Advertising and the law of contract

• Is an advertiser contractually bound to sell products at the price advertised?
• Can ads ever be a contractual offer?
• Are e-tail sites contractual offers?
• Can promises in promotional material ever become part of any resulting sale contract?
• What about manufacturers who advertise but don’t sell to the end user?
• Can e-tailers sell exclude all liability by written terms on the site?
• If an agency supplies an illegal campaign, what is the contractual position with its client?
• If an agency and its client or supplier exchange different standard terms, which ones apply to the contract?
• Can the “battle of the forms” be won by a term negating any terms delivered later?

Is an advertiser contractually bound to sell products at the price advertised?

In most cases the answer is “no”. One of the fundamental ingredients of a binding contract is the acceptance of an offer. The generally accepted view is that an ad amounts only to an “invitation to treat”, the “offer” only occurring when the punter responds to the ad by entering the retail outlet, identifying the product he or she wants to buy and proffering the purchase price. The “acceptance” occurs when the money is taken by the retailer and the purchase handed over The rationale for this is that the retailer should not be obliged by contract to supply to every single respondent to his advertising. Otherwise he would be placed in an invidious position were the advertising to be so successful that he ran out of stock!

Can ads ever be a contractual offer?
Not usually, but as ever with principles of law, there can be exceptions. If the ad is worded in such a way as to suggest that the advertiser does regard it as a contractual offer by which he is happy to be bound to all who respond to it, then it will be regarded as an offer. In the 1891 Carlill v Carbolic Smoke Ball case, an ad stated that the sum of £100 reward would be paid to all who bought the smoke ball and still contracted flu. As earnest of its commitment, Carbolic announced that the sum of £1000 had been placed on deposit at an identified bank. Mrs Carlill saw the ad, bought the product, contracted flu and sued Carbolic for the £100. She won on the basis that the ad’s content clearly showed an intention to be bound and should be regarded as in the nature of a contractual offer.

Are e-tail sites contractual offers?
They could well be, and that’s why most e-tail website terms and conditions state clearly that a contract will not be regarded as formed until the ordered goods are dispatched or the Etailer has e-mailed the orderer to confirm that the product is in stock and is being shipped.

Can promises in promotional material ever become part of any resulting sale contract?
Yes indeed.  As the 1997 case of Robert Anthony v Norwich & Peterborough Building Society underlined. After reading a brochure about N&PBS TESSA accounts Mr. Anthony bought one. The brochure said:
“Whatever your level of investment Tessa Elite will pay a very competitive rate of interest annually for each day your money is invested” After 18 months the interest rate got steadily less competitive. Mr Anthony sued for breach of the above promise, which he said became a term of the contract by which he bought the TESSA. NPBS argued that the wording was vague and clearly mere puff and that in any event the only terms that applied were those in the application form which Mr Anthony signed headed “Declarations and Terms and Conditions”.

The Court found for Mr Anthony, saying that there was no absolute rule that the existence of a full written contract precludes a finding that other terms were intended to form part of the contract. A statement made close to the time of conclusion of the contract was particularly likely to be regarded as a term (e-tail site operators take note) especially where the maker of the statement could be regarded as having considerably greater expertise than the prospective purchaser. And don’t forget, even if ad copy fails to qualify as a contractual term, it may still amount to a representation caught by the Misrepresentation Act and thus land the supplier in hot water if it turns out to be untrue.

What about manufacturers who advertise but don’t sell to the end user?
The advertiser may not have a contract problem, but a misleading ad could lead to local authority trading standards officers taking an interest with a view to initiating a criminal prosecution for offences under the Trade Descriptions Act 1968 (materially false product descriptions), the Consumer Protection Act 1987 (misleading price indications) or the Food Safety Act 1991 (false descriptions relating to food) to name but a few, while the Advertising Standards Authority (“ASA”) may become involved following either a complaint from a consumer or competitor or the ASA intervening itself.

Can e-tailers sell exclude all liability by written terms on the site?
“Not necessarily” is the answer. In particular the Sale of Goods Act 1893, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1984 place considerable limits on the extent to which a supplier can validly exclude liability for supplying a product which turns out not to match up to promises made for it in advertising material.

If an agency supplies an illegal campaign, what is the contractual position with its client?
A recent case indicates that if, for instance, the illegality constitutes a criminal offence, it could be open to the client to argue that the contract with the agency is for an illegal purpose and as such unenforceable. If the client runs this argument successfully, it means the agency cannot enforce the contract by recovering monies due for work done under it. Another recent case, however, suggests that if it is not fair to expect the party supplying the service to know of the illegality, it may be open to the supplier to claim, outside the contract, for payment on what is called a “quantum meruit” basis for work done. An agency could strengthen its position here, for instance in a financial services context, by including in the contract with the client a provision placing the onus firmly on the client to ensure that marketing material was legal. The client of course will want to shift this obligation onto the shoulders of the agency.

If an agency and its client or supplier exchange different standard terms, which ones apply to the contract?
The winner of the “battle of the forms” is the party that gets its terms and conditions in last before the work contracted for starts.  The legal analysis of the situation is that the last terms to be delivered classify as an offer and the commencement of work by the party receiving the terms is an acceptance by conduct of that offer, forming the contract.

Any terms and conditions delivered after the point at which the contract is formed, such as those in a delivery note or invoice, are unlikely to apply because they will have been communicated after conclusion of the contract and are therefore too late to be incorporated into it.

Can the battle of the forms be won by a term negating any terms delivered later?
The generally accepted wisdom is that such a clause will be of no effect. This is for the simple reason that like all the other clauses in that set of terms, it will be superseded by any later, inconsistent terms and conditions of the other party. The legal analysis is that party A’s terms including the “later terms of no effect” clause amount to a contractual offer, while party B’s subsequent terms and conditions, if they are in any way inconsistent with those of party A classify as a counter-offer. If party A then delivers the products ordered, the act of delivery will be regarded as an acceptance of the counter-offer and the contract will then be formed.