bankruptcy Relief (5)
▪ Involuntary Bankruptcy:
– Debtor has twelve or more
creditors, one has a claim totaling
$15,325.
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7
Types of Bankruptcy Relief (6)
▪ Automatic Stay.
– Upon filing either voluntary or
involuntary petition.
– Creditors cannot commence or
continue most legal actions.
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8
Chapter 7—Liquidation (1)
▪ Most familiar type of bankruptcy
proceedings.
▪ Any person who completes a
means test, and qualifies, may be a
debtor under Chapter 7.
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Chapter 7—Liquidation (2)
▪ Creditors’ Meetings.
– The Debtor’s Role at the Meeting.
• Must attend and submit to examination
under oath.
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Chapter 7—Liquidation (3)
▪ Creditors’ Meetings.
– The Bankruptcy Trustee.
LO2
• Primary duty is to collect the debtor’s
property and reduce it to money for
distribution to creditors.
• Determines what kind of petition the
debtor should file.
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11
Chapter 7—Liquidation (4)
▪ Creditors’ Meeting.
– The Bankruptcy Trustee.
LO2
• Advises creditors of decision; must
file a motion to dismiss the Chapter 7
petition and convert to Chapter 13
with explanation to the court.
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12
Chapter 7—Liquidation (5)
▪ Creditors’ Meeting.
– The Bankruptcy Trustee.
• Collect debtor’s property and reduce
it to money for distribution, if
warranted.
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13
Chapter 7—Liquidation (6)
▪ Estate in Property.
– All debtor’s legal and equitable
interests in property presently held,
including community property,
– Property transferred in a “voidable”
transaction, and
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14
Chapter 7—Liquidation (7)
▪ Estate in Property.
– Property which debtor becomes
entitled within 180 days after filing.
– Proceeds and profits from the
property of the estate.
– After-acquired property (e.g.,
inheritances, life insurance).
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Chapter 7—Liquidation (8)
▪ Estate in Property.
– Exemptions:
• Home equity.
• Motor vehicle.
• Household goods.
• Trade tools.
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Chapter 7—Liquidation (9)
▪ Property Distribution.
– Creditors’ Claims:
• To be entitled to receive a portion of
the debtor’s estate, each creditor
files a proof of claim.
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Chapter 7—Liquidation (10)
▪ Property Distribution.
– Secured Creditors:
• If value of the secured collateral
exceeds the secured party’s claim,
the secured party has priority to
proceeds.
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Chapter 7—Liquidation (11)
▪ Property Distribution.
– Secured Creditors:
• If debtor surrenders, creditor can
keep or sell.
• If collateral is insufficient, secured
creditor becomes unsecured creditor
for deficiency.
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Chapter 7—Liquidation (12)
▪ Property Distribution.
– Unsecured Creditors:
• Do not have security interests in
collateral.
– Priority:
• Secured creditors divided into classes
and paid by priority.
• Creditors in last class paid
proportionately if insufficient funds.
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20
Chapter 7—Liquidation (13)
▪ Discharge.
–
–
–
–
–
Exceptions.
Objections to Discharge.
Effect of Discharge.
Revocation of Discharge.
Reaffirmation of a Debt.
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Chapter 7—Liquidation (14)
▪ Exceptions to Discharge.
– Claims for back taxes.
– Claims for amounts borrowed by
Debtor to pay federal taxes.
– Claims against property/money
obtained by debtor under false
pretenses.
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Chapter 7—Liquidation (15)
▪ Exceptions to Discharge.
– Claims by creditors who did not
know about bankruptcy.
– Student loans.
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Chapter 7—Liquidation (16)
▪ Objections to Discharge.
– Court may deny the discharge of
the debtor (not the debt):
• If intentional concealment or
destruction of property or financial
records.
• Discharge within eight previous years.
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Chapter 7—Liquidation (17)
▪ Objections to Discharge.
– Court may deny the discharge of the
debtor (not the debt):
• Failure to complete credit counseling
courses, or debtor found guilty of
felony.
– Discharge may be revoked within
one year.
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Chapter 11—Reorganization (1)
▪ Debtor (usually a corporation)
and creditors formulate a plan
under which the debtor pays a
portion of its debts and is
discharged of the rest.
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Chapter 11—Reorganization (2)
▪ Any debtor eligible for Chapter 7
is also eligible for Chapter 11.
Same principles of voluntary vs.
involuntary apply.
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Chapter 11—Reorganization (3)
▪ Creditors’ Committees.
LO3
– Unsecured creditors appointed to
consult with trustee.
– In small business bankruptcies
(less than $2.49 million in debt
with no real estate) do NOT
require consent of committee.
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Chapter 11—Reorganization (4)
▪ The Reorganization Plan.
LO3
– Conserve and administer the
debtor’s assets with the goal of
returning to successful operation
and solvency.
– Filing the Plan.
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Chapter 11—Reorganization (5)
▪ The Plan’s Criteria:
LO3
– 1. Designate classes of creditors
under the plan.
– 2. Specify the treatment to be
afforded the classes of creditors
and provide the same treatment
for each claim.
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Chapter 11—Reorganization (6)
▪ The Plan’s Criteria:
LO3
– 3. Provide an adequate means for
the plan’s execution.
– 4. Provide for payment of tax
claims over a five-year period.
▪ Acceptance of the Plan.
– Confirmation does not discharge a
debtor.)
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Chapter 11—Reorganization (7)
▪ Acceptance of the Plan.
LO3
– Class of creditors accepts plan
when creditors representing 2/3
value of total claim.
– Court may “cram down” plan on
all creditors if it is fair and
equitable.
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Chapter 11—Reorganization (8)
▪ Discharge of the Plan.
LO3
– Individual debtors: plan must be
completed before discharge
granted.
– Other debtors: court may order
discharge at any time after the
plan is confirmed.
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33
LO4
L O 4
Chapter 13—Adjustments (1)
▪ For individuals (not partnerships
or corporations) with regular
income who owe fixed
unsecured debts of