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Contract Law

Carlill vs. Carbolic Smoke Ball Company (1892)

August 27, 2024

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This article was written by Ms Sankalpita Pal and has been further updated by Gauri Gupta. The article provides a detailed analysis of the landmark judgement of Carlill vs. Carbolic Smoke Ball Co. (1892). The author aims to provide a brief background of the case, facts of the case, important issues raised, contentions made by the disputing parties, and crucial points highlighted by the Court of Appeal in the UK. Further, the author has tried to explore the significance of the judgement and discussed in detail the necessary provisions and judgements referred by the court while delivering the judgement.

Table of Contents

Introduction

The English contract law is considered milestone legislation in laying down crucial judgements that have shaped ideas and situations that challenge the preconceived notions of the judges. One such case is the infamous case of Carlill vs. Carbolic Smoke Ball Company (1892) before the Court of Appeal in the UK. It establishes a core principle that an advertisement containing a promise that is conditional upon some kind of performance can constitute an offer of a unilateral contract.

In the case of Weeks vs. Tybald (1605), the court suggested that an offer must be made to a definite person. This case arose from the affirmation of the defendant to the public wherein he provided that he would give 100 Euros to any man who would marry his daughter after obtaining his consent. The claimant alleged that he did so and sued the defendant for 100 Euros. However, the court, in this case, observed that it cannot be averted that the words were spoken to him. In other words, it was not definite whom the words were spoken to. This raised several questions, the most crucial one being whether a proposal of this nature, which is made to multiple parties, be approved. Further, whether the offeror would be legally obligated to multiple agreements?

This judgement was overturned within a short span of time, leaving the contemporary view that an offer can be made to the entire world. It is crucial to note that in such cases the contract is only established with those who take steps and comply with the requirements of such a proposal. This principle has been stated in Anson’s law of contract as “An offer need not be made to an ascertained person, but no contract can arise until it has been accepted by an ascertained person.”

Details of the case

Title of the Case: Carlill vs. The Carbolic Smoke Ball Company
Date of Judgement: December 8th, 1892
Claimant: Carlill
Defendant: The Carbolic Smoke Ball Company
Equivalent citation: (1892) EWCA Civil 1, (1893) 1 QB 256
Type of case: Civil Appeal
Court: Court of Appeal (UK)
Bench: Lord Justice Bowen, Lord Justice Lindley and Lord Justice A L Smith

Facts of the case

The Carbolic Smoke Ball Company manufactured the ‘Carbolic Smoke Ball’, which was designed to prevent users from contracting influenza or similar diseases. The company claimed that the medicine would cure influenza and other other diseases related to sore throat and other cold flu which had killed almost 1 million people between 1889 to 1890. The product was made with rubber which was attached to a tube filled with carbolic acid.

The user had to insert the tube in the nose and squeeze the ball to release the vapours. The company was very confident of the usefulness of the product. They made claims regarding the ability of their product to not only cure influenza but also ensure the prevention of any other type of common flu. The company advertised their product in various newspapers, including the Pall Mall Gazette, on November 13th, 1891.

The advertisement stated that the company would award 100 pounds to any person who contracted the increasing epidemic of influenza, cold, or any other disease related to cold after using the carbolic ball three times every day for two weeks. The person was asked to follow the directions printed on the products. Furthermore, the company deposited 1000 pounds in the Alliance Bank on Regent Street, thus showing how sincere they were towards this matter.

The claimant Mrs. Carlill, believed the advertisement to be true and purchased the Smoke Ball. She used it three times from November 20th, 1891 to January 17th, 1892. Following this, she contracted influenza, thus making the advertisement untrue and vague. After this incident, her husband, a solicitor, wrote letters to the company on multiple occasions stating the ill health of her wife despite using the carbolic smoke ball and claimed the amount as promised by the company in their advertisement.

The company replied by stating that the product was not utilised as per the instructions and refused to accept the claim of the claimant, thus denying them 100 pounds. The claimant brought an action against the company before the court of Justice Hawkins and a special jury which decided in favour of the claimant. The claimant won the case in the court, wherein the Hon’ble court stated that there was a contract between the claimant and the defendant. Following this decision, an appeal was filed by the defendant.

Issues raised

The following four issues were raised before the Court of Appeal (UK):

Whether the contract had a binding effect on the disputing parties?
Whether a formal notification of acceptance was required from the claimant?
Whether accepting the terms of the offer is sufficient to form a contract?
Whether there was any consideration on the part of the claimant in exchange for the reward of 100 pounds as offered by the Carbolic Smoke Ball Company?

Contentions of the parties

Arguments of the claimant

The claimant, Mrs Carlill, contended that the promise made through the advertisement was not vague in nature. The construction of the offer was such that it was evident that in case the product was not effective the company would award a certain amount of money to its user. Furthermore, the deposition of a large amount of money in the Alliance Bank was to facilitate the same and showed intention on the part of the company. Thus, the intention of the company to form an agreement was evident in this case. Furthermore, the claimant contended that there was consideration in the form of the sale of the product along with the money she paid for buying the carbolic smoke ball.

The advertisement put forth by the company was not an empty boast. Instead, it was attributed to a contract, more particularly a unilateral contract. As a result, the company was under a mandate to fulfil its part of the obligation.

Arguments of the defendant

The Carbolic Smoke Ball Company contended that their offer was not binding in nature and, thus, could not form a valid contract. The rationale provided for the same was that words used in the advertisement did not amount to a proper promise because the advertisement was too vague in its terms to form a contract.

Furthermore, they contended that there was no specified time limit and no means to check how the consumers utilised the product, the carbolic smoke ball, properly and as per the printed directions.

It was also contended that there was no valid contract since the prerequisites for the same require communication of the intention to accept the proposal. In the case at hand, the claimant, Carlill, did not send any acceptance with respect to the property either expressly or impliedly or through the performance of an overt act.

This provides that the advertisement was a marketing strategy and the company had no intention to form a contract while they made an offer at large to the world.

Judgement in Carlill vs. Carbolic Smoke Ball Company (1892)

The judgement was delivered by three judges including Justice Lindley, Justice Bowen and Justice Smith. Their observations are as follows:

Judgement delivered by Justice Lindley

Justice Lindley observed that the advertisement must mandatorily be treated as an express promise, according to which any person who contracts the flu despite using the smoke ball of the Carbolic Smoke Ball Company shall be rewarded 100 pounds as promised by the company. He also stated that it was pertinent to ensure that the product was used as per the printed directions i.e., three times every day for two weeks. Elaborating further on his decision, he explained that the advertisement was not a mere puff or an empty boast. That was because the company had explicitly stated in their advertisement that an amount equal to 1000 pounds was deposited by them in the Alliance Bank. This was sufficient to prove that the company was sincere in offering the reward to the users of the product.

He also observed that the promise made by the company was binding even though there was no specific individual at the receiving end of the same. This is a case of unilateral contract, which does not require explicit acceptance as it is an offer made to the general public at large. It is treated as an offer to any person who performs the terms and conditions (in this case, using the smoke ball three times daily for two weeks), which is sufficient to accept the offer.

Justice Lindley further explained that the advertisement cannot be considered vague in nature. The rationale for the same lies in the words used in the advertisement, which can be construed as a promise. He explained that the language of the advertisement was such that it could lead any potential user to believe that if they contracted the flu after using the product as per the directions, they were entitled to 100 pounds.

With respect to the question pertaining to the notification of acceptance, he explained that the notification of acceptance need not precede performance since the offer made by the company was a continuing offer. Performing the specific conditions is sufficient enough to imply the communication of acceptance of the offer.

With respect to the question of consideration, Justice Lindley observed that it existed due to two reasons. Firstly, the company received benefits in the form of sales, and secondly, a detriment was involved with respect to the direct inconvenience caused to the user who used the smoke ball product as per the directions. Thus, performing the specific conditions is sufficient consideration for the promise.

Judgement delivered by Justice Bowen

He agreed with the reasoning provided by Justice Lindley and observed that an offer which is made to the public at large can ripen into a contract if any individual comes forward and fulfils the conditions of the contract. The performance of the terms and conditions implies their acceptance and is considered sufficient consideration. He also observed that a sufficient notification of acceptance is not required in such cases.

On the question of consideration, he said that there was a sufficient and valid consideration. He stated that the consideration was the profit that the company received from the sale of their product. Furthermore, he explained that the deposition of 1000 pounds in the Alliance Bank for the purpose of making an offer to the public at large was sufficient to ensure sincerity on their part to fulfil their obligations in case the product does not work.

Judgement delivered by Justice AL Smith

Justice Smith went with the rationale and explanation provided by Justice Bowen and Justice Lindley. He explained that the advertisement constituted an offer and the contention of the defendant pertaining to the terms of the offer being vague was not true. A plain reading of the advertisement was sufficient for the public to understand that the company was making them an offer to use their product as per the printed directions, and in case the product does not work, the user would be rewarded 100 pounds as promised by the company in their advertisement.

For the same reasons as that of Justice Lindley, Justice Smith observed that the agreement was not a mere puff as was evident from the deposition of the 1000 pounds in the bank which was sufficient to show the sincerity and intention of the company of entering into a contract with anyone who performs the specific conditions.

On the question of sufficient consideration, it was observed that by using the product as directed by the company, Mrs. Carlill provided sufficient consideration. Apart from that the company received a benefit since using the smoke ball promoted their sale. Thus, he concluded that there was sufficient consideration to support the promise and rejected the contention of the defendant with respect to the absence of sufficient consideration.

All three judges unanimously dismissed the appeal and awarded the claimant, Mrs. Carlill a compensation of 100 pounds.

In a nutshell, the Court of Appeal on December 7th, 1892, unanimously observed that:

The advertisement of the Carbolic Smoke Ball Company was a conditional offer which was made to the entire world. It was not merely an invitation to treat.
The company had waived the requirement regarding the acceptance of an offer to be communicated to it by expressly directing the users that in case they perform the conditions as stipulated, the performance would constitute acceptance. The conditions as put forth by the company were to use the smoke ball as per the printed directions. When the claimant performed these conditions, a contract was created.

Furthermore, the arguments put forth by the company pertaining to the advertisement being a marketing strategy were rejected by the court. The Court of Appeal highlighted that the advertisement, along with the deposit of 1000 pounds in the Alliance Bank, shows that the company made the offer.

Rationale behind the judgement

Justice Lindley makes little mention of the insurance and wagering contract agreements in his judgement. He distinctly talks about five important points. The deposition of 1000 pounds in the Alliance Bank proved that the advertisement was not a mere puff. Further, he explained that the offer is continuing in nature and never revoked. The same was explained by Lord Blackburn in the case of Brogden vs. Metropolitan Railway Co. (1877), wherein he observed that if the notice of acceptance is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he receives the notice before his offer is revoked, that, in principle, is all that is required.

The advertisement put forth by the company made an offer to anyone who met the conditions rather than stating “not made with someone in particular.” Further, a contract does not require the communication of acceptance when people demonstrate an intention to contract through conduct. It is also pertinent to note that the vagueness of the advertisement’s terms was no obstacle.

The opinion of Justice Bowen on the contract was structured and has been frequently cited. He explained that the advertisement was in the form of a contract and can be easily interpreted by ordinary people. He also believed that the advertisement was not a puff since the company deposited money in the bank. Furthermore, the contract is not valid with the entire world; it is valid only with those who follow the directions printed on the product. Furthermore, he stated that conduct was sufficient to accept the terms of the offer.

To summarise, the three judges unanimously rejected the contentions of the defendant, and the rationale for the same was:

The advertisement was a unilateral offer made to the entire world.
Fulfilling the conditions of the offer was sufficient to accept the offer.
Purchasing the smoke ball was a good consideration.
The deposition of 1000 pounds in the Alliance Bank shows the intention on the part of the company to be legally bound by the offer.

Critical analysis of the judgement

In the landmark case of Carlill vs. Carbolic Smoke Ball Company, the court was dealing with a situation where an express promise to pay 100 pounds was made in case of certain events. The advertisement clearly stated, “100 pounds will be paid by the Carbolic Smoke Ball Company to any person who contracts influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball.”

The court clearly explained that the advertisement was not a mere puff as was alleged by the defendant since the company had deposited money with the Alliance Bank. This shows that the company was sincere when it advertised its product and had the intention of entering into a contract with any user who fulfilled the requirements as mentioned.

The advertisement was an offer made to the entire world, and the company contended that it was not binding in nature. Communicating acceptance was not necessary in cases of contracts where people’s conduct is sufficient to show their intention of entering into a contract. As a general rule, when an offer is made, it has to be accepted to make it a binding contract. However, in case of a continuing offer, there is an exception to the general rule which provides that the communication of acceptance need not precede the performance of the terms of the offer. All cases of general offers that are similar to unilateral contracts demand some act in return for the promise to pay.

Significance of the judgement

The decision in this landmark case is an example of how an advertisement can amount to a conditional offer rather than being just an invitation to offer. The judgement also sets authority for the proposition that an offeror can waive the requirement, which provides that the acceptance of an offer can be communicated by implying the performance of specific conditions that will constitute acceptance. It also demonstrates that it is difficult to rebut the presumption that the parties intend to be legally bound by commercial or business agreements.

The judgement plays a crucial role in deciding that the advertisement was a unilateral offer but was limited only to those who had fulfilled the terms and conditions as specified. It is also pertinent to understand how the judgement defined the essence of a legally binding contract as was explained by Justices Lindley and Bowen where they explained how the reward of 100 pounds was an offer from the company and the claimant buying and using the smoke ball as per the printed directions an acceptance of the offer made by the company. Lastly, the judgement serves as a historical precedence in contract laws not only in Britain but in many other countries. Furthermore, it protects the rights of the consumers and defines the responsibilities of companies. Thus, beyond the key takeaways on intention, consideration, and advertisements as offers, the judgement helps in understanding the nuances of law by serving as a landmark judgement in academic discussions, thus helping legal students and practitioners.

Effect of Carlill vs. Carbolic Smoke Ball Company on the law of contracts

This landmark judgement clarifies how unilateral contracts can look like if the advertisers do not take due care and set out offers at large to the general public. This case helps ordinary people fight big companies. The judgement plays a crucial role in the law of contracts, especially in unilateral contracts. Therefore, after this case, the big companies and various other agencies became very careful as to what to advertise to the public at large.

This case is proof that a thoughtless marketing strategy can cause great losses to companies and cause them to become involved in litigation matters.

There are certain other cases of unilateral contracts. For example, if a person or a pet goes missing and the missing person’s family or owner puts up a poster with their picture and name on it and offers a reward in case of any relevant information on the same, this can be treated as a unilateral contract. This is an offer to the public at large. Once the person or pet is found the same shall be implied as the acceptance of the offer. This makes the offeror under the obligation to perform his part of the agreement i.e., to reward the person who found the missing person or pet.

Offer and its elements

A lawful offer and a lawful acceptance of that offer are essential ingredients of a valid contract. An offer is often known as a proposal and the terms are used interchangeably.

The Indian Contract Act of 1872 under Section 2(a) defines the term proposal as “when one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”

Section 2(a) of the Indian Contract Act, 1872 provides that when one person communicates their willingness to do or not to do something to obtain the other person’s consent, it is considered to be a proposal. For example, if X offers to sell his bicycle to Z for Rs. 5000, it is a proposal or an offer. A contract is formed once X and Z agree with each other about the sale, and all the details with respect to the same are clearly stated. When Z accepts the offer, pays the agreed amount and receives the bicycle, the contract is considered to be fulfilled or performed.

The definition of offer provides for the following elements or ingredients:

The offer must be an expression of the readiness or the willingness to do or to abstain from doing something. This includes a positive or a negative act.
The offer must be made to another person. If the offer is made to oneself, it cannot be termed as a proposal.
The offer or proposal must be made with a view to obtain the consent of the other person to such act or abstinence. This implies that, for example, a simple statement of intention stating that I may sell my watch if I get a good price for it is not a proposal.

How to make the offer

An offer or proposal can be made by any act capable of being communicated to another person. It can either be an express or implied offer. An express offer is one which is made by the way of words which could be either written or spoken. On the other hand, an implied offer is one which is made by the conduct of the parties or is one which is inferred from the circumstances of the case.

Offer is made to whom

The contract law provides that an offer can be accepted only by the person to whom the offer is made. This implies that the offer must be specific or general in nature.

A specific offer is one which is made to a definite person or a particular group of persons. An example of the same is A offering certain goods to B at a specific price. This is a specific proposal made by A to be B.

However, if the offer is not made to a definite person or a particular group of persons but is made to the public at large or to the world at large, it is known as a general offer.

General Offer

A general offer as explained above is a proposal which is made to the public at large. It can be accepted by any person who is fulfilling the specific terms of the offer. Proposing rewards through advertisement for finding lost articles is the most famous example of a general offer.

A landmark judgement in this regard is the case of Lalman Shukla vs. Gauri Dutt (1913)., wherein the plaintiff had filed an appeal against the defendant claiming the reward for finding the missing nephew of the plaintiff. The court dismissed the appeal and stated for the existence of a valid contract, the element of knowledge and consent are required. Lalman Shukla, the plaintiff, had no prior knowledge of the reward before he went out to find the missing nephew of the defendant. As a result, there was no acceptance of the offer made by the defendant. The court, thus, concluded that there was an absence of a valid contract between the plaintiff and the defendant following which the plaintiff was not entitled to receive the reward. Furthermore, the Allahabad High court observed that the plaintiff was fulfilling his duties as a servant.

The Allahabad High court observed that two critical aspects form an essential part of a contract:

A complete knowledge of the facts of the proposal or offer
Acceptance of that offer

The case of Carlill vs. Carbolic Smoke Ball Company is another landmark judgement in this regard. The rationale behind the same is that the public advertisement issued by the Smoke Ball Company to pay a certain amount to anyone who contacts influenza after using the smoke ball medicine as per the printed directions was a general offer. It was made to the public at large which meant that anyone who would come forward to fulfil the terms of the advertisement (in this case use the smoke ball as per printed directions), would enter into a contract with them. The plaintiff, Mrs.Carlill, after using the smoke ball as per the printed directions contacted influenza and thus, was entitled to receive the reward since she fulfilled the terms as put forth in the advertisement and had entered into a valid and legally binding contract with the Smoke Ball Company. This means that she accepted the offer by complying with the terms of offer as put forth in the advertisement.

Legal rules of a valid offer

A proposal or an offer cannot be regarded as an offer unless the following conditions are satisfied:

The offer must be made with the intention to enter into a legal relationship. A social invitation will not be considered as an offer because it will not give rise to a legal relationship.
The terms of the offer must be certain, definite, and should not be ambiguous and vague.
The law does not permit the making of an agreement in the future.
The offer must be distinguished from a mere declaration of intention. This implies that where a person makes a statement without the intention of entering into a legal relationship, such a statement will not lead to binding obligations. An example of the same is the case of Harris vs. Nickerson (1873) wherein the auctioneer had advertised in the newspaper that he would be selling the office furniture through an auction on a specific date. The defendant with the intention to buy the furniture travelled to the place of the auction, but the auction was cancelled. The court herein observed that the defendant cannot file a suit against the auctioneer claiming the loss of time and expenses since the advertisement put forth by the auctioneer was his declaration of intention to hold the auction.
Offer must be distinguished from an invitation to offer.
The offer must be communicated as is clear from the definition under Section 2(a) of the Contract Act which provides that “when one signifies to another his willingness to do or to abstain.” This implies that the offer is said to be complete only when the same is communicated to the person to whom it is being made. It is pertinent to note the case of Fitch vs. Snedakar (1868) herein, wherein the defendant promised a reward to anyone who would find his lost dog. The plaintiff found his dog but had no knowledge of the offer proposed by the defendant. As a result, when he brought an action before the court, claiming the reward, the court explained that the offer was never communicated to him, and thus there was no valid contract.
Offers should not consist of terms wherein non-compliance would amount to the acceptance of the contract.
It is essential to lay down any terms and conditions which are special in nature. Furthermore, the offeror has to inform the offeree that in case he accepts the offer he will be bound by the special terms and conditions contained therein.

Who can accept the offer and how is the acceptance made

It is crucial to note that an offer can be accepted only by the particular person or a group of persons to whom the offer is made. No one else can accept the offer on behalf of such persons. An acceptance has to be either expressed or implied.

Let us note the case of Carlill vs. Carbolic Smoke Ball Company here. Mrs. Carlill accepted the offer made by the Smoke Ball Company to the public at large which is also known as a general offer. In such cases, any person can accept the offer merely by fulfilling the terms as provided for in the offer. In other words, if the person has the knowledge of a general offer, he can accept it as is evident from this case. Same is the case wherein rewards are offered to give information about missing individuals or pets or articles. Wherever the person has the knowledge of the offer and provides information on the same will be entitled to claim that reward.

Legal rules of a valid acceptance

An acceptance of an offer can be valid only when the following conditions are fulfilled:

The acceptance is absolute and unqualified in nature. The rationale behind the same is that a conditional offer would amount to a counter offer thus leading to the rejection of the original offer.
The acceptance of the offer must be in the matter as prescribed by the offeror. In other words, where the offeree has prescribed a certain manner in which the acceptance has to be made, the offer has to be accepted in such a manner. If the offeree does not accept it in the prescribed manner it will be rejected.
Acceptance has to be communicated to the offeror. Mentally accepting the offer without the use of words or conduct is not sufficient. Furthermore, it is pertinent to note that the acceptance must be made by the person who is competent to make that acceptance and not a third party. This means that an acceptance can be made only by the person to whom the offer was made and not any other party. A famous case in this regard is the case of Brogen vs. Metropolitan Railway Co. (1877) Herein, the company made an offer to the railways to supply coal which was accepted by the manager of the railway company. He wrote the word “accepted” and kept the letter of acceptance in his drawer. The court observed that there was no valid contract between the disputing parties since the acceptance was never communicated to the coal company.
The offer has to be accepted within a reasonable time frame. If the offeror has fixed the time period for accepting the offer, it has to be made within that period. In other cases, it has to be made within a reasonable time period which will vary from case to case. An example of the same is the case of Ramagare Victoria Hotel Co. vs. Montefiore (1866) wherein the offer to buy the shares of the company was made in June but the acceptance for the same was communicated to the offeror in the month of November, Herein, the court observed that the acceptance of the offer was not within a reasonable period of time and thus, the offer is considered to have been elapsed.
Acceptance must be communicated before the offer lapses or it is withdrawn. In other words, the offer must be accepted when it is in force. It cannot be accepted once it has lapsed or has been withdrawn by the offeror.

Invitation to offer

In the case of an invitation to treat, also referred to as an invitation to offer, no specific party has the intention to enter into a contract. The offeror is open to entering into a contract with any member of the public who presents the best offer, which means that the offeror is one who makes an invitation to offer or an invitation to treat.

The fundamental differences between an offer and an invitation to offer can be elaborated through the case Harvey vs. Facey (1893) wherein the court ruled that a simple price quote in response to an inquiry does not constitute a proposal to sell. The price list of a shopkeeper is not an offer but an invitation for potential customers to make an offer. Similarly, the auctioneer does not enter into a contract with all the attendees at the auctions. The auction is an advertisement for sale, and the items are not for sale unless specific conditions are met.

What are unilateral contracts

Unilateral contracts, also referred to as single-sided contracts, consist of an offer which is made to the world at large and does not require formal notification of acceptance. The performance of the specific conditions of the offer is sufficient to imply acceptance.

There are different implications of these types of contracts. One such issue is with its implementation which causes issues due to the doctrine of consideration.

Consideration is an essential element of any contract. An agreement without consideration is not a valid contract under the contract law. Consideration is something which has value. One such example can be a benefit or detriment. When such benefit or detriment is promised in return for the promise made by the promise, an agreement becomes a valid contract under the contract law. Further, it is essential that the consideration is valid and legal as per the law in force. An agreement with an unlawful consideration renders a contract void.

Promises which are backed by a valid and legal consideration are enforceable by law. However, in the case of unilateral contracts, both parties do not have definite obligations towards each other. If the offer made by one party is beneficial, even then, under a unilateral contract, the other party (the one at the receiving end) does not have an obligation towards the other party.

It is pertinent to note that as per the prerequisites of a valid contract, a unilateral contract shall be invalid only due to the lack of a valid and legal consideration.

Parties to a unilateral contract

The parties to a unilateral contract are exactly the same as a bilateral contract and consist of a promisor and a promisee. They are also known as an offeror or offeree. However, it is pertinent to note that in case of a unilateral contract, the promisor undertakes the obligation of providing an incentive which is to be granted on the completion of an obligation. On the other hand, the promisee can perform his obligations at his discretion after the completion of which the promisee is entitled to claim the incentive as promised by the promisor.

Nature of unilateral contract

A unilateral contract is an executory contract. An executory contract is one where the obligations are not performed by the parties but are scheduled to be performed in the foreseeable future. The performance can be done by the promisee at his own convenience and can be carried out by any person who undertakes to carry on such performance, provided he is eligible to do so as per the conditions as put forth by the promisor.

An important case law pertaining to the same is Masum Ali and Ors vs. Abdul Aziz and Ors (1914). Herein, the defendant promised to pay a sum of Rs. 500 to the claimant to rebuild a mosque. Later, the defendant failed to pay the promised amount of money, and the claimant sued him for Rs. 500 in a court of law. The Allahabad High Court observed that the promise of the defendant was not enforceable since no construction work for the mosque had started. Therefore, the defendant was not liable to pay the money since the conditions of the formation of the unilateral contract were not met.

Furthermore, in the case of Jamuna Das vs. Ram Kumar Ji and Ors (1937), the defendant had promised a charitable society to pay an amount of money which is proportional to the price of goods imported by him. When the claimant claimed the money in court, the Patna High Court observed that the promise was unenforceable in nature and could not be held to be a unilateral contract since there was a lack of consideration in the agreement.

Types of unilateral contracts

Broadly, there are two types of unilateral contracts:

Open Requests: Open requests are a type of unilateral contract which allows the offeror to make broad and optional requests where the payment is made after certain specifications are fulfilled.
Insurance: Insurance is another kind of unilateral contract wherein payments are made only after certain requirements are fulfilled.

Performance of unilateral contracts

In the case of unilateral contracts, the conditions required to be fulfilled by the promisee are the consideration of the contract, whereas the reward that the promisee is entitled to claim upon the fulfilment of such conditions is the reciprocal promise for that contract. The reciprocal promise and consideration of the contract are determined by the promisor in case of unilateral contact. If the promisee agrees to the conditions, the acceptance pertaining to the same is conveyed in the form of actions and not words.

It is pertinent to note that the act of fulfilling the consideration simultaneously amounts to the acceptance and performance of the promise in the case of a unilateral contract.

Obligations of unilateral contracts

In case of a unilateral agreement, the person who undertakes to fulfil the task does not have the same obligations as that of his bilateral counterpart. As both the offer and reward are made unilaterally, no binding contractual obligations exist before the task is completed by the performer. After the fulfilment of the obligations, the performer becomes a promisee as before the completion of the obligations no contractual obligation existed on the part of the promisor.

The performer is neither obligated to fulfil the task nor is he obligated to complete the task once he has started performing it, and even if he stops in between, there are no legal remedies to force the person to complete the task. This is because the contract comes into force only after the fulfilment of the task. Furthermore, the performer is not obligated to claim or accept the incentive that he has been offered for carrying out such a work, even if he has completed such a work on his part.

Revocation of unilateral contracts

Since a unilateral offer is made unilaterally by the promisee, it is often presumed by many that it will be revoked unilaterally. However, this is not always the case. The factors that shall determine whether the offer is revocable will depend on whether the performer has already started performing the task. If he has not, then the offer can be revoked. On the other hand, if he has, the offer cannot be revoked without the consent of the performer.

The court needs to strike a balance between the two parties because if the promisor can freely revoke the promise unilaterally, then he shall be armed with the ability to frustrate the performer at his pleasure. However, if the offer is made to be irrevocable once the performance has been started on the part of the promisor, the promisor shall be bound by his promise, irrespective of whether the performer has stopped performing such an obligation or not.

In the case of Errington vs. Errington and Woods (1951), the father, who owned the house where his son and daughter-in-law resided, promised the couple that if they would pay off the mortgage on the house that was due, then the ownership of the house would transfer to them. However, after the couple started paying off the mortgage in instalments, he expressed his desire to revoke the offer. The court observed that the offer of the father was a unilateral contract. Furthermore, the payment of instalments by the couple marked the commencement of the obligation on their part, as a result of which, the offer cannot be revoked.

Commercial uncertainty and unilateral contracts

The flawed implementation of the doctrine of consideration in case of unilateral contracts leads to commercial uncertainties which could be easily ruled out otherwise. One example of this is the implied terms, which specify the variations in remuneration in cases of commercial contracts, which lead to commercial uncertainty. Similar is the case with unilateral contracts due to the absence of specific parties to the contract. This implies that such contracts are not certain about privacy until the conditions are performed by someone else, which could be anyone from the general public, as was evident in this case.

This brings us to the question pertaining to the certainty of the commercial parties regarding the conditions that are to be adhered to. The answer to the same lies in the fact that the terms and conditions of such contracts are narrow in scope. Thus, they are limited to situations wherein the commercial certainty would be violated due to the failure of performance.

Conclusion

One of the most popularly cited cases of English Contract Law, the judgement of Carlill vs. Carbolic Smoke Ball Company, highlights the policy considerations taken into account by the courts while determining the existence of an offer and acceptance. This is particularly true in cases that involve the interest of consumers against misleading advertisements. Cited as a precedent for unilateral contracts, the case also points out issues associated with unilateral contracts. It established the principle providing that an advertisement containing a promise which is conditional upon the performance of the terms and conditions can constitute an offer to form a unilateral contract.

This case also helps in understanding the basic essentials of normal contracts as this is a case of exception to these principles owing to lack of need for acceptance of offer and consideration. The commercial uncertainties created due to such a vacuum in unilateral contracts also affect the concept of privity of contracts. Thus, this case has become a foundation case for Contract law. Altogether, the judgement was well put together, however, the underlying implications of the judgement have become an evergreen subject of debate in commercial circles.

Serving as a cornerstone of contract law, the judgement has established key principles in unilateral contracts and consideration. It has clarified that advertisements can constitute an offer if they clearly demonstrate an intention to enter into a legal relationship with others. This landmark case will have a lasting impact not only on contract law but also on consumer protection law by ensuring that businesses honour the claims they make to the public at large. Furthermore, it will continue to influence the transactions and promotional offers that take place through online and offline modes, thus laying down a foundation for legal education and practice.

Frequently Asked Questions (FAQs)

What is a general offer?

A general offer refers to an offer which is made to the public at large. It can be accepted by anyone who fulfils the terms and conditions as put forth in such an offer. The knowledge of the offer and fulfilling its terms is sufficient and amounts to acceptance of the general offer. The landmark judgements in this regard are the cases of Lalman Shukla vs. Gauri Dutt and Carlill vs. Carbolic Smoke Ball Company.

How is an offer different from an invitation to treat?

Offer and invitation to offer are two different concepts. An offer is a clear and specific proposal that is made by one party to another when they enter into a legally binding contract. On the other hand, an invitation to offer is an expression of willingness to negotiate or enter into a contract. An offer can be accepted, rejected, or counter-offered, while an invitation to offer cannot be accepted as it is not a legally binding offer. An offer creates a legally binding contract on acceptance, while an invitation to offer does not create a binding proposal. An offer can be revoked before acceptance, while an invitation to offer cannot be revoked as it is not legally binding in nature.

What is the difference between a unilateral contract and a bilateral contract?

The distinction between a unilateral contract and a bilateral contract lies in the number of parties that are involved in a contract. While the former relies on only one party to create a contract or promise which is for a specific group or general group of people, the latter requires two parties to negotiate, agree, and act upon a promise. In simple words, a unilateral contract is accepted after the action is completed, while a bilateral contract is accepted after the mutual signature.

What are the similarities between a unilateral contract and a bilateral contract?

Although there are various differences between a unilateral and bilateral contract, there are a few similarities too. Both unilateral and bilateral contracts bind the parties legally. This implies that the law enforces the entities to fulfil their contractual obligations, the failure of which will result in legal consequences. The two essential elements of these two contracts are a promise and consideration.

What was the significance of the 1000 pounds that were deposited by the defendant in the Alliance Bank?

The deposition of 1000 pounds by Carlill Carbolic Smoke Ball Company was evidence of the sincerity and the intention of the company to enter into a legally binding contract with any consumer who comes forward and performs the specific directions as printed on the product. The same was held to be sufficient by the court to make the company legally bound by the promise they made by way of an advertisement.

Will the case serve as a precedent in the case of online advertisements?

The principle established in this case will be applicable to advertisements made in the online context as well. However, it is for the courts to ascertain whether the online advertisement was a unilateral contract and whether the performance of the specific conditions was sufficient to make a legally binding contract.

How does the judgement influence contract law in contemporary times?

The landmark judgement of Carlill vs. Carbolic Smoke Ball Co. has a significant and crucial impact on contract law in modern times. This is because it clarifies the nature of offer and acceptance, particularly in the case of unilateral contracts in the form of advertisements. It provides a foundational principle for the English and Indian Contract Law.

References

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