1. Private Law – Contract II Unit 7

2. Bowen LJ begins his judgment by stating the defendants’ arguments. How do you think the judgment will continue?  It seems to me that in order to arrive at a right conclusion we must read this advertisment in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it?

3. How will Bown L.J. continue? Will he construe the words of the advertisment now?  It was intended unquestionably to have some effect, and I think the effect which it was intended to have, was to make people use the smoke ball, because the suggestions and allegations which it contains are directed immediately to the use of the smake ball as distinct from the purchase of it. It did not folow that the smoke ball was to be purchased from the defendants directly, or even from agents of theirs directly. The intention was that the circulation of the smoke ball should be promoted, and that the use of it should be increased. The advertisement begins by saying that a reward will be paid by the Carbolic Smoke Ball Co. to any person who contracts the increasing epidemic after using the ball.

4. Will he construe the words of the advertisment now?  No, he describes the effect the advertisement was intended to have.

5. Will he (a) examine this point in detail? or 2) continue to describe the rest of the advertisment?  It has been said that the words do not apply only to persons who contract the epidemic after the publication of the advertisement, but include persons who had previously contracted the influenza. I cannot so read the advertisement. It is written in colloquial and popular language, and I think that it is equivalent to this:

6. Will he 1) examine this point in detail? Or 2) continue to describe the rest of the advertisment  Answer: 1

7. Will he explain the meaning of the words in the advertisement?  “100£. will be paid to any person who shall contract the increasing epidemic after having used the carbolic smoke ball three times daily for two weeks.” And it seems to me that the way in which the public would read it would be this: that if anybody, after the advertisement was published, used three times daily for two weeks the carbolic smoke ball, and then caught cold, he would be entitled to the reward. Then again it was said: “How long is this protection to endure? Is it to go on for ever, or for what limit of time?”

8. Will he explain the meaning of the words in the advertisement?  Yes

9. What will he do next?  I think that there are two constructions of this document, each of which is good sense, and each of which seems to me to satisfy the exigencies of the present action. It may mean that the protection is warranted to last during the epidemic, and it was during the epidemic that the plaintiff contracted the disease.

10. What will he do next?  He answers the question about the time limit, saying that there are two possible constructions.

11. How will the text continue?  I think, more probably, it means that the smoke ball will be a protection while it is in use. That seems to me the way in which an ordinary person would understand an advertisement about medicine, and about a specific against influenza. It could not be supposed that after you have left off using it you are still to be protected for ever, as if there was to be a stamp set upon your forehead that you were never to catch influenza because you had once used the carbolic smoke ball. I think the immunity is to last during the use of the ball. That is the way in which I should naturally read it, and it seems to me that the subsequent language of the advertisement supports that construction. (…)  Was it intended that the 100£ should, if the conditions were fulfilled, be paid?

12. How will the text continue?  He examines the second possible construction of the document regarding the time limit.

13. What method will he use to answer the question?  The advertisment says that 1000£ is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that 100£ would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon.  But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise 100£ to a person who used the smoke ball unless you could check or superintend his manner of using it.

14. What method will he use to answer the question?  He examines the words of the advertisement to answer the question. He thinks it was intended to be a serious offer.

15. How will the text continue?  The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them.  It was also said that the contract is made with all the world – that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument.

16. How will the text continue?  He answers the defendants’ argument, then goes on to a new point.

17. Will he explain why it is not a contract made with all the world?  It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to anyone who, before it is retracted, performs the condition, and although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement.  (…) Then as to the alleged want of consideration. The definition of ‘consideration’ given in Selwyn’s Nisi Prius, 8the ed. p. 47, which is cited and adopted by Tindal, C. J., in the case of Laythoarp v. Bryant, is this:

18. Will he explain why it is not a contract made with all the world?  Yes

19. How will the text continue?  “Any act of the plaintiff from which the defendant derives a benefit or advantage, or any labour, detriment, or inconvenience sustained by the plaintiff, provided such act is performed or such inconvenience suffered by the plaintiff, with the consent, either express or implied, of the defendant.”

20. How will the text continue?  He gives the definition of consideration from the work of authority cited.

21. Will he apply these principles to the present case?  Can it be said here that if the person who reads this advertisement applied thrice daily, for such time as may seem to him tolerable, the carbolic smoke ball to his nostrils for a whole fortnight, he is doing nothing at all - that it is a mere act which is not to count towards consideration to support a promise (for the law does not require us to measure the adequacy of the consideration). Inconvenience sustained by one party at the request of the other is enough to create a consideration. I think, therefore, that it is consideration ejnough that the defendants received a benefit from this user, for the use of the smoke ball was contemplated by the defendants as being indirectly a benefit to them, because the use of the smoke balls would promote their sale.  A.L. Smith, L-.J. delivered judgment to the same effect.

22. Will he apply these principles to the present case?  Yes

23. True or false?  1. In this section, Bowen LJ answers the defendants’ arguments  2. He agrees with most of the defendants’ arguments  3. He construes the words of the advertisement in detail one section at a time.  4. He does not give the words of the advertisement any special legal meaning.

24. True or false?  5. The words of the advertisement are intended to make people buy the smoke ball.  6. It refers to anyone who catches flu before or after the advertisement was published.  7. The smoke ball should be used regularly for three weeks

25. True or false?  8. In Bowen LJ’s opinion the smoke ball should give protection during the period of use  9. The offer of a reward was valid because the company deposited £1000 at the bank to prove their sincerity.

26. What is the meaning of the following words:  Warranted (line 29)  Fulfilled (42)  Insensate (49)  Extravagant (53)  Liable (61)

27. Key  Warrant = guarantee  Fulfill= carry out, meet (conditions)  Insensate = silly  Extravagant = wild  Liable = binding

28. Complete this phrase with information from lines 48-51, substituting a phrase with if for unless:  It would be an insensate thing to promise 100£ to a person who used the smoke ball if…’

29. What is the meaning of the following words?  It pays him (lines 53-4)  Fallacy (58)  To ripen into (60)  Retracted (62)  Benefit (68, 81, 82)  Detriment (69)  Nostrils (75)

30. Meaning  Fallacy= fault in an argument, wrong argument  Ripen into = become, change into  Retracted = taken back  Benefit = something that helps a person, a good thing  Detriment = harm, damage, loss  Nostrils= the two passages of the nose

31. Complete the sentences below by choosing the following: fallacy, fulfilled. retracted, benefit, detriment, warranted  She offered to pay $300 for the painting, but___her offer when she learnt that it was not an original.  The vendor___the high quality of the material  The idea that the law is always just is a ___. Even a good law may sometimes cause injustice in individual cases.

32. Complete the sentences below by choosing the following: fallacy, fulfilled, retracted, benefit, detriment, warranted  In her will the testator created a trust for the ___of the poor.  A contract comes to an end when both parties have____all their obligations.  Bad working conditions at Smith’s Ltd were a serious____to the employers’health. In fact, in 1979 a group of workers who fell ill sued their employers for damages.

33. Answer these questions:  1. Can an extravagant or ridiculous promise be legally binding?  Why did the company make this extravagant promise?  A contract cannot be made with the whole world. Why does this not apply in this case?  When can an offer to the world become a contract?

34. Answer these questions:  Who does an offer to the world create legal relations with?  To create a contract, must the offeree always state that s/he accepts the offer?  What happens if the condition is fulfilled after the offeror has retracted the offer?  What is consideration?  What was the ‘double consideration’ in this case?  Was the decision in Carlill unanimous?

35. Exercise  Go back to Section One, Exercise D3 on p. 122 and complete the table showing the arguments for the defence and the decision by filling in each point in your notebook

36. Arguments for the defence Bowen LJ’s ruling?  1. Only an offer, not a contract  2. Not definite, no time limit  3. Vague regarding persons involved  4. Vague – offer to the world in general  5. Not definite – no way of checking the experiment  6. Not a serious promise  7. No contract intended because advertisement too vague

37. Bowen LJ’s ruling  1. It is only an offer, which becomes a contract on acceptance  2. The smoke ball gives protection while in use  3. It applies to persons who used the smoke ball after the advertisement was published

38. Bowen LJ’s ruling?  4. It is possible to make an offer to the world in general, which becomes a contract with individuals who accept the offer by performig the condition specified.  5. The promise may be extravagant, but this is no reason in law why it should not be binding

39. Bowen LJ’s ruling  6. The fact that 1000 £ was deposited at the bank shows that it was a serious offer.  7. Bowen LJ construes the advertisement as ordinary people would read it and according to what is reasonable. He uses the words of the advertisement to decide what the defendants intended, so that the terms of the offer become clear.

40. Conclusion  Refer to Part B of your completed table on p. 122. Which rulings apply only to the specific facts of Carlill v. Carbolic Smoke Ball Co., and which rulings contain general legal pirnciples?

41. Specific facts of Carlill  1. It is only an offer, which becomes a contract on acceptance  2. The smoke ball gives protection while in use  3. It applies to persons who used the smoke ball after the advertisement was published  6. The fact that 1000 £ was deposited at the bank shows that it was a serious offer.

42. General legal prionciples: Ratio decidendi  1. It is possible to make an offer to the world in general which becomes a contract with individuals who accept the offer  2. It is possible to accept an offer by the act of performing the conditions specified in it if the offer is in the form of a promise in return for an act

43. Obiter dicta?  If a person chooses to make extravagant promises, the extravagance of the promises is no reason in law why he should not be bound by them  The law does not require us to measure the adequacy of consideration  Inconvenience sustained by one party at request of the other is enough to create a consideration

44. Which courts are bound by the decision in Carlill?  The Court of Appeal  High Court  All courts of first instance

45. How can the binding principles of Carlill be changed?  The principle can be overruled only by the Supreme Court or changed by an Act of Parliament

46. Which sources of law does Bowen LJ use to reach his decision?  case law (Laythoarp v. Bryant)  A work of authority cited in that case (Selwyn’s Nisi Prius)

47. Complete the following extract by choosing: contracts,contracting, obligation, party  We have seen that most contracts are agreements. It should now be noted that it is by no means true to say that all agreements are___. Many agreements fall outside the scope of the law of contract, either because they concern matters of moral, rather than of legal, ____or because the ____parties agree that they are not to be treated as enforceable contracts, or they are not intended to be such.

48. Complete the following extract by choosing: case, courts, jurisdiction,  A familiar example is the___of a person who drives a friend somewhere in return for payment of the petrol. The___have, moreover, repeatedly declined jurisdiction over agreements which are expressed in a way which shows an intention to exclude their____.

49. Complete the following extract by choosing: binding, intention non-contractual,  On the other hand, what appears on the face of it to be a business transaction will not lighlty be treated as a merely moral obligation, and it should be noted that expressed____may sometimes have the efect of turning into a___contract – an agreement which might otherwise have been regarded as____.

50. Complete the following extract by choosing: defendants, reward, influenza,  A famous example of the latter situation was provided by Carlill v. Carbolic Smoke Ball Co.The___manufactured “carbolic smoke balls” which they advertised as miraculous cures for___. The advertisement stated that L100___would be paid to anyone who contracted influenza after having used the ball as prescribed.

51. Complete the following extract by choosing: Company’s, plaintiff, sued  It was further stated that L1,000 was deposited with a bank to show the sincerity of the ____intention. The___, Mrs Carlill, used one of these balls, but nevertheless contracted influenza; she___for the promised reward

52. Complete the following extract by choosing: accepted, It was held, legal relations, offer, plaintiff, recover . ___that she was entitled to___: normally such advertisements are mere “puffs” which are not intended to create___, but in this instance taking into account, amongst other circumstances, the reference to the____at the bank, the court___that the Company had intentionally made a binding__which the plaintiff had______.

53. Later comments of the case  " The amusing circumstances of the case should not obscure the surprising extent to which the court was prepared to conceive social relations in terms of contracts. The parties to the alleged contract had never met or communicated with each other directly. Nor had they exchanged goods, money or services between themselves. The law of contract is used by the court as an instrument for discouraging misleading and extravagant claims in advertising and for deterring the marketing of unproven, and perhaps dangerous pharmaceuticals...

54. Later comments  The judges run through a shopping-list of questions: Was there a promise? Was the promise serious and intended to be acted upon? Was the promise sufficiently definite and certain? Was the promise accepted by the plaintiff? Did the plaintiff perform some action in exchange for the promise?...

55. Later comments  The generality and abstraction of the rules permit both the extensive utilization of [contract law] and its application to the case, without any discussion of such matters as the moral claims of the parties, the nature of the market for pharmaceuticals and the problems generated by misleading advertising... Its doctrinal integrity helps to achieve legitimacy, because the law can be presented as objective and neutral, not a matter of politics or preference, but a settled body of rules and principles, legitimated by tradition and routine observance, and applied impartially and fairly to all citizens (Prof. Hugh Collins, LSE)

56. A moot  For each case, appoint three people to act as counsel for the plaintiff and two people as counsel for the defendant. The other memers of the class will act as judges.  Prepare your roles carefully. Revise some of the expressions you learnt in Section One, Exercise E2 if you are acting as counsel and in Section One, Exercise D 4 if you are the judge.

57. A moot  Counsel for the plaintiff/defendant: (‘In my submission… In my respectful submission…It is submitted that…’)  Judge: ‘The defendants contend that…It was urged also…

58. A moot  Hold the moot, at which first the plaintiff, then the defendant are represented in turn in court. Deliver judgment, and decide who has won the case.  Issue a short written judgment beginning like this:  ‘It was held that the plaintiff was/was not entitled to recover on the grounds that…

59. A moot  X advertises in the local paper that she will pay a £100 reward to anyone who finds and returns her lost Persian cat, Miaow. Y finds Miaow two months later and takes her back to X, asking for the reward- ; meanwhile, X has bought another cat to replace Miaow. She agrees to take her back, but refuses to pay the reward. Y sues her for the £100 reward.

60. A moot  The Superhair Company produces an expensive new product ‘guaranteed to make your hair grow in only 3 weks or your money back’. The advertisement specifies that users must follow the instructions on the packet carefully. Z, who is completely bald (he has no hair at all) sees the advertisement and buys the product. He uses it as instructed on the packet, but his hair does not begin to grow again. When Superhair refuse to give Z his money back, he sues them.

61. Case A  For the plaintiff: The advertisement was a definite offer. It was an offer to the public in general which the plaintiff accepted by fulfilling the conditions specified (Carlill v. Carbolic Smoke Ball Co.) – finding and returning the defendant’s cat. In consideration for the promise of L100 the plaintiff suffered the inconvenience of finding and returning Miaow. The offer was not revoked and remained valid for a reasonable period of time.

62. Case A  For the defendant: The advertisement was not a contract. It was an offer to the world in general, not to a particular person. It was not a definite offer, it was vague regarding the time limit. There was no consideration for the promise to pay L100. In any case, Y did not accept the offer.

63. Case A  Judgment: for the plaintiff (adopting the arguments for the plaintiff). It was held that the plaintiff was entitled to recover the L100 reward on the grounds that by her act of finding and returning the defendant’s cat she had performed the conditions specified in the offer, thus accepting the offer and creating a legally binding contract with the defendant.

64. Case B  For the plaintiff: The defendant company intended the advertisement to be read as a serious offer, which would encourage people to use the new product, so promoting their sales. People reading the offer would understand that it was serious because the product was expensive and the advertisement specified that users must follow the instructions on the packet carefully. The plaintiff bought the product on the basis of the advertisement. By his act of buying and using the product as instructed he fulfilled the conditions specified in the offer, thus creating a contract with the defendant company (Carlill v. Carbolic Smoke Ball Co.). There was double consideration since there was a benefit to the offeror in the promotion of their sales and a detriment to the offeree in the inconvenience of using the product.

65. Case B  For the defendant: The advertisement was only an extravagant promise, it was not a serious offer intended to form the basis of a legally binding contract and memberrs of the public who read it would not construe it that way. The case must be distinguished from Carlill since in Carlill the defendant comjpany stated that they had deposited money with the bank for the purpose of paying the reward and it was this fact which showed the sincerity of their intention to contract. It was vague – there was no way of checking the experiment. It was an offer to the world in general, not to a particular person. There was no consideration for the promise.

66. Case B  Judgment: for the defendants. It was held that the plaintiff was not entitled to recover the cost of the product on the grounds that the advertisement was not a serious offer intended to form the basis of a legally binding agreement. The case must be distinguished from Carlill on the grounds submitted by counsel for the defendants. Normally advertisements of this kind are not intended to create legal relations and there is nothing in the facts of the present case to show that the offer was so intended.