Some of the most controversial issues in contract law relate to what constitutes a valid offer. There have been cases in which the courts have discussed the issue of whether advertisements constitute offers, as XYZ v. XYZ, and there have been cases in which the courts have discussed whether a joking offer is valid for forming a contract, such as Lucy v. Zehmer. There have even been cases in which both of these issues were discussed in a single case, such as Leonard v. PepsiCo.
Lucy v. Zehmer is one example of a case in which joking offers were enforced as a part of a real contract. Mr. and Ms. Zehmer owned a farm in Virginia known as the Ferguson Farm. Mr. W.O. Lucy was an acquaintance of Mr. Zehmer and wanted to buy the farm from Mr. Lucy. One day Mr. Lucy visited a restaurant owned by Mr. Zehmer and spent the evening chatting and dining at the restaurant while consuming copious quantities of alcoholic beverages. Towards the end of the night, Mr. Zehmer wrote on the back of the restaurant receipt one of the shortest contracts for the purchase of land to ever be enforced; the entire contract reads, “We hereby agree to sell to W. O. Lucy the Ferguson Farm complete for $50,000.00, title satisfactory to buyer.”
The Virginia Supreme Court ruled that in this particular case, Mr. Zehmer’s claim that he was just joking in his offer was not a valid argument against the formation of a contract in this case. The Court determined that the hidden intention of a party to make a joke is not relevant if the outward actions of the party can only be reasonably interpreted as if they are a serious offer.
Another famous case that examines the issue of joke offers is Leonard v. Pepsico. Pepsi launched an ad campaign in which they introduced a concept called Pepsi Stuff. In this campaign, a person could earn “Pepsi Points” by purchasing specially labeled Pepsi products, or by purchasing Pepsi points directly for 10 cents per point. A person could then redeem those Pepsi points to buy specialty merchandise from a catalog. Pepsi created an advertisement for the 1996 Super Bowl which featured someone flying a harrier jet as a result of spending 7,000,000 Pepsi Points in addition to wearing other items which can be purchased with Pepsi Points. After seeing this commercial, John Leonard realized the cost of the Harrier Jet in terms of Pepsi Points would be significantly cheaper than buying a harrier jet in terms of dollars, and therefore sent Pepsi a check for 700,00 dollars requesting the Pepsi points necessary to purchase a Harrier Jet. When Pepsi refused to accept the check and give Mr. Leonard a Harrier jet, Mr. Leonard sued Pepsi.
The court ruled that Pepsi’s commercial did not constitute an offer for which an enforceable contract could be formed, for a multitude of different reasons. However one of the key reasons the court cited was that the inclusion of a Harrier jet in the commercial was an obvious joke and that no reasonable person would have viewed the advertisement as a serious offer to sell a Harrier Jet for only 700,00 dollars.