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Advertising and Contract

Published online by Cambridge University Press:  12 February 2016

G. Tedeschi
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Extract

After having acquired a prominent place in economic life—and therefore also in the life of law—advertising has begun to draw the attention of both law-maker and legal analyst.

Indeed two fronts are distinguishable which the potential victims of advertising seek to open up against the advertiser—the first by his business competitors and the second by the actual direct and indirect customers. As to the first front, the law has already taken regard of it ever since it took a stand against unfair competition, since advertising is the main instrument to effect some of the different forms of unfair competition (which in Israeli law, following the English pattern, takes the shape of “injurious falsehood” and “passing off”).

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Articles
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Israel Law Review , Volume 16 , Issue 4 , October 1981 , pp. 405 - 438
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Copyright © Cambridge University Press and The Faculty of Law, The Hebrew University of Jerusalem 1981

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References

1 Hereinafter called “The General Contracts Law” (27 L.S.I. 117).

2 The Consumer Protection Law, 1981. An unofficial English translation of the Law appears in this issue on p. 516.

3 In Israel the Israel Consumer Council, the Israeli Advertisers Association and the Israeli Federation for Advertising signed an Agreement on 13 July 1972 (not published) that included detailed provisions regarding the said matters.

4 Apart from “the Commissioner of Consumer Protection” under sec. 9 of the above Law, particular mention may be made of the Federal Trade Commission of the USA.

5 See, for example, in the USA, the Federal Lanham Act, 1946, and sec. 43(a) thereof, and in individual American states the Uniform Deceptive Trade Practices Act. As to all this legislation, see Grimes, W.S., “Control of Advertising in the US and Germany”, (1971) 84 Harv. L.R. 1769.CrossRefGoogle Scholar

6 Cf. sec. 31 (b) of the Consumer Protection Law.

7 This has been provided in the legislation of a number of American states: Sheldon, J.A. and Zweibel, G.J., Survey of Consumer Fraud Law, National Institute of Law Enforcement and Criminal Justice, Law Enforcement Assistance Administration, US Dept. of Justice (June, 1978) 105.Google Scholar Similarly, in some states there is express statutory provision enabling the courts to award exemplary damages in this context (see ibid. p. 106), for instance, triple the extent of the loss (See Henderson, and Pearson, , The Tort Process (1975) 945 Google Scholar).

8 See for example, secs. 7 and 32 of the Consumer Protection Law. Cf. secs. 1, 3 and 13 of the German Law against Unfair Competition of 1909, and cf. Grimes (supra n. 5) 1781–83. See also the Bill for amending the Unfair Competition Law tabled in the German Bundesrat in 1978 (Bundesrats-Drucksache 226/78 of 26 May 1978) introducing new regulations in regard to consumers organizations and the effectuation of customers' actions in damage by transferring their individual rights to such organizations. For criticism of the Bill, see Wilke, D., “Ueber den Unsinn einer Reform der §§13 und 23a UWG” (1978) 9 Wettbewerb in Recht und Praxis 581.Google Scholar

9 “Fraud consists of a false representation of fact, made with the knowledge that it is false or without belief in its truth or recklessly, careless whether it be true or false, with intent that it shall be acted upon by the person deceived: Provided that no action shall be brought in respect of any such representation unless it was intended to and did deceive the plaintiff and he has acted upon it and has thereby suffered pecuniary damage.” (2 L.S.I. [N.V.] 5).

10 Cf. Peek v. Gurney (1837) L.R. 6 H.L. 377; Richardson v. Silvester [1873] L.R. 9 Q.B. 34, 43.

11 Bar Shira, A., “Fraud” in Law of Torts: The Different Wrongs, Tedeschi, G. ed. (1979), para. 3, p. 8.Google Scholar Sec. 4 of the Consumer Protection Law, 1981, expressly imposes a duty of disclosure to the consumer.

12 “A person who has entered into a contract in consequence of a mistake resulting from misrepresentation practised upon him by the other party or a person acting on his behalf may rescind the contract. For this purpose, “misrepresentation” includes the non-disclosure of facts which according to law, custom or the circumstances the other party should have disclosed.”

13 See e.g. Reg. 4 of the Public Health (Food) Regulations (Emulsifiers and Stabilisers in Food Commodities), 1966; Reg. 3 of the Public Health (Food) Regulations (Marking), 1935.

14 See Nahorai & Sons Ltd. v. Reingevirtz (1971) (I) 25 P.D. 449; Luk D. Derib Ltd. v. Hertz (1967) (I) 21 P.D. 576.

15 Per Maugham, Lord in Bradford Third Equitable Benefit Bldg. So. v. Borders [1941] 2 All E.R. 205, 211.Google Scholar

16 “(a) Breach of a statutory duty consists of the failure by any person to perform a duty imposed upon him by any enactment other than this Ordinance, being an enactment which, on a proper construction thereof, was intended to be for the benefit or protection of any other person, whereby such other person suffers damage of a kind or nature contemplated by such enactment: Provided that such other person shall not be entitled by reason of such failure to any remedy specified in this Ordinance if, on a proper construction of such enactment, the intention thereof was to exclude such remedy.

(b) For the purposes of this section, an enactment shall be deemed to be for the benefit or protection of any person if it is an enactment which, on the proper construction thereof, is intended for the benefit or protection of that person or of persons generally, or of any class or description of persons to which that person belongs.”

17 The English Court of Appeal indeed refused in Square v. Model Farm Dairies [1939] 2 K.B. 365 to base a civil action on breach of a criminal enactment for the benefit of consumers on the ground that the buyer could sue on his sale contract and an action relying on a criminal offence would undermine the rule of privity of contract. In Israel law, these considerations are not determinative in view of sec. 63 of the Civil Wrongs Ordinance. Cf. Shira, Bar, “Breach of Statutory Duty” (Law of Torts, supra n. 11) para. 27.Google Scholar See also criticism of the said judgment in Cranston, R., Consumer and the Law (1978) 273.Google Scholar

18 See also sec. 6 of the Banking (Services to Customers) Law 1981; sec. 56 of the Control of Insurance Business Law, 1981.

19 By contrast, see sec. 8(1) of the Manufacturers Warranties Act, 1974, of S. Australia: “Where an advertisement or other publication is published containing an assertion that would, if made by a manufacturer or a person acting on his behalf, constitute an express warranty in respect of manufactured goods, it shall be presumed, in proceedings under this Act, that the assertion was made by the manufacturer or a person acting on his behalf unless the manufacturer proves that he did not cause, or permit, the publication of the advertisement or other publication.”

20 See the express observations made in English and Israeli case law: Bellinger v. Costa Brava Wine Co. [1960] Ch. 262, 274; Engelman v. Stiglitz 15 P.M. 139, 144.

21 On this version, see Berinson, J. in Asparness v. Abdullah (1970) (I) 24 P.D. 455, 462.Google Scholar

22 Cf. Smith v. Lord & House Property [1884] 25 Ch. D. 7; Moorhouse v. Wolfe (1882) 46 L.T. 374.

23 Secs. 17 and 18 of the General Contracts Law; and also, for example, secs. 1 and 15 of the Capacity and Guardianship Law, 1962 (16 L.S.I. 106); secs. 1 and 15 of the Standard Contracts Law, 1964 (18 L.S.I. 51); sec. 11 of the Hire and Loan Law, 1971 (25 L.S.I. 152); secs. 4, 8, 10 and 15 to the Pledges Law. 1967 (21 L.S.I. 44); sec. 15 of the Land Law, 1969 (23 L.S.I. 283); sec. 7 of the Trade in Used Vehicles Law, 1977 (31 L.S.I. 286) (repealed by sec. 40 of the Consumer Protection Law, 1981); reg. 74 of the Civil Procedure Regulations, 1963.

24 See the definition of “sale” in the Consumer Protection Law.

25 Per Lord Blackburn in Smith v. Chadwick [1882] 9 App. Cas. 187, 196.

26 For comparative law, see Unidroit, , Les conditions de validité au fond des contrats de vente (Rapport de droit comparé par le Max-Planck-Institut) (1964) 121.Google Scholar

27 See §30 II of the Scandinavian Laws concerning the sale contract.

28 “By written notice to the seller” in the words of sec. 32(a). On the other hand, the requirement of writing is not found in secs. 15 and 20 of the General Contracts Law.

29 Cf. Shalev, G., Defects in the Formation of a Contract (in Commentary on the Laws relating to Contract, Tedeschi, G. ed.) (1981) paras. 337–38, pp. 176–77Google Scholar.

30 “(a) In negotiating a contract, a person shall act in customary manner and in good faith.

(b) A party who does not act in customary manner and in good faith shall be liable to pay compensation to the other party for the damage caused to him in consequence of the negotiations or the making of the contract, and the provisions of sections 10, 13 and 14 of the Contracts (Remedies for Breach of Contract) Law, 5731–1970, shall apply mutatis mutandis.”

31 See Messineo, , II contratto in genere, I (Milano, 1968) 302.Google Scholar

32 For example, Luk D. Derib v. Hertz (supra n. 14) 588.

33 Oscar Chess Ltd. v. Williams [1957] 1 All E.R. 325.

34 In Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 2 All E.R. 65.

35 Cheshire, and Fifoot, , Law of Contract (9th ed., 1967) 120.Google Scholar

36 This also does not attain the level of an irrebuttable presumption. American case law has reservations about it: “Contracts”, 17A C.J.S., para. 381, p. 450; “Contracts”, 17 Am. Jur. 2d, para. 260, p. 664.

37 Leonhard, Fr., “Die Auslegung der Rechtsgeschäfte”, Arch. f. die civil. Praxis, CXX (1922) 14, 21 Google Scholar et seq.; Isay, , Die Willenserklärung im Thatbestande des Rechtsgeschäfts (Jena, 1899) 13 Google Scholar et seq.; Berti, , Teoria gen. del negozio giuridico, (2nd ed., Torino, 1952) 333 Google Scholar et seq.

38 For some aspects of this problem of interpretation, see more recently the views of the court in Rabinai v. Shakad (1979) (II) 33 P.D. 281 and Rubinstein v. Lewis (1980) (IV) 34 P.D. 591, 595, 599.

39 See Lassalle v. Guildford [1901] 2 K.B. 215, and thereon, Chitty on Contracts (24th ed., 1977) 311 Google Scholar; Treitel, , Law of Contract (5th ed., 1979) 263 Google Scholar; Anson, , Law of Contract (24th ed., 1975) 127 Google Scholar; Wedderburn, K.W., “Collateral Contracts”, (1959) Cambr. L.J. 58, 61–64, 81–84Google Scholar; Shalev, G., “The Collateral Contract” (1969) 1 Mishpatim 577, 584–89.Google Scholar

40 177 Cal. 63.

41 Neel v. Ford Motor Co. 49 Pa D & C 2d 243, 33 Fayette Leg. J. 75 (1970), Cooper Paintings & Coatings, Inc. v. SCM Corps. 2 Tenn App. 13, 457 SW 2d 864 (1970); Sylvestri v. Warner & Swasey Co. 398 F 2d (1968, CA2 NY). In the same direction French case law: Cass. vie. 1,20. XI. 1963, Bull, civ., I, no. 507, p. 427; 18. V. 1966, ibid., I, no. 308, p. 236; Paris, 11. VI. 1970, Gaz. Pal., 1971, I, somm., p. 47.

42 See sec. 3(1) of the S. Australia Manufacturers Warranties Act: “In this Act, unless the contrary intention appears […] ‘express warranty’ means any assertion or statement in relation to the quality, utility, capacity, performance or durability of manufactured goods (including an assertion or statement in an advertisement or in a brochure or other literature designed to promote sale or use of the goods) by the manufacturer, or a person acting on his behalf, the natural tendency of which is to induce a reasonable purchaser to purchase the goods.” Sec. 5(1) provides: “Where (a) an express warranty or (b) a statutory warranty is not complied with in relation to manufactured goods, a consumer who has lawful possession of the goods may, by action, recover against the manufacturer damages for breach of warranty in all respects as if the action were for breach of warranty under a contract between the manufacturer and the consumer.”

43 As indicated in the previous note.

44 Israeli case law refers to these as well; see for example Reichuk v. State of Israel 40 Pesakim 48 and Amidar v. Aharon (1978) (II) 32 P.D. 337, 341.

45 Esso Petroleum Ltd. v. Commissioner of Customs and Excise [1976] 1 All E.R. 117 (H.L.).

46 [1893] 1 Q.B. 256. This interpretation is advanced by Cranston (supra n. 17) 140.

47 [1951] 2 K.B. 854. Also incidental to another question, the existence of negligence without physical injury, in Hedley Byrne v. Heller [1964] A.C. 465 see per Lord Morris of Borth-y-Gest at p. 495: “They [the bankers asked to advise] would be liable if they were negligent enough although, there being no consideration, no enforceable contractual relationship was created”. To the same effect Lord Devlin at pp. 527–29. As to Lord Morris's remarks, we could not conclude that under Israeli law which does not require consideration a contract between the bankers and those seeking advice, would be automatically formed.

48 See in this direction Kretzmer, D., “Manufacturer's Liability in Israel”, in Israeli Reports to the Tenth International Congress of Comparative Law (Jerusalem, 1978) 33, 53.Google Scholar The same has been suggested in the USA: (1928) 2 U. of Cinn. L. R. 330, 331: (1930) 16 Corn. L.Q. 600, 615.

49 Heilbut, Symons & Co. v. Buckleton [1913] A.C. 30, 47, per Lord Moulton: “the existence of an animus contrahendi on the part of all the parties must be clearly shown”.

50 Ultramares Corp. v. Touche 255 N. Y. 170, 180 (1931).

51 Ward Baking Co. v. Trizzino 27 Ohio App. 475, 482; 161 N.E. 557 (1928). Cf. Prosser (n. 53 infra) p. 1124.

52 As to this see Larenz, K., Lehrbuch des Schuldrechts, (11th ed., 1977) II Google Scholar, para. 41a, p. 72.

53 Prosser, W.L., “The Assault upon the Citadel (Strict Liability to the Consumer)” (1960) 69 Yale L.R. 1099, 1126CrossRefGoogle Scholar: “a freak hybrid born in the illicit intercourse of tort and contract”. For the contractual nature of warranty, see Pelster, W.C., “The Contractual Aspect of Consumer Protection: Recent Developments in the Law of Sales Warranties” (1966) 64 Mich. L.R. 1430.CrossRefGoogle Scholar

54 To the same effect, Seely v. White Motor Co. (1965) 403 P. 2d 145 (S. Ct. Cal.). The converse is illustrated, for example, by Santor v. A. & N. Karagheusian Inc. (1965) 207 A. 2d 305 (S. Ct. N.Y.). Cf. Sutton (n. 63 infra) p. 181.

55 It would follow from what Prosser (supra n. 53) p. 1125, has to say that, in connection with sec. 15(2) of the Uniform Sales Act, Schneider, R.L., “Effect of Advertising on the Manufacturer's Liability” (1937) 22 Wash. U.L.Q. 406 Google Scholar, supports this view. In fact all he does is to propose the introduction of a provision into the Act, by which manufacturers would come under the definition of sellers with regard to the warranties which sellers are considered to give by implication.

56 Traders Finance Corp. v. Haby (1966) 57 D.L.R. 2d 15. Here a manufacturer (whom the seller had notified of the purpose of purchase) was treated as a seller under the Sale of Goods Act (R.S.A.) 1955, c 295, although in fact the purchase was not made from him. In another Canadian case, Johnson v. Rolland Motors (1955) 2 D.L.R. 418, it was denied that a manufacturer might be considered a seller under sec. 16(1) of the Sale of Goods Act (R.S.S.) 1953, c 353, but he was held liable under section under sec. 20(1) of the Conditional Sales Act (R.S.S.) 1953, c. 538.

57 See paras. 16 and 17 in the text below.

58 On the seller's liability in such a case, see in American law Silverstein v. Macy 206 App. Div. 5, 40 N.Y.S. 916 (1943).

59 Anderson, , On the Uniform Commercial Code (2nd ed., 1970) I, para. 2–314 Google Scholar:7, p. 530.

60 Krieger, A. in Der Betriebs-Berater (1978) 625 Google Scholar; Schricker, G., “Zur Reform des Gesetzes gegen den unlauteren Wettebewerb” (1979) 81 Geweblicher Rechtsschutz und Urheberrecht 1.Google Scholar

61 This tendency is to be observed among some German, W. writers: Diederichen, Die Haftung des Warenherstellers (1967)Google Scholar; Lorenz, , in Festschrift f. Noltarp p. 82 Google Scholar and in Karlsruher Forum (1963), p. 8; Markert in Der Betriebs-Berater, 64, 231, 329.

62 Cf. Benjamin's Sale of Goods (1974) para. 997, p. 461.

63 See generally Sutton, K.C., “Sales Warranties under the Sale of Goods Act and the Uniform Commercial Code” (1967) 6 Melbourne Univ. L.R. 150, 185Google Scholar; Jolowicz, J.A., “The Protection of the Consumer and Purchaser of Goods under English Law” (1969) 32 Mod. L.R. 1, 5.CrossRefGoogle Scholar For the non-liability of a seller for defects in a commodity which he obtained from the manufacturer without knowing thereof, see for the USA Vanaertenryck v. Johnson 9 UCC RS 1025 (S.Ct. N.Y. 1971); Price v. Gatlin 241 Or 315, 405 P 2d 502 (1965). And before the introduction of the UCC: Alfieri v. Cabot 13 NY 2d 1027, 245 NYS 2d 600, 195 NE 2d 310 (1963). Likewise in W. Germany, negativing the liability of a merchant when the manufacturer's advertisement has induced the customer to contract with him and the merchant had no knowledge of the misleading nature of the advertisement nor was at fault for such lack of knowledge, Sack, R., “Schadenersatzansprüche wettbewerbsgeschädigter Verbraucher nach deutschen und österreichischem Wettbewerbs— und Deliktsrecht” in Kramer, and Mayrhofer, , eds., Konsumentenschutz in Privat und Wirtschaftsrecht (Wien 1977) 114.Google Scholar In Italy one judgment relieves the seller of liability for a defect in the manufacturer's book of instructions for the use a rifle that the former sold: Trib. Forli, 13.II.1963 (Foro It. 1963, I, 1852).

64 To the same effect regarding defects in a commodity, in the USA, Newmark v. Gimbel's 54 NJ 585, 528 A 2d 697 (1969); Smith v. Regina M f g. Co. 369 F 2d 826 (1968, CA 4 SC); Williston on Sales, (4th ed., by Squillante and Fonseca, 1974) III, para. 22–9, pp. 279–80; Presser, , Torts (4th ed., 1971) 685.Google Scholar The same is true in England and Switzerland: Benjamin's Sale of Goods, loc. cit. (supra n. 63); Cavin, P., ‘Kauf, Tausch und Schenkung” in Gutzwiller, M. et al. (eds.) Schweizerisches Privatrecht (1977), VI, I, pp. 81–82 Google Scholar (Indeed, here, approval of this opinion is only implied).

65 Cf. the considerations set out in Vandermark v. Ford Motor Co. 61 Cal. 2d 256, 361 P 2d 168, 37 Cal. Rptr. 896 (1964).

66 See per Beisky, J. in Drucker v. Prilotsky (1980) (II) 35 P.D. 342, 348 Google Scholar: “a defect in the instructions for use is also of the nature of a defect in the goods”.

67 For this aspect, see More, D., “The Bill of the Liability for Defective Commodities Law, 1978” (1979) 7 Iyunei Mishpat 114, 123.Google Scholar

68 The Liability for Defective Commodities Law, 1980, sec. 1.

69 So also sec. 40(1) of the Trade in Used Vehicles Law, 1977, repealed by the Consumer Protection Law.

70 For this view, see Cranston (supra n. 17) pp. 7 et seq.

71 Kent, , Commentaries, (12th ed., 1873) II, p. 485.Google Scholar

72 Parson, , Contracts (3rd ed., 1857) I, p. 461 Google Scholar; Williston, , Contracts, (Rev. ed., 1937), V. para. 1497.Google Scholar

73 In the USA, the UCC manifests a tendency to provide consumers with regulatory system differing from that provided for other customers. This tendency was reinforced subsequently by Magnuson-Mass Warranty Act of 1975.