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This is one of the celebrated cases in the history of Indian Contract Law which has settled various principles of contract law. It was a case of binding unilateral offer that could be accepted by anyone who performed its term. This case was adjudicated by 3 English judges; Lindley LJ, A.L, Smith LJ and Bowen LJ & developed the contract as in the present form.
I. Facts of the case
The facts of the case are as follows:-
The company called, ‘Carbolic Smoke Ball Company’ introduced an innovative product called “Smoke Ball”. The idea of the product is that if the product is used for a certain period of weeks then it will cure influenza among other diseases.
Now it’s important to keep in mind that the product was launched in the wake of Flu Pandemic of 1889-1890, so the company made an astonishing amount of sales on the basis of these promises. To further promote their product, they published an advertisement in ‘Pall Mall Gazette’ newspaper and other like newspapers that they promised to pay £100 to anyone who falls sick after using the smoke ball.
They further instructed that one should use the ball for 2 weeks regularly thrice the day. To show the sincerity of their claim they have already deposited the said amount in the Alliance Bank, which is on Regan Street.
Now, one Mrs Louisa Elizabeth Carlill after reading the advertisement got interested in the product and started to use the product as advised by the company, starting from mid-November 1891 to January 1892. But during that period she falls sick due to the attack of influenza. So her husband wrote to the company explaining the whole situation and claiming the £100 as promised by the company.
The company initially ignored the first two letters sent to her, but then on the third letter, they stated that they had full faith in their product’s efficiency if used properly and to protect themselves from all the fraudulent claims that they would need her to come to the office daily and us the product each day and get checked by the secretary.
They stated that it was merely an invitation to offer not offer and that there was no valid contract between them. On getting their reply, she filed a case against the company stating that the company didn’t keep their end of the bargain as they promised in the advertisement.
The first and foremost issue, in this case, was whether there was any binding agreement between the parties or not? It can be divided into two sub-parts:-
- Did any communication of acceptance was done by Mrs Carlill to the company or not?
- Whether any sort for consideration was paid by the plaintiff to the company in exchange of £100 reward or not?
Each side produced their side of the argument to defend their interest. Arguments in favour of Mrs Carlill was that the advertisement as issued by the company was not an invitation to offer but offer in itself as she was under the obligation to fulfil the requirements as described in the paper to claim the reward.
The whole aim of publishing in the paper is that it would be read and acted upon by society at large. The whole point of depositing the amount in the bank is to show that the whole promise was not vague and that consideration was paid by Carlill.
The Carbolic Smoke Ball Company argued on the basis of 3 premises:-
- Defendant contested that there was no binding contract between them and the plaintiff. It essentially means is that they were contesting this claim on the ground that their offer was to the world at large and it was mere invitation to offer and that no explicit contract between the plaintiff and company was drafted to make them aware that she has decided to undertake that offer.
- Furthermore, they even stated that they didn’t have the ability to check the veracity of the claim of the plaintiff. They stated there may be chances that proper procedure wasn’t followed, or that plaintiff may even lie. So no proper mechanism to check the claims of the plaintiff.
- Also, they argued that the plaintiff hadn’t provided any consideration which forms an essential part in the formation of the contract. They stated that merely doing an act in private wouldn’t suffice in making that offer a binding document.
- They finally stated that advertisement didn’t constitute a promise because:-
- The contract requires that there should be a communication of acceptance from the offeree to the offeror. Now, in the present case plaintiff didn’t communicate her acceptance to the company that she was ready to accept the offer of the company, so since there was no communication of acceptance there was no offer.
- The terms of the contract are too vague; it may seem that any person may claim that they are affected with influenza 10 years after using the products. So there is an absence of reasonableness regarding the time period within which the offer shall be in existence.
The judgement was given by 3 different judges and so the analysis will be given in that manner to have clarity in the concept of the judgement:-
- Lindley LJ
- He focussed on the legitimacy of the advertisement and stated that it wasn’t “mere puff” as had been alleged by the company, as the company had deposited certain money in the bank to show their sincerity.
- Secondly, the offer was made to anyone willing to take up the challenge and perform the condition written therein, rather than a statement “not made with anyone”. They are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer.
- Communication of acceptance is not a necessary part of the contract if the people’s conduct manifests an intention to contract.
- Vagueness or the wide amplitude of the advertisement is no insurmountable obstacle
- The form of plaintiff’s consideration was good because there is both an advantage in additional sales in reaction to the advertisement and a “distinct inconvenience” that people go to when using a smoke ball.
- Bowen LJ
- He stated that contract wasn’t too vague to be understood by the common people as it could be interpreted as what common people would have understood it.
- Secondly, concurring with Lindley LJ, he stated that advertisement wasn’t mere puff because they have deposited £100 in the bank to pay them as rewards as per the conditions.
- It is true that an offer was made to the whole world, but the contract wasn’t with the whole world. It was only with those people who are accepting the offer and have used the product against those people it would bind the company.
- It’s not always necessary that communication of acceptance is needed to bind the contract, but sometimes the conduct of the offeree is sufficient to make the binding to other parties.
- Consideration was given by the plaintiff when she went with the ‘inconvenience’ of suing the product for the required time period and the company as benefited with the extra sales.
- AL Smith LJ
- It was more a general judgement and he concurred with the Bowen & Lindley judgment.
- The advertisement was an offer intended to be acted upon, and when accepted and the conditions performed constituted a binding promise on which an action would lie, assuming there was a consideration for that promise.
- It was argued that promise was too wide, but that wasn’t the case, as there were three possible limits to the contract- having influenza during its continuance, catching influenza during the using of the ball within a reasonable time after the expiration of reasonable time. It shows that there was sufficient bar on the time period so that the contract can’t be too wide.
- It’s argued that no person was named in the advertisement with which contract was entered into. He said that a person can sue the company in such cases where he performs the mentioned condition in the advertisement.
- In regard to the consideration, he said that the plaintiff had given consideration in the way of suffering the inconvenience of using the ball for 3 weeks- 3times a day. The other part of the consideration is that money gained by the company through the enhanced sale of the smoke ball by reason of plaintiff’s use of them.
VI. Ratio/principle this case stands for
The ratio which was developed in this case and which has been applied in many forthcoming cases were as follows:-
If there is an offer to the world at large, then that offers doesn’t require notifications of performance to the offeror, just the performance of the specified conditions in the offer would constitute as valid acceptance to the offer and consideration of the promise.
Another principle which was developed was that- statement in the advertisement may be mere “puff’ but the moment an intention is shown to be legally bind by that promise ( like in this case depositing the said amount in the bank) then it will constitute as a unilateral offer it will be binding on them.
So after thoroughly analysing the case, it can be said that the case laid a certain foundation to some of the concepts of the contract law and that everlasting impact in all contractual relationship. One of the important principles which developed was that offer must be clear and that it should be made with the intention that it should be binding. But in the case of “mere puff”, there is no intention of forming a binding contract.
But then again if somehow any intention is shown that offeror was intended to be bind by that offer, then he shall be bind by it. Also, the judges settled the matter in respect to the consideration part, where they clearly stated that when offers is made to the world at large, no need to communicate acceptance, only the fulfilling of the condition of the contract will be enough communication of acceptance.
So these are some of the principles which were developed in the case which are also applicable in India as well and should be given due consideration before making any contractual obligations.