Discuss about the Contracts Law Carlill v Carbolic Smoke Ball.
Business may be intending to use advertisements as invitations to treat. That is, inviting customers to come and open negotiations before concluding a contract. However, there is a need to take the form, factual context and the wording of these advertisements seriously. This paper will use the case of Carlill in analyzing how and when an advertisement will amount to an offer. I will also look at the significance of this case to Australian law.
This authority arose from Carbolic Smoke Ball Company’s invention of a device that they claimed it could prevent influenza. They made an advertisement of their device in the newspaper affirming that they would pay £100 to anyone who contracted influenza having their devices. Users had to use the device thrice a day for 14 days. In the advertisement, the company stated that it had already deposited £1000 as a confirmation for their sincerity. Louisa Carlill contracted even after using the device as per the instructions. She brought a claim for a breach of the contract. To her favor, the court found the advertisement as a unilateral offer made to the entire world at large. The fact that the defendant had even deposited £1,00 affirmed that he was ready for any claim for breach of the contract. The court allowed the claim, and Carbolic company was liable for breach.
The significance of this case in Australian contract law and the nature of a binding agreement is seen in three distinct issues. The first one is the principles of unilateral contract. The second issue is the distinction between a promise and puff. Unilateral contracts happen where one party provides a promise while the other party proceeds to the performance (Barron, 2013). The bargain of this contract is completed by the performance of the promisee as requested by the promisor (Roberts, 2017). One example is where a person loses his wallet. Then the person states that he will pay $100 to whoever finds the wallet. There would be no need for the finder to communicate his entrance to the search. A finder just need to search for the wallet and bring it to the owner. Upon delivery, the finder becomes entitled to $100. One main relevance laid out by this authority regards acceptance of an offer. The original rule requires notification of acceptance to the promisor. This communication creates what the law calls the meeting of minds (Graw, Parker, Whitford, Sangkuhl & Do, 2012). The law makes acceptance a requirement to create a binding acceptance. This case brought a different development regarding the binding of agreements where notice of acceptance would not be necessary. Bowen LJ stated that there are some situations where the performance of acceptance would become a notification (Miles & Dowler, 2013).
The next development that this case enlightened on was the issue of promises and puffery. The concept of a “puff” that this case developed remained as a rule in marketing and advertising laws ever since (Khoury & Yamouni, 2010). Lord Justice A L Smith noted the law regards advertisements as an invitation to treat but not an offer. However, that advertisement of the smokeball seemed more of a request for acceptance. The sincerity of this offer was even demonstrated by depositing the money at the bank. This was contrary to the rules guiding the use of pufferies. The principle laid the authority in cases where a mere puff can convert to an offer.
The case of Carlill v Carbolic Smoke Ball Co. Ltd is significant to Australian courts in different ways. For one, this is a landmark decision that brought several rules regarding the formation of a contract as derived from the defense side.
The main issue before the court was to determine the position of the contract between Mrs. Carlill and the smoke Ball company. The court was dealing with these three questions. The first one was deciding a dispute as to the nature of this advertisement. Was it an offer or a form of an request to make an offer? Then if the court finds that the advertisement was an offer, it then had to decide whether the rules pertaining to the communication of acceptance applied to this contract. The second question that the court was dealing with was whether the parties had an intention for a legal bond. Lastly, the court had to conclude whether the claimant provided consideration for Smoke Ball company’s promise of the reward.
The Court unanimously concluded that the advertisement suited an offer instead of an invitation. It was an offeror to all the world. There was no need for acceptance since the defendant had waived such requirement. The performance was the acceptance of this offer (Miles & Dowler, 2013). Further, whether the claimant provided consideration or not was a question of the parties’ intent for a legal bond in their agreement. Firstly, the court considered that this was a commercial context. As a general rule, there is a presumption that parties in a commercial setting always have an intention to creating a legal bond. In this regard, the court took an objective approach to interpreting the agreement in the general public viewpoint (Gulati, 2011). The fact that Smoke Ball company had deposited 1000 pounds demonstrated their intention to be bound.
This ruling presents what is now the advertisement rules where the advertisement amounts to a conditional offer instead of an invitation to treat. It also acts as the authority in the situations where the promisee waives the necessity of the communication of acceptance (Latimer, 2011). The authority sets that performance of particular conditions will constitute acceptance without necessarily informing the promisee. This case also acts as the authority where an agreement lacks consideration, yet the offeree suffered inconvenience following directions of the offeror. Lastly, the case demonstrates that there is a belief that there is always the parties’ projection for a legal relation whenever they are dealing within a business or commercial setting (Saprai, 2017).
The nature of this contract is a unilateral one. A unilateral contract is a form of a single-sided agreement. It is only one party that makes a promise with the intention of inducing the other to undertake a particular task (Graw, Parker, Whitford, Sangkuhl & Do, 2012). Unlike bilateral contracts, the second party in a unilateral contract does not have a legal obligation to perform as per the terms of the contract. However, the performance of the second party and its compliance with the set conditions binds the first party into the agreement (Latimer, 2011). Another feature of the unilateral contract is that it does not require notification of acceptance. This dismisses the rule that acceptance of a contract must be timely as found in bilateral contracts since the offer is ongoing.
The relevant legal principle within this case were offer and acceptance, intention to creating a legal relation, and consideration.
The rule of law states that pufferies are statements of exaggerations which are not terms of an offer (Latimer, 2011). An example of a puffing statement was found in(Dimmock v Hallett,1866). While auctioning a piece of land, Dimmock stated that the land was “very fertile and improbable.” Hallett relied on this statement while buying the land. Later, she discovered that it was untrue. The court described the term as a mere puff, and such a term could not amount to legal repercussions. Compare this rationale with the case of (Smith v Land & House Property Corp, 1885). The claimant bought a hotel from the defendant. The defendant had stated that the property was let to a ‘most desirable’ tenant. In fact, the defendant knew that the tenant was in arrears and approaching bankruptcy. This statement was held as a fact rather than a mere puff.
I concur with the application of the same rationale in the case of Smoke Ball Co. The court did not accept that the company statement was a mere puff. The fact that the company had even deposited the money in the bank showed their sincerity. The court stated that a reasonable man would not have taken it as a puff.
The general rule is that advertisements are not offers but an invitation to people asking them to come and make an offer (Bruce, 2011). An application of this authority was affirmed in (Fisher v Bell, 1961). The seller had displayed a flick knife and a ticket for sale behind it stating ‘Ejector Knife—4s’. The police charged the seller with offering to sell the flick knife which was against the law. The court found the seller not guilty stating that goods on display are invitation to treat but not offers. The ruling of this case confirms the rationality established by the Smoke Ball Co’s authority. Even though advertisements are an invitation to treat, the court found that this one unusual situation. Its characteristics fitted an offer as opposed to an invitation.
It is a general principle in the law of contract that an offer which is a proposal must be certain in its terms (Lambiris & Griffin, 2014). These terms should not be too vague. An application of this rule was affirmed in (Gurthing v Lynn,1831). Mr. Gurthing was buying a horse from Mr. Lynn for £63. Mr. Gurthing accepted the price with a £5 ‘if the horse was lucky.’ The court did not find a meaning of the term ‘if the horse was lucky’ as it was too indefinite. The Smoke Ball Company’s defense was relying on this rule in the ambiguity as to time limit. Though the defense argued that there was no time limit, the court found three possible time limits. The first was the continuity of the epidemic. The second one was treating influenza when someone had the smoke ball. Third, treating influenza at its reasonable time which the company had given as three weeks.
The rule that governs such issue regards unilateral contracts. The rule is that acceptance of unilateral contracts relies on the completion of the performance (Graw, 2012). A similar case in this nature was decided in (Harbhajan Lal v Harcharan Lal, 1924)
In this case, a boy ran away from his father. The father issued a pamphlet offering to reward anyone who could find the boy with Rs. 55. The claimant got the boy and sent a telegram to his father. The court concluded that the pamphlet was an offer made to the public. Therefore, I agree with the judgment of the case of Carlill v Carbolic Smoke Ball Co which had set these principles. In Carlill v Carbolic Smoke Ball Co, the defendant was arguing that his contract was a ‘contract with the world’ which had no possibilities of amounting to a binding agreement. The court rebutted the argument stating that it was not a contract made to the entire world, but it was an offer made to the world. The court advised that anyone who comes out to perform the conditions completes the formation of a binding agreement.
It is a rule that the offeree should communicate his acceptance to the offeror to make a binding agreement (Miles & Dowler, 2013). However, the court noted that this rule could not nullify disputed agreement as such an offer did not require communication of acceptance. It only required fulfillment of the conditions. This rationale was later affirmed in the case of (Brogden v Metropolitan Railway Company, 1877) The claimant had been selling coal to the defendant for several years with an unwritten contract. The parties later contemplated having a formal agreement. The defendant posted the draft contract to the claimant. The claimant made some alteration and then sent it back to the defendant. The parties continued to trade until when the dispute arose. The court found that even though the claimant altered the document, his action complied with the unsigned terms.
Even though it is a requirement that an agreement must have an item of the bargain, an agreement lacking consideration is still enforceable if it was formed with the intention to create a legal relation (Miles & Dowler, 2013). The general presumption is that parties to a commercial agreement intend to create a legal bond. On the other hand, there is a presumption that domestic and social agreements do not have such as intention (Gulati, 2011). For instance, in (Balfour v Balfour, 1919) the court decided that a domestic agreement is made without the intention to create a legal relation. A husband had promised a pay his wife as house allowance. Later the husband suspended the allowance after the separation. The court refused to enforce the agreement since it lacked the intention for a legal bond.
This rationale is witnessed in the case of Carlill V Carbolic Smoke Ball Co when it rebutted the claim that there was no consideration as a requirement of an agreement. The court found that such a rule did could not apply in this agreement. The court affirmed that as far as there was an intention to create a legal relation, consideration was not a requirement. These rules as laid out in Carlill v Carbolic Smoke Ball Co formed a relevant case law in Australia courts.
In overall, I agree with the position taken by this case in setting curing the ambiguity that such scenarios would have created in commercial practices.
References
Barron, M. (2013). Fundamentals of Business Law 7e Revised (7th ed.). McGraw-Hill Education Australia.
Bruce, A. (2011). Consumer protection law in Australia. Chatswood, N.S.W.: LexisNexis Butterworths.
Graw, S. (2012). An introduction to the law of contract (7th ed.). Rozelle, N.S.W.: Thomson Reuters (Professional) Australia Limited.
Graw, S., Parker, D., Whitford, K., Sangkuhl, E., & Do, C. (2012). Understanding business law (6th ed.). Chatswood, NSW: LexisNexis.
Gulati, B. (2011). ‘Intention to Create Legal Relations’: A Contractual Necessity or An Illusory Concept. Beijing Law Review, 02(03), 127-133. https://dx.doi.org/10.4236/blr.2011.23013
Khoury, D., & Yamouni, Y. (2010). Understanding contract law, 8th ed (8th ed.). Chatswood, NSW: LexisNexis Butterworths.
Lambiris, M., & Griffin, L. (2014). First principles of business law (7th ed.). Sydney: CCH Australia.
Latimer, P. (2011). Australian business law 2012 (31st ed.). North Ryde, N.S.W.: CCH Australia.
Miles, C., & Dowler, W. (2013). A guide to business law (20th ed.). Rozelle, N.S.W.: Thomson Reuters.
Roberts, M. (2017). Variation contracts in Australia and New Zealand: whither consideration?. Oxford University Commonwealth Law Journal, 1-27. https://dx.doi.org/10.1080/14729342.2017.1360604
Saprai, P. (2017). Balfour V Balfour and the separation of contract and promise. Legal Studies, 37(3), 468-492. https://dx.doi.org/10.1111/lest.12162
Balfour v Balfour [1919] 2 KB 571
Brogden v Metropolitan Railway [1877] 2 App. Cas. 666
Dimmock v Hallett (1866) LR 2 Ch App 21
Fisher v Bell [1961] 1 QB 394
Guthing v Lynn [1831] 2B & AD 232
Harbhajan Lal v Harcharan Lal (AIR 1924 A11. 539)
Smith v Land & House Property Corp. [1885] 28 Ch D 7
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