Requirements for a Valid Contract

Question:

Discuss about the Text and Materials on Regulating Consumer.

For the validity of a contract, it is necessary that the parties fulfill all the ncessary requirements. The crucial requirement of a valid contract includes offer & acceptance, consideration, mutual consent, intention, capability and legal object. In the modern world, corporations use marketing as a tool to attract a large number of customers. The difference of a legitimate offer and a mere invitation to attract the customers is required to be defined. Many advertisements include a lawful proposal to contract which can be enforced by customers. The Carlill case is considered as a landmark case which popularised the provision of the unilateral contract.

Even after being a century old case, it still has a considerable impact on contract law. In this case, the court held an advertisement as a unilateral contract because it fulfills the essential requirement of a contract. This report will focus on analysing the importance of Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1 in modern legislation. The report will include the impact of this case over Australian contract law and various other countries legislations. Numerous other similar examples will be discussed to understand the basis of the unilateral contract. Further, the report will evaluate the presence of offer and acceptance provision in Australian Contract law and Consumer law.

The critical issue, in this case, is the difference between a valid offer to contract and mere invitation to treat. The intention of parties is required whether subjectively or objectively, along with the notice of acceptance of accepting party together with any consideration which forms a unilateral contract. The Carbolic Smoke Ball Co. Ltd refused to reward the money that claimed through advertisement to Mrs. Carlill; the company claims the commitment is not serious and it is a mere invitation to treat. They also argued that there is no evidence that conditions are fulfilled according to prescribed method, and there is no consideration available in the contract. The court dismissed the claims of corporations are provided that it is a valid unilateral contract as provided under section 9 of the Contract Act 1950.

In 1891, Carbolic Smoke Ball Company launched a product called smoke ball which is claimed to cure influenza and various other diseases. The product was made of rubber, and it included a tube which was filled with carbolic acid. On 13^th November 1891, the company published an advertisement in the newspaper stating that they would pay an amount of £100 to the person whose influenza or any other disease caused due to cold, would not be cured by using their product for three times a day and about three weeks (Loeb 2005). The advertisement also included a set of instruction which uses have to follow while using the smoke ball. The corporation submitted £1000 in Alliance Bank to show the public their genuineness in the matter (Elliott 2012).

The Distinction Between a Legal Offer and Invitation to Treat

Mrs. Louisa Carlill saw the advertisement in the paper and bought one smoke because she was suffering from influenza. She used it as per the instructions, for three times a day for nearly two months, but she did not get any better. Hence, she claimed her £100 reward from the enterprise; however, the corporation ignored the letter from Carlill lawyer. On her third letter, the company responded by stating that it is necessary that product is used in the best possible way, therefore, to protect themselves from fraud they asked Mrs. Carlill to visit their office each day for surveillance with the secretary. After that statement, Mrs. Carlill filed a suit against Carbolic Smoke Ball Company stating that there was a contract between company and Carlill, and the corporation has to pay her the reward money (Davis 2004).

The company provides an argument in its defense that the contract was not serious. The court of appeal rejected the claims of Carbolic Smoke Ball Company and held that they are liable towards Mrs. Carlill to pay £100, the corporations appeal against the order of a court of appeal. The company provided an argument that there is no evidence that product was used according to their directions, and there is no consideration available in the contract. They argued that the agreement was a ‘wagering contract’ which depend upon the fact that victim gets influenza or not, which makes it void. The court did not consider the arguments made by the defendant; they agreed with the plaintiff’s statement that the advertisement was an offer which can be accepted by anyone who fulfills the given requirements. Hence, the court provided a judgement that the company has to pay £100 to the plaintiff (Cheong 2014).

According to Shelton (2003), the agreement which is valid under state or federal contract law is known as a legally binding contract. In this contract the parties have to obey the provided written terms in the contract, non-performance of which leads to legal consequences. The party of contract can enforce the contract through a court order, and they can claim damages as well. As per Australian contract law, the following are five crucial requirements of a legally binding contract (Barker 2000):

• An agreement between the parties of the contract, there cannot be a unilateral
• Availability of valid and legal consideration.
• The legal capacity of parties to contract.
• The intention of parties to contract.
• The terms of the contract must be specific.

This case has a significant influence over Australian and British contract law in the twenty-first century; this case established that a party can enter into a unilateral contract which does not require making to a specific individual. The parties in a unilateral agreement are not required to notify another party regarding their acceptance; the acceptance is considered once the party buys the product and fulfills the requirement provided by the company. The consideration in a unilateral contract is regarded as the price of the product; the purchase is viewed as the example of consideration, which validates the enforcement of such contract (Poole 2013).

Analysing the Carlill v Carbolic Smoke Ball Company Case

Other than contractual remedies, this case gives rise to various other constitutional remedies and punishments for placing a wrong advertisement for the public. Publishing a misleading ad is a criminal offense under the Australian consumer law. As per Parker (2005), the section 5 of Consumer Protection for Unfair Trading Regulations provides provision regarding misleading ad posted by the corporations. The companies still have a defense of “Puffery” in which their statements cannot be considered literally, such as washing powder that makes clothes whiter than white. Another provision which was not available at the time of case was the General Product Safety Regulations which laid criminal penalties for selling unsafe products by the enterprises.

The intention is one of the crucial elements of a contract; the court analyses the situation of different consequences to decide whether the intention is present or not. As per Feinman & Brill (2006), usually, the advertisement provided in newspapers, television or online websites are considered as an invitation to offer, and they are treated as auctions in which the party does not have to hold its promise. However, if the condition provided in an advertisement is specific and expressed which shows the willingness of individuals to contract, such as ‘first come, first serve’ or ‘till inventory lasts,’ then such ad can be considered an offer to contract. The situation in these cases is based on ‘promisor objectivity’ which is centered on common sense (Cohen 2000).

In the case of Bowerman v. Association of British Travel Agents Ltd. [1995] N. L. J. 1815, the court provided a similar judgement as Carlill case. In this case, the traveling agency has to reimburse the traveling expenses of Bowerman because of their advertisement; the court held that consideration is in the form of ‘persuaded reliance’ in a unilateral contract. The legal principles provided in Carlill case has been undisputed in many cases, but court face difficulty in apply such provisions over each case (Ramsay 2012).

In Har Bhajan Lal v Har Charan Lal AIR 1925 All 539 case, a child ran away from his parents’ home, the father published a pamphlet stating he would pay 500 rupees to the person who brings him his son. The plaintiff saw the advertisement and took the boy from the railway station and sent and telegram to his father. The father than rejected to give the reward money, and stated that only the member of society was allowed to accept the offer. The court provided that it was a valid unilateral contract which is enforceable upon the father; therefore he has to pay the reward money to the plaintiff (Srinath 2010).

The Impact of Carlill Case on Australian and British Contract Law

The Fisher v Bell [1961] 1 QB 394 case is regarding the essential of offer and acceptance in the construction of a valid contract. The defendant has a knife display on his shop bearing the word Ejector knife- 4s. The claimant was a police officer who files a suit stating that defendant has violated the section 1(1) of the Restriction of Offensive Weapons Act 1959. The court provided that mere displaying of an object did not constitute an offer for sale, it considered as an invitation to treat or trade (Ayub, Yusoff & Halim 2009).

In Smith v Hughes (1871) LR 6 QB 597 case, the requirement of real intention for the formation of a valid contract was provided by the court. Mr. Smith showed a sample of oats to Mr. Hughes, who was a racehorse trainer, and Mr. Hughes agreed to buy forty to fifty quarters of such oats. Later the oats sent by Mr. Smith were different from the oats he showed at the time of the contract, Mr. Hughes refused to pay the amount for oats. The court provided that there was a valid contract between the parties because it did not matter whether the subjective intent of the parties is different. Availability of consent validated the term of a contract (Giliker 2005).

The Carlill case still has significant influence over the Australian and various other contract laws. The court still applies the provisions of this case to matters such as offer & acceptance, the intention of parties or misleading advertisement. However, the principles of this case are century old which cannot apply to all the situation of twenty-first-century cases. Many experts believe that it is difficult to prove the existence of a unilateral contract in the advertisement because the circumstance is different in each case. The court has to differentiate between general ‘puffing’ and legally binding conditions. The rules of these cases do not apply to every similar situation relating to the misleading advertisement.

There are few shortcomings in this case, but the significance of the principles of this case is crucial in contract law of Australia. For example, if a police officer announces a reward to any person who can provide information which assists them in a case, then the person submitting the information has right to enforce such compensation through a court order. Various other laws have been established beads upon the principle of this case. The Consumer Protection from Unfair Trading Regulations protects the consumers from misleading advertisement published by the companies. The General Product Safety Regulations restricts corporations from selling harmful products to the public which can be dangerous for their health. There the principles of Carlill case are still required in modern times and still beneficial for the society (Dye 2010).

Conclusion

In conclusion, the provision laid down in Carlill cases are still significant in recent cases, the court implements such principles in matters relating to offer & acceptance, intention, and misleading advertisements. Many new regulations have been established in the Australian law due to the Carlill case, such as Consumer law and unilateral contract in Australian contract law. As per the essential requirement of a legal agreement, the offer & acceptance of both parties are necessary, but in a unilateral contract, the notification of approval is not required. The court has to analyse the circumstance of the particular case before implementing the provision of Carlill case, but such principles are still crucial for the protection of the public.

References

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Barker, D. (2000). Essential Australian Law. Cavendish Publishing.

Cheong, T. (2014). A Promising Idea: Reconceptualizing the Formation of Unilateral Contracts. Oxford U. Undergraduate LJ, 1.

Cohen, L. E. (2000). The Choice of a New Generation: Can an Advertisement Create a Binding Contract. Mo. L. Rev., 65, 553.

Davis, K. E. (2004). Promissory Fraud: A Cost-Benefit Analysis. Wis. L. Rev., 535.

Dye, D. J. (2010). Debunking the Socratic Method: Not So Fast, My Friend. Phoenix L. Rev., 3, 351.

Elliott, L. (2012). Carlill V Carbolic Smoke Ball: A Case Study. Contracts & Agreements. Retrieved from < https://www.contractsandagreements.co.uk/carlill-v-carbolic-smoke-ball-case-study.html >

Feinman, J. M., & Brill, S. R. (2006). Is an Advertisement an Offer-Why It Is, and Why It Matters. Hastings LJ, 58, 61.

Giliker, P. (2005). Regulating Contracting Behaviour: The Duty to Disclose in English and French Law. Eur. Rev. Private L., 13, 621.

Loeb, L. (2005). Beating the flu: orthodox and commercial responses to influenza in Britain, 1889–1919. Social History of Medicine, 18(2), 203-224.

Parker, C. (2004). Restorative justice in business regulation? The Australian Competition and Consumer Commission’s use of enforceable undertakings. The Modern Law Review, 67(2), 209-246.

Poole, J. (2013). Contract law concentrate: law revision and study guide. Oxford University Press.

Ramsay, I. (2012). Consumer law and policy: Text and materials on regulating consumer markets. Bloomsbury Publishing.

Shelton, D. (Ed.). (2003). Commitment and compliance: The role of non-binding norms in the international legal system. Oxford University Press on Demand.

Srinath, A. (2010). Hear-Say In Contracts. Legal Services India. Retrieved from < https://www.legalservicesindia.com/article/article/hear-say-in-contracts-289-1.html