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Monday, December 12, 2011

Ticket Pricing Errors and Unilateral Mistakes

A recent letter to the NYT's consumer advocate, the "Haggler," (aka David Segal, who some of us law profs may not love so much anymore since his recent swipe at legal scholarship...) raised some interesting contracts issues. A reader complained that in early September he bought two round trip tickets from San Francisco to Palau for $510 on Korean Air for a trip in February. In the interim, he booked hotels, bought an underwater camera and made plans. Sixty-four days later, he received an email from Korean Air stating that the posted fare was "erroneous" and that his tickets were cancelled. They offered a refund for "travel-related" expenses, including the tickets, and a $200 Korean Air voucher. The reader stated that with the voucher, his new fare would be $360/ticket higher than the fare he had originally booked.

So, what's the price of an average airline ticket to Palau from S.F. in early February? I checked and it's anywhere from $1600 to $2500 for coach. But before you say unilateral mistake -- for didn't the reader check other airlines and know that the quoted rate was so much lower? - I say, Hold on. I realize this is not the first time an airline, or any company, has posted an erroneous fare. The Haggler discussed another incident involving British Airways that arose in 2009 where the company posted fares from U.S. to India for $40. In that case, British Airways covered travel-related costs and gave out $300 vouchers. (One of the issues in an exam I wrote several years ago was inspired by this situation).

But the British Airways case was different from the Korean Air case in several ways. The British Airways fare was so low that I think the purchasers "knew or should have known" about the mistake. The Korean Air price was also low, but given the deals to be found on the Internet and that the tickets were booked so far in advance, it is not evident that the purchaser "should have known" that the fare was a mistake. It's a great deal, but not clearly a mistake. Furthermore, the wrong price was listed for only a few minutes on the British Airways site, whereas the erroneous fare was posted on the Korean Air website for several days ("at least four"). Would it be "unconscionable" to force Korean Air to honor the fare? Maybe. Under Donovan v. RRL Corp., the standard of"unconscionability" for unilateral mistake purposes is lower than required when it's a standalone defense.

There's another issue that was raised in the Haggler column as a potential problem for the purchasers, the "contract of carriage." I checked on the Korean Air website and found the document - all 44 pages of it. It's accessible as a link on the bottom of the Korean Air website, of course. I took a brief glance at the document (necessarily brief b/c of the length). There were some references to Korean Air's ability to cancel for broad and vaguely defined reasons, but I would not have interpreted these as permitting cancellation for posting an erroneous fee - these seemed more appropriately interpreted as allowing cancellation for equipment failure or scheduling or weather complications.

I may have missed it, but I didn't see a provision allowing Korean Air to cancel for posting an erroneous fare after it has confirmed the reservation. To interpret the existing cancellation clauses to mean Korean Air can cancel at will would create mutuality issues. Korean Air would not want to make this argument for while such an interpretation would disadvantage the purchasers in this particular case, it could also mean that the contracts it enters with its other customers are void (and customers could cancel at the last minute).

Another provision I didn't see and just might have missed (although I doubt it) was a choice of law provision with respect to contract claims.

[Nancy Kim]

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