A penny for your thoughts? The commenters from Consumerist have weighed in with their two cents about the typo hypo. Many believed that the Hotels.com typo was entirely too obvious to be relied upon by a reasonable customer, some even going as far as to say it would be grossly unethical for somebody to try to capitalize on the errors of a large corporation. This was analogized to treating a broken ATM like a slot machine, or taking advantage of a baseball card shop employee who misreads some decimal points and sells you a Nolan Ryan rookie card for $1.00. However, many pointed out that promotions like this are not uncommon in the travel industry, and therefore customers have the right to believe their eyes are accurate when a penny fare shows up on a computer screen. Well, who got it right? That’s the million dollar question.
In an attempt to provide some clarity on the issue, and review the content of my first few weeks of Contract law, I approached my Professor with this fact pattern during his office hours. He had already tossed the question around to a list-serv of America’s brightest contract lawyers, which leads me to believe that perhaps this fact pattern is a little more complicated than Sister v. Hotels.com.
The first thing to address is the topic of consideration. We discussed §71 of the 2nd Restatement of Contracts in the initial post on this subject, which defines the requirements of consideration. In simpler terms, we can apply the “peppercorn” theory of consideration, where if somebody gives up something as little as a pinch of pepper, that’s enough to trigger consideration. In conjunction with §90 of the 2nd Restatement of Contracts, which details promises that reasonably induce action or forbearance, the case seems strongly in favor of my Sister if the Court believes that consideration should even come into play here.
In the case of Schnell v. Nell, we had a man leaving a signifcant sum of money in his will to relatives in exchange for a single penny. The Court determined that this was not a contract, afterall. It was merely a gift, wrapped up as a contract. So, some courts don’t think the “peppercorn theory” is worth its salt. It was nothing but an illusory bargain. This is significant because gifts can be revoked. Hotels.com might try to frame this $.01 fare as exactly that. However, the Sister could just as easily point back to the lengthy online fancy-pants procedures she had to go through on their website as evidence of formality that customarily indicates a contract.
Another issue the Court might have to address is whether this was an actual offer from Hotels.com. If there was no offer, there would be no liability. Parallels to the case of Ford Motor Credit Co. v. Russell seem to apply as in Ford a woman saw an advertisement in the newspaper promoting a price and financing deal on “a brand new car” (R.I.P. Rod Roddy) only to later discover that the price quote was merely an invitation to bargain. The fact pattern in Ford is fairly discongruent to the case at hand because this wasn’t just a quote on a price, or a starting point to induce people to their website where they will later determine if they qualify for quoted deal. My Sister searched for prices, Hotels.com made an offer, and my sister accepted that offer through the formality and ritual of signing a user agreement and providing her payment.
My Professor made sure to note “the snap up doctrine”, which prevents people from grabbing obvious price errors before companies have a chance to proof and correct. This doctrine doesn’t always get applied though, and it might be in the Court’s interest to promote a public policy that encourages “click and mortar” companies in the Internet commerce era to pay more attention to their business practices. This probably would have never happened if there was a competent travel agent on the other side of that keyboard (I stress the word “probably). As one Consumerist commenter pointed out, “trying to collect on what was promised in a situation like this really isn’t about taking advantage of a well-intentioned party’s honest mistake. IMO, the majority of errors like this are a direct result of large scale corner-cutting, and poor attention to detail.”
There are some complications with my Sister’s side of the case. Having combed through the fine print, I still can’t find anything that completely suggests that she has a total loser of a case. Nothing would be stopping her from filing a complaint in New York small claims court (the jurisdiction where she booked the deal) for a very small fee. It would probably cost Hotels.com more to file their paperwork to remove the case to their Dallas, TX preferred arbitration spot than it would to just hook my sister up with her hotel for three nights. If my Sister chose to do so, some might think she’s just trying to extort a three cent vacation off a billion-dollar business industry. Sure, “there’s no such thing as a free lunch”, but if somebody promises one, you’ve got to keep them honest.
7 responses so far ↓
1 Molly // Feb 5, 2007 at 7:49 pm
I definately think your sister should continue to pursue this! Win one for the little guys!
2 kjr // Feb 5, 2007 at 10:51 pm
Consider the opposite situation: your sister is a rather indiscriminate consumer looking for a room as soon as possible, and ends up paying $1000 per night for what would normally be a $100 room. Do you think that hotels.com would inform her or would they just let it slide and hope she didn’t catch it.
3 FanTent // Feb 5, 2007 at 11:59 pm
I’m sorry, doesn’t the doctrine of Mistake cover this situation fairly precisely? Maybe I misremember copyright law, but if there was no reliance, then the hotel should be able to withdraw what seems like a fairly obvious error. No reasonable person would assume that .01 price for a hotel room was correct. I have never seen nor heard of such a price, or even anything coming anywhere near such a price. I think your professors might be overthinking this (as law school professors are want to do).
4 Mark Pike // Feb 6, 2007 at 12:52 am
In response to the previous comment, I address the “doctrine of mistake” briefly in the penultimate paragraph. It’s possible that my professor was steering me clear of that rocky shoal as we’re still in just the first month of Contracts class.
But, he did say that this doctrine is not always applied. And a decent argument could still easily be made from my Sister’s side.
5 Sam // Feb 6, 2007 at 3:20 am
sweet deal, hope your sister gets hooked up at the ritz instead of that lousy voucher.
6 Evan // Feb 6, 2007 at 4:06 am
This is not a consideration issue. There is clearly consideration because in NY all that is required for adequate consideration is a signature - be it electronic or otherwise. Not only did you “sign” the agreement but you paid the three cents with a credit card. The issue is not a gift issue either, gifts require intent to convey property free of charge (or on condition). There was no intent to convey property free of charge here. The difference between this case and the Schnell case is that in the Schnell case he specifically said “I am giving you this money in consideration of a penny” - there was none of that here. Here, we have a business offering a product/service for 3 cents, you accepted. No gift wrapped in contract because no intent to gift no matter how you dice it. The issue is not formation, but rather the ability to rescind by voidability such as unilateral mistake. When there is a unilateral mistake, and the party knows it is a mistake, the contract is voidable (in NY its VOID). Here, one clearly would see this is an error. Sure, the industry typically has discounts and extreme sales, but it usually states so (corporations don’t give away something for free without patting themselves on the back and advertising their “sainthood” accordingly). If you saw a one penny per night hotel room without any extra “SALE!!” or “DEAL OF THE WEEK!” or the like, logo attached to it one should reasonably know it was a mistake. Doesn’t mean you can’t accept the offer and form a valid contract, but it does mean the offeror can rescind as voidable (again, except in NY where it would be outright void ab initio).
However, corporations are sociopathic and a comment above points out a great fact. If you messed up would the web site, or bank, or any corporation do anything about it? Our society always expects the highest of moral turpitude from us, and expects absolutely nothing shy of outright sociopathy from our corporations. Although I have to admit, the last couple of times I made an error in the corporations favor, they have noticed it and reimbursed me without me even having to mention it! Maybe we’re turning a corner? Doubtful, in which case pursue the claim. Its certainly not frivilous and people have abused the courts to much greater degrees then this. Personally, I don’t think you have much of a case and I’ve only had good experiences with the Ritz, but go for it, I’d love to see how it turns out. Good Luck! (btw, a corporation must send a lawyer to small claims - that will cost them 2 grand in and of itself. If they were smart they’d not show up, default, and force you to have attach the remedy/money some how - very doable, but a pain in the ass).
7 matt // Feb 6, 2007 at 6:56 am
To comment number three, there are travel deals all the time where you can fly return to Sicily or Barcelona, or wherever for 1p. Also, there are all sorts of deals out there on websites that have astounding low prices (usually with astounding restrictions). If I saw this on a .com site I’d think it was some sort of promotion.
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