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I stumbled across this news article: "Shop posts ingenious 'August peanut sale' poster to circumvent bottled water ban"

The article describes a music festival that was not allowed to sell bottled water to patrons, so they sold peanuts for $1.50 each and provided a "free" bottle of water with the purchase. The overall result is that the customer has paid $1.50 for a bottle of water and a peanut, but because the money was ostensibly exchanged for the peanut, nothing illegal has taken place.

In fact, the placeholder purchase is not required, because each person could claim that they gave away the money or the item of their own free will, independent of expectation from the other.

I'd like to know if this loophole, regardless of the goods that are forbidden to be sold, has ever been challenged in a court of law and what the outcome was. I don't care too much about jurisdiction but I'd prefer answers from the United States or countries with legal systems descended from English Common Law (Australia, Canada, United Kingdom).

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3 Answers 3

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Depends on the law

It’s unclear if this is a contractural restriction on the shop or a local ordinance relating to the festival. In any event, it depends on the law and what, precisely, the shop is doing.

If the restriction is on supply, this doesn’t work. If it’s on sale then this might work if done properly.

If it is a contractural restriction that the shop freely entered, it is unlikely that this ruse would protect them from a breach of contract suit because the shop is obviously acting in bad faith in a calculated attempt to avoid their obligations.

If it really is a law restricting sales, then giving it away free would work. However, what the shop is doing is not giving away free water - they are bundling a peanut and a bottle of water and selling that. To avoid liability, the shop would need to give the water away for free without selling the peanut to anyone that asked.

An analogous case related to liquor happened in . All states in Australia require a liquor licence to sell alcohol in most cases, however, providing you comply with responsible service laws, it’s not illegal to give it away to the public.

As is common, many hairdressers provide their customers with a complementary glass of wine. This is fine in Queensland or Western Australia because those states have specific exemptions for hairdressers, but illegal in NSW.

A salon owner in Sydney was successfully prosecuted for this practice because, when the undercover police officer requested a “free” glass without a haircut, she was denied. The magistrate concluded that this meant the wine was not, in fact, free and that the salon was therefore selling liquor without a licence. At $11,000 per glass, the salon lost money on the deal.

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  • @Greendrake no it means they can sell (or give away) liquor as an ancillary services without needing an on-premises liquor licence. A hairdresser or anyone else is allowed to give away legitimately free liquor providing it is done by a person holding a Responsible Service of Alcohol qualification and all other laws regarding service (e.g. not serving intoxicated people) are complied with.
    – Dale M
    Dec 5, 2022 at 21:14
  • @Greendrake You see this in a lot of contests hosted by products where you get game pieces from purchasing products in the U.S. Because of the random nature of obtaining the piece, if they required a purchase, that would classify it as a gambling game. However, most corporations get around this by offering oppertunities to play that require no purchase ("No purchase necessary to win") and will provide a means to enter the contest without buying the promoted product, thus the game pieces sold with product are not part of the purchase but a free gift with a purchase.
    – hszmv
    Dec 5, 2022 at 21:17
  • @Greendrake: It just so happens that a purchase of a product promoted with game pieces are the easiest way to obtain the game piece.
    – hszmv
    Dec 5, 2022 at 21:18
  • @hszmv that makes it a sweepstakes and not a lottery and often but not always subject to different laws. But the principle is the same - to be free it really has to impose no obligation on the recipient.
    – Dale M
    Dec 5, 2022 at 21:20
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    I'm not sure if the Alcohol example would work in the U.S. if it was given for free due to how liquor licenses are used to enforce age restrictions on alcohol use among other things.
    – hszmv
    Dec 5, 2022 at 21:24
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That incident hinged, at best, on the contract between vendors and the organizers. There were false implications that it was related to liquor control regulations, it was apparently related to a plan to have a monopoly on water sales that went bad because demand vastly outstripped supply. Nobody has offered anything resembling a contract between vendors and the local paper sponsoring the event. It would therefore depend on the exact wording of the contract. There would have to actually be some such restriction stated in the contract. If there were some vague verbiage to the effect that vendors must comply with rules set by the organizers, the organizers could not then impose a rule "food may not be sold" since selling food is the whole point of the contract. If we assume that the contract says "You may not sell bottled water", then the organizers would have a basis for a suit against the vendor. However, it is not clear that they would have been able to collect much by way of damages. The organizers would have to show that the vendor's sale decreased the profit that would have been otherwise made, but the surrounding circumstances indicated that there was probably little effect on sales.

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Discussed in the comments in another answer but in the United States, lotteries are generally illegal unless run by the state, and are defined by as:

1.) A game of chance that requires no skill to win 2.) Requires a player to purchase an entry to play 3.) Awards a prize of a monetary value 4.) Runs with a profit for those who run the game

In order to violate the law, all four conditions must be met. If any of the four are not met, the game ceases to be a lottery. Most for profit companies running promotional sweepstakes with lottery like features will defeat this by having a "No Purchase Necessary to Play" clause in the rules, which allow a contestant to receive an entry into the game without purchasing the product(s) that are being promoted by granting entry on purchase. Since they are not requiring the purchase, they do not run at a profit for the purposes of the law, and thus are not legally lotteries. Game rules will include instructions on how to obtain a game piece for free, although nothing in the law says the free entry has to be the most convenient form of entry. After all, it's a lot harder to send a post card to the people in charge of the McDonalds Monopoly game than it is to order the Big Mac with the tickets on the box.

Because the piece is truly free, the company risks a player field that is not buying the promoted product, which keeps the price it would if the game piece wasn't attached to it.

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  • Interesting info about lotteries, but it doesn’t answer the question. Selling peanuts and water is not “a game of chance”. Dec 6, 2022 at 15:59

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