Understanding the Legal Nuances of Advertisement Induced Contracts

Introduction

Contracts and advertisements play pivotal roles in the world of business. Understanding how these two elements intersect is crucial for managing business liability, ensuring legal compliance, and safeguarding consumer rights. This article explores the relationship between contracts and advertisements, shedding light on when advertisements may be considered contracts and when they are not.

In general, courts do not view advertisements as offers but rather as invitations to initiate negotiations or invitation to treat. Imagine a world where every advertisement is considered a binding offer. Imagine a situation where a popular electronics company advertises their new smartphone with the statement "The longest-lasting battery in the world!". Consumers who purchase the phone based on this claim expect it to have an extraordinary battery life.

However, when they find that the battery life is not as exceptional as advertised and significantly underperforms, they might feel deceived and seek legal action against the company for false advertising and potentially breach of contract. This scenario highlights how misleading advertisements can lead to disputes when the products or services fail to meet the expectations set by the advertising claims. Moreover, if an advertiser has limited stock of a product, it wouldn't be fair to expect them to fulfil offers to everyone who responds to any given advertisement.

However, advertisers must not make false or exaggerated claims in their advertisements. Advertisements must be truthful or at least have a reasonable basis in fact. This principle was exemplified in the case of Leonard v. PepsiCo. The court ruled that an advertisement that a reasonable person wouldn't take seriously and that refers to additional information is not an offer.?

In the Leonard v. PepsiCo case, Pepsi's advertisement promised customers the chance to earn 'Pepsi Points' and redeem them for various items, including a Harrier jet. The plaintiff and his friend accumulated enough points for the jet and attempted to claim it. However, Pepsi refused, and the court found that the advertisement was not a valid offer. The court's decision hinged on the principle that for an advertisement to be considered a legally binding offer, it must be reasonable and must convey a serious intent to enter into a contract. In this case, the court found that the advertisement for the Harrier jet was so extravagant and absurd that no reasonable person would interpret it as a genuine offer.

In a similar case called Lefkowitz v. Great Minneapolis Surplus Store Inc., the defendant advertised the sale of fur coats and stoles for a specific price, with the condition of 'first come, first served.' Mr. Lefkowitz, upon seeing this advertisement, was the first to arrive at the store and attempted to purchase the fur coats and stoles at the advertised prices. However, the store refused to sell the items to him, invoking a "house rule" that limited these bargains to women. As a result, Mr. Lefkowitz sued the store for breach of contract, arguing that he had accepted the offer as presented in the advertisement. The court determined that this advertisement created a contractual obligation, as it guaranteed that the first person who responded would receive the item at the advertised price. The defendant could not alter the terms once the offer was accepted, demonstrating the binding nature of the advertisement.

Although advertisements are typically considered invitations to treat, there are specific circumstances where they can be treated as contracts. These circumstances include:

1. Defined Terms: When an advertisement includes clear and defined terms, it may be regarded as an offer.
2. Targeted Audience: If an advertisement is directed at a specific person or a limited group of people, it could be seen as an offer.
3. Intention to Contract: When the circumstances surrounding the publication of the advertisement indicate a clear intention to enter into a legal contract, it may be considered an offer.

It is important to differentiate between an invitation to treat and a unilateral contract. The case of Carlill v. Carbolic Smoke Ball Co. illustrates the concept of a unilateral contract. The Carbolic Smoke Ball Company advertised that using their product as instructed would prevent colds and influenza. They even offered a substantial reward to anyone who contracted influenza while using their product. What made this case interesting was that the company also deposited ￡1,000 in a bank as a show of their sincerity in fulfilling the reward. Lilli Carlill, upon seeing this advertisement, purchased a Carbolic Smoke Ball and used it according to the instructions but, unfortunately, still caught influenza. She then sought to claim the ￡100 reward from the company. The central issue before the court was whether the advertisement constituted a binding contract and, more specifically, whether it formed a unilateral contract. The court ruled in favour of the plaintiff, Lilli Carlill, as the advertisement's terms were specific, and the company's intention to form a legally binding contract was evident by depositing money in a bank as proof of their sincerity.

Conclusion

Advertisements are typically considered as invitations to treat rather than contracts. However, advertisements can transform into contracts if they meet specific criteria, including having clearly defined terms and demonstrating the intent to form a legally binding agreement. As a result, not all advertisements are considered contracts, but some may indeed have the legal force of a contract. Consumers should remain informed about the terms and conditions presented in advertisements and the relevant laws to understand the nature of the offers they encounter. This understanding is crucial for businesses and consumers alike, as it helps ensure transparency, fairness, and legal compliance in the marketplace.

References:-

1. Pearson, O. (2017) Differences between an advertisement and a unilateral contract, Small Business - Chron.com.
2. Is an advertisement an offer? - Find Law.
3. LEONARD v. PEPSICO, INC. 88 F. Supp. 2d 116 (S.D.N.Y. 1997) kentlaw.
4. LEFKOWITZ v. GREAT MINNEAPOLIS SURPLUS STORE, INC. 86 N.W.2d 689 (Minn. 1957)
5. Is an advertisement a contract: Everything you need to know. UpCounsel.
6. Carlill v. Carbolic Smoke Ball Co., [1893] 1 QB 256

This article presents the insights of?Sia Sethi, a second year student at O.P. Jindal Global Law School. The author's perspectives and opinions are entirely based on their personal viewpoint.