Are Advertisements Contracts?

Author- | Posted- | Updated: July 4, 2020 |

Advertisements generally do not count as contracts. Instead, they are considered an offer to make a deal. There are several more steps that must be taken in order to convert an advertisement into a legally binding contract. For example, an advertisement or announcement specifying the sale of merchandise at a specified price cannot be considered offers to enter into a contract. So, in case an advertiser who has placed an advertisement later refuses to sell the product at the price he had advertised, it will not be considered a breach of contract. In a contract, the first step is to make an offer. However, while offers can come in several forms, advertisements are generally considered offers. Announcements, brochures, or catalogs also do not count as contracts but as only invitations to make a deal. 

In what cases can an advertisement be considered an offer?

Advertisements are not legal offers in general but there are still three elements that can make an advertisement an offer. These elements are:

  • The advertisement has sufficiently definite terms.
  • The advertisement is targeted at a specific person or group.
  • The circumstances of publishing the advertisement clearly show that the advertiser intends to offer a contract.

While different courts deal with the issue in different ways, one important factor that most courts check is whether both the parties intended to enter into a legal contract.  


When is an advertisement considered legally enforceable?

In general, advertisements are considered only an invitation to start negotiation between the buyer and seller.  Even a detailed advertisement cannot be considered an offer. However, there are circumstances where courts need to decide if an advertisement is legally enforceable. Many courts will look at the advertiser’s intent. Simply put, courts will look at what will be a reasonable person’s reaction to the same advertisement under ordinary conditions. Courts will check if a reasonable person would read the agreement and believe its content and think that the advertiser wants to form an agreement. Apart from these things, the court will consider the circumstances of the advertisement including the location. For example, a seller places an advertisement for agricultural equipment for $300. While the same advertisement would not be taken seriously in a city, in the rural area, it might be considered a legally binding offer. Courts would also consider if the plaintiff or the party having brought the lawsuit had actually accepted the advertiser’s offer. A party accepts the offer when it acts in a manner to fulfill his part of the bargain. For example, you see an ad for used toys in exchange for cash in a newspaper. You accept the offer if you send your old toys to the advertiser. In some cases, there may be an exclusive method outlined by the advertiser for accepting an offer. Suppose, the same ad says that you need to register with the buyer’s company to accept the offer. To accept the offer, you must first register with the company and if you send your toys without registering, it will not be considered a valid acceptance.

This also protects the advertiser’s interest so that if he offers a product at a very low price in error then he cannot be forced to sell the product at that price just because he advertised. So, if the advertisement does not meet the criteria to be considered an offer, a customer cannot take advantage of that advertisement. Advertisers can also try to assert that he did not intend to sell the product at the advertised price which was done in error or that the terms of the advertisement were not definite enough. Many times advertisers use bait and switch techniques but that is fraud under the consumer protection law. In some cases, advertisers may agree to sell the product at the advertised price even if done erroneously in order to preserve business goodwill. 

When can an advertiser withdraw an offer if his advertisement is considered an offer?

An offer is revocable until the advertiser has received a benefit or the other party has already acted in reliance on the offer. For example, there is an advertisement promising therapy for cancer will be revocable unless the advertiser has received payment from the patient. However, if the patient has come from far for treatment after seeing the offer, the offer is not revocable. 

Example case: Leonard Vs Pepsico.

Leonard Vs Pepsico was an interesting case related to advertising. In this case, the plaintiff sued Pepsico for not delivering something it promises in its advertisement. The plaintiff was John Leonard who sued Pepsico Inc for not being able to redeem his Pepsi points to get the Harrier Jet advertised in a Pepsi promotion. In his claim against Pepsico, Leonard alleged a breach of contract as well as fraud.

The advertisement showed a young guy arriving at his school in a Harrier Jet and with it Pepsi ad showed that the item was worth 7 million Pepsi points. Pepsi was offering a lot of merchandise that could be redeemed using Pepsi points that customers could obtain by buying Pepsi products. Otherwise, one Pepsi point could be bought for 0.10 dollars. Leonard bought some Pepsi points and collected money to make up for the rest of the points from others. However, he was unable to redeem the points and Pepsi wrote back that the Jet was not available, and instead, he could have other merchandise. Moreover, Pepsi stated that the item being promoted was used for humor in the ad and should not be considered as an item on offer. However, the case was taken to the court where the judge decided in favor of Pepsico and rejected Leonardo’s claim on the basis of several grounds. 

  • The advertisement that featured the Harrier Jet did not constitute an offer under the restatement (second) of Contracts.
  • The court also found that even if the advertisement constituted an offer, any reasonable person would not have seriously believed that a Harrier Jet worth around $23 million was on offer for just $7,00,000.
  • Due to the value of the alleged contract, it fell under the provisions of the statute of frauds. However, the statute required a written agreement between the two parties, and since there was no agreement between the two parties no contract was formed. 

The court also made many more observations proving that the advertisement was done in jest, some of which were as follows:

  • The youth flying the Jet was not a real pilot, one that could not even be trusted with his parents’ car’s keys, leave alone a fighter Jet considered to be the Prize aircraft of the US Marine Corps.
  • The teenager featured in the ad flying a Harrier jet makes a comment, “surely beats the bus”. The judge ruled that it showed an unconcerned attitude and neglect of the perils of flying a fighter jet in a residential area.
  • No school can offer landing space for a Harrier Jet or condone the disruption the use of a Jet in the school area can cause.

The court stated that the use of a Harrier Jet as depicted in the advertisement was not serious at all, even if it could be acquired without its military equipment onboard.

Later, while Pepsi continued to air the commercial, it increased the number of Pepsi points for the Harrier jet to 700 million Pepsi points and also added a No Kidding disclaimer. 

What types of advertisements does law forbid?

There are several laws in the US related to advertising that protect the customers’ interests. In the US, both Federal and State laws prohibit advertisements carrying false or misleading information. The Lanham Act also prohibits advertisements that carry false or misleading information. The main aim of laws prohibiting false advertising is to outlaw those business practices that aim to deceive the customers. One of the most common practices related to false advertising is to claim that a product is on sale or being sold at discounted prices and then sell it for a higher price.  

Moreover, the law prohibits any discrimination against the protection classes in advertising. Especially, when it comes to job advertisements of real estate ads, the law is strict regarding discrimination against any of the protected classes. The Civil Rights Act as well as the Fair Housing Act both make it illegal to discriminate against the protected classes in advertisements for jobs and real estate respectively. 

However, state laws can also prohibit discriminatory practices in advertising. If a business invites the public, it cannot be selective about whom to invite and whom not. However, if there is a person or group that can be dangerous to the business, then it can exclude them.

It is why businesses need to remain extra careful when creating an advertisement so that it does not violate any of the laws or hurt any person or group’s sentiments. Apart from that, while ensuring that their advertisements are not actually offers, businesses must also ensure that they are not creating warranties unintentionally.  If there is a warranty, it is the obligation of the manufacturer and the seller to fulfill the warranty. For example, you are selling clothing that you advertise as light and cool but it is instead thick and coarse. Since you promised light and cool in your advertisement, it could be considered a warranty and your product must match that description. However, businesses should understand that they are responsible for the claims that they make in their advertisements. Even if not a violation, a poor claim can cause a business a lot of embarrassment. 

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.