DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY

LAW OF CONTRACTS- II

Project

After effects of Carlill vs. Carbolic Smoke Ball company on the Indian Contract Act 1872

Submitted By

Abhishek Gautam

II SEMESTER (Roll No. 07)

Submitted To

Prof. VISHALAKSHI VEGNESA

Assistant Professor

Dr. Ram Manohar Lohiya National Law University

Lucknow

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ACKNOWLEDGEMENT

I am highly privileged to take this opportunity in expressing my deep sense of gratitude to Professor Vishalakshi Vegnesa for having spared her valuable time and guidance which helped me throughout the project work. She is a constant source of inspiration during the study.

We are also thankful to the staff of the library section of Dr. Ram Manohar Lohiya National Law University without whose support and help, this project would not have been possible.

We are sincerely thank all my friends and classmates who have always given their encouraging support and being a great help all the time at various stages of development of this project.

Thanking You,

Abhishek Gautam

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TABLE OF CONTENTS

Chapter I………………………………………………………………………………………….4

Overview…………………………………………………………………………………….4

Research Methodology………………………………………………………………………4

Research Question……………………………………………………………………………4, 5

Facts of case…………………………………………………………………………………..5

Chapter II…………………………………………………………………………………………6

Issues raised in the Case……………………………………………………………………..6

Ratio………………………………………………………………………………………….6

Holding of Court……………………………………………………………………………...6, 7

Aftermath…………………………………………………………………………………….7

Chapter III…………………………………………………………………………………………8

Legal Principles Involved in the Case…………………………………………………………9

Offer- General Offer………………………………………………………………………….9

Acceptance by Conduct………………………………………………………………………10

Intention to Contract …………………………………………………………………………11

Unilateral Contract…………………………………………………………………………..14

Dispensing with notice of acceptance………………………………………………………….15

Offer and Invitation to treat…....................................................................................................16

Wagering Contract…………………………………………………………………………...17

Chapter IV………………………………………………………………………………………..18

After effects of the Smoke Ball Case on Indian Contract Act, 1872 with discussion on some Indian cases…………………………………………………………………………………….18

Conclusion………………………………………………………………………………………24

Bibliography………………………………………………………………………………24

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CHAPTER- I

Overview

Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256 is an English contract law decision by the Court of Appeal, which held an advertisement containing certain terms to get a reward constituted a binding unilateral offer that could be accepted by anyone who performed its terms. It is notable for its curious subject matter and how the influential judges (particularly Lindley LJ and Bowen LJ) developed the law in inventive ways. Smoke Ball Case is frequently discussed as an introductory contract case, and may often be the first legal case a law student studies in the law of contract.

The case concerned a flu remedy called the "carbolic smoke ball". The manufacturer advertised that buyers who found it did not work would be awarded £100, a considerable amount of money at the time. The company was found to have been bound by its advertisement, which was construed as an offer which the buyer, by using the smoke ball, accepted, creating a contract. The Court of Appeal held the essential elements of a contract were all present, including offer and acceptance, consideration and an intention to create legal relations 

Research MethodologyThe researcher has adopted the I.R.A.C method of analysis of the judgement with a comparative study of the applied laws in the case along with critical examination of the ratio and facts with reference of the evidence and merits of the appeal. The research model has been made on deductive form of analysis by analyzing the facts and evidence of the case and witness.

Research Questions The research aims to find out the rationale established by the court in the case. The research tried to analyse the nexus between the facts of the case and the ratio

established. The research aims to examine the applicability of laws in present case and makes

comparative analysis with different nation laws. The research aims to find out what judicial precedents have been considered while

judging the merit of the case.

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The researcher tried to find out the current judicial stand of the ratio decided in the case with reference to other cases. It thereby attempted to find out the judicial interpretation of the ratio decidendi given in the aforesaid case and its use in different cases and on what ground this ratio was accepted by other courts and when it was rejected.

The research tries to find out the after effects of this case on the Indian Contract Act, 1872

The research will try to look into those cases which have followed/moved away from the ratio of this case

Facts of case

The Defendants manufactured and sold the “Carbolic Smoke Ball” and advertised in the newspaper that they would pay ₤100 to anyone who uses the medicine as directed and nevertheless contracts a cold, influenza, or other cold disease. The advertisement also claimed that ₤1000 was being deposited into the bank to demonstrate their sincerity. The plaintiff used the ball as directed but contracted influenza. She sued to recover the money promised in the advertisement.

CHAPTER-II

Issues raised in case

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Can one make contract with the whole world? How does one interpret vague terms? Was the ad a “mere puff’”? Does performance of the conditions advertise in the paper constitute acceptance of an

offer? Was there consideration? Does one who makes a unilateral offer for the sale of goods by means of an

advertisement impliedly waive notification of acceptance, if his purpose is to sell as much product as possible?

Ratio

An advertisement can constitute a unilateral contract, which can be accepted by fulfilling the conditions of the contract; no formal acceptance required.

The determination of a serious offer will be determined from the words and actions. The terms of the contract (if vague) will be interoperated purposefully from the

contract. The offeror can determine how acceptance of offer will be made.

Held:-

The Court of Appeal held that Mrs. Carlill was entitled to the reward as the advert constituted an

offer of a unilateral contract which she had accepted by performing the conditions stated in the

offer. The court rejected all the arguments put forward by the defendants for the following

reasons:

1. The statement referring to the deposit of £1,000 demonstrated intent and therefore it was not a

mere sales puff.

2. It is quite possible to make an offer to the world.

3. In unilateral contracts there is no requirement that the offeree communicates an intention to

accept, since acceptance is through full performance.

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4. Whilst there may be some ambiguity in the wording this was capable of being resolved by

applying a reasonable time limit or confining it to only those who caught flu whilst still using the

balls.

5. The defendants would have value in people using the balls even if they had not been

purchased by them directly.

Aftermath

The appeal was dismissed unanimously by all the three judges and Mrs. Carlill finally received compensation of £100. She lived to the ripe old age of 96. She died on March 10, 1942; according to her doctor principally of old age. There was one cause noted though: Influenza.

Mr. Roe, owner of Carbolic Smoke ball Co., continued with his aggressive marketing. This time he increased the reward to £200 following the loss of the case

CHAPTER III

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Legal Principles involving in the case:-

This is the most frequently cited case in Indian Contract Law involving many legal principles in it,

Offer – General Offer Acceptance by conduct Intention to enter into a contract Unilateral agreement Dispensing with notice of acceptance Offer and Invitation to Treat Wagering contract

Offer:

Offer is one of the components of agreement. It`s status is equal to that of question. Offer is otherwise known as proposal. The person who is making the offer is called offerer or promissory or proposer.

When a person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the ascent of that other to such act or abstinence he is said to make a proposal. - Section 2 (a) of Indian Contract act 1872.

Essentials of Offer

Offer may be general or specific: Offers are of two types, namely specific offer and general offer. If offer is made particularly to one person, it is called specific offer. On the other hand if offer is made to a group of persons, it is called general offer. General offer also is as powerful as specific offer.

A case on this occasion is Mrs. Carlill Vs Carbolic Smoke ball Company1. In this case Carbolic Smoke Ball Company is a pharmaceutical company. During contemporary period of this case a fever called `Influenza` is in existence. This fever arises as a result of rat bite. This fever is characterized by propagation from one person to the other. On that occasion the

1 Carlill Vs. Carbolic Smoke Co. (1893) QB 256

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company has invented capsules to cure influenza. Here the company makes a general offer saying that those capsules can cure influenza very quickly and prior consumption of their capsules will avoid attack by influenza. In addition to it the company says that if any person gets attacked by influenza even after prior consumption, the company will pay 100 pounds to such person. Mrs. Carlill makes prior consumption & gets attacked by that fever. Court decides that general offer also is valid and hence the company is under obligation to pay 100 pounds to her.

A case on this point is Lalman (Vs) Gowri dutt2. In this case Gowridutt is fond of children, but he has no children. Therefore he has brought his sister`s son. On one day, the boy gets missed from the house. Gowridutt makes an offer according to which he will give a reward to the person who brings the boy back. The offer made by the Gauri Dutt is a general offer.

General offer of continuing nature:

Where a general offer is of continuing nature, as it was, for example, in the smoke ball case, it will be open for acceptance to any number of persons until it is retracted. But where an offer requires some information as to a missing thing. It is closed as soon as the first information comes in.

Acceptance by conduct or implied:

An implied acceptance is one that is not directly stated but is demonstrated by any acts indicatinga person's assent tothe proposed bargain. An implied acceptance occurs when a shopper selects an item in a supermarket and pays the cashier for it. Theshopper's conduct indicates that he or she has agreed to the supermarket owner's offer to sell the item for the price stated on it.

In the smoke ball case, BOWEN LJ pointed out that in cases like this communication of acceptance is not necessary. “As notification of acceptance is required for the benefit of the person who makes the offer, he may dispense with notice to himself if he thinks it desirable to do so…. And if he expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of to himself, performance of the condition is a sufficient acceptance without notification. In the advertisement cases it seems to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition….”

“Performance of the condition of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of proposal.”2 Lalman Vs. Gauri Dutt (1913) 11 All LJ 489

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-section 8 of Indian contract act, 1872

“In so far as the proposal of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied”. -section 9 of Indian contract act, 1872

Acceptance by conduct means entering into an agreement by performing certain actions rather than by signing an agreement or orally agreeing to be bound. Some Indian cases which involves acceptance by conduct.

State of Bihar vs Bengal c&p works3, in this case Patna high court observed that “where the acceptance is to consist of an act, e.g. despatching goods ordered by post, the rule is that no further communication of acceptance is necessary.”

Ramesh Ramchandra Neware Vs Shanker Mahadeo Chefalkar4, in this case that court held that where the allotment of a quarter was subject to certain transaction but if the same is not done. Such allottee was not allowed to question the allotment of the quarter to another person.

Bhagwati Prasad Pawan Kumar Vs Union of India5, the plaintiff claim against Railway for short delivery of goods, two cheques were dispatched to the claimant with the clarification that encashment of the cheques would be full and final. The claimant enchased the cheques this act of his resulted in the acceptance. Therefore his claim application was dismissed.

“All cases of general offers, which are kind of unilateral contract, demand some act in return for the promise to pay.6”

Intention to a contract:

“Intention to create legal relations also means an intention to be serious about agreement significance.”

3 AIR 1954 Pat 144 Ramesh Ramchandra Neware Vs Shanker Mahadeo Chefalkar, (2004) 1 BOM CR 470 (Nag Bench)5 Bhagwati Prasad Pawan Kumar Vs Union of India, (2006) 5 SCC 311; AIR 2006 SC 23316 Carlill Vs. Carbolic Smoke Ball Co. (1893) 1 QB 256

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As we all know, intention to create legal relations is part of elements in contract. Intention to create legal relations is defined as an intention to enter a legally binding agreement or contract. Intention to create legal relations is one of the necessary elements in formation of a contract. It is because; intention to create legal relations consists of readiness of a party to accept the legal sequences of having entered into an agreement. Intention to create legal relations is a motion of every contracting party must have the necessary intention to enter into a legally binding contract.

There are a few concept of intention to create legal relations.

The contracting parties mind will be obvious to enter a serious contract:

When two parties decided to enter in the environment of a contract, their mind will understand the contents of the contracts. This is due to their ‘intention' to be consenting mind which both of the parties have to agree. If there is no agreement by both of the parties, it may make the contact being a void agreement. Thus, both of the contracting parties will enable to be serious into the contract.

If there is no intention to create legal relations the contract would not be enforceable, legal and binding:

Intention to create a legal relation is one of the essential elements of contract. So, if there is no intention to create a legal relation, the contract can be assumed as a not legal. Due to that, the contract may not being enforceable because there is no intention to create legal relations at the beginning which not making contracting parties to be legally binding.

Without intention to create legal relations, the parties cannot sue each other

With no intention to create legal relations, it may cause the contracting parties are not being legally binding and this circumstances may cause the contract is enforceable. Therefore, when the contract is enforceable, the contracting parties cannot sue each other and this will spoil their business crisis. This will make the contracting parties hard to enquire their justice.

Without intention to create legal relations the contract may become a mere promise:

In addition, with no intention to create legal relations, it will make any contract to become a mere promise. Mere promises simply like a simple promise arise when there is no intention to create legal relations.

Without intention to create legal relations the contract may lack the binding effect:

Besides that, when there is no intention to create legal relations, it will make the contract or agreement become less powerful due to whether one or both of the parties does not have a

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consent mind. So, if the contract lack of binding effect, it will cause the difficulty to the party involved in future.

In the smoke ball case, the smoke ball company pleaded the defense that there is no intention to enter into contract it is only a puffery and is done to increase the sale smoke balls, but the advertisement also claimed that ₤1000 was being deposited into the bank. Here BOWEN LJ pointed that merely saying that the small ball company don’t want to intent to enter into a contract or its mere a puffery don’t result to show their intention but it’s there the act of depositing ₤1000 in the bank shows there sincerity to enter into a contract.

There is no provision in the Indian Contract Act requiring that an offer or its acceptance should be made with the intention of creating a legal relationship. But in English law it is a settled principle that “to create a contract there must be a common intention of the parties to enter into legal obligation” and the Indian Contract Act mostly comes from the common English law so rather there is not specifically mention in any section of Indian contract act about intention but it is a dominating part of a contract to be entered into. Some cases defining intention

Balfour Vs Balfour7:

The husband brought wife to England from Sri Lanka. The husband had to return but wife stayed for medical reasons. He promised to pay her £30/month until his return. When he failed to pay, the wife sued the husband. Wife's action failed because there is no consideration moved from her and there is no intention to create legally binding agreement found. The court stated in husband and wife cases, burden of proof is on plaintiff to prove intention to create legally binding agreement.

McGregor Vs McGregor8:

In this case a husband and wife withdrew their complaints under an agreement by which the husband promised to pay her an allowance and she to refrain from pleading his credit, the agreement was held to be binding contract.

Rose & Frank Co Vs J.R Crompton & Bros.9

7 Balfour Vs. Balfour, (1919) 2 KB 571 8 McGregor Vs McGregor,(1888) 21 QBD 4249 Rose & Frank Co. Vs. J.R Crompton & Bros, (1923) 2 KB 261; (1925) AC 445

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In this case an exhaustive agreement was drawn between one American and two English Firms for their dealings in paper tissues. The agreement contained the following clause:

“This agreement is not entered into as a formal legal agreement and shall not be subject to a legal jurisdiction in the law courts either in the U.S or in England.”

The agreement was terminated by one of the parties contrary to its terms. The American Firm brought an action for the breach. It was held that the document did not constitute a binding contract as there was no intention to affect legal relation.

“In the case of arrangements regulating social relations it follows almost as a matter of course that the parties do not intend legal consequences to follow. In the case of agreement regulating business relations it equally follows almost as a matter of course that the parties intend legal consequences to follow” - BANKERS LJ in Rose Vs Crompton10

The test of contractual intention is objective, not subjective. What matters is not what the parties had in mind, but what a reasonable person would think, in the circumstance, their intention to be. Thus, where three ladies, two of them being mother and daughter and the third paying a guest, together made entries into a crossword puzzle in the name of the mother, the expenses being met by one or other, without any rules. The entry was successful and the mother refused to share the prize. But the court held that she was bound to do so, for any reasonable man looking at their conduct would at once conclude that they must have intended to share the prize.11

Supreme Court’s view of requirement of “intention”

The Supreme Court has expressed its reservation about the need of this separate requirement of “intention to contract” under the Contract Act. Going by the criticism which is already there in west, the court found that it was a necessity of those systems where consideration was not requisite of enforceability. Thus it is still an open question whether the requirement of “intention to contract” is applicable under the Indian Contract Act in the way in which it has been developed in England.

Unilateral contracts:

10 Rose Vs. Crompton, (1923) 2 KB 261; (1925) AC 44511 See at p. 13, Contract & Specific Relief Act, Avtar singh.

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“A contract in which only one party makes an express promise, or undertakes a performance without first securing a reciprocal agreement from the other party.”

In a unilateral, or onesided, contract, one party, known as the offeror, makes a promise in exchange for an act (or abstention from acting) byanother party, known as the offeree. If the offeree acts on the offeror's promise, the offeror is legally obligated to fulfill the contract, but anofferee cannot be forced to act (or not act), because no return promise has been made to the offeror. After an offeree has performed, onlyone enforceable promise exists, that of the offeror.

A unilateral contract differs from a BilateralContract, in which the parties exchange mutual promises. Bilateral contracts are commonly usedin business transactions; a sale of goods is a type of bilateral contract.

Reward offers are usually unilateral contracts. The offeror (the party offering the reward) cannot impel anyone to fulfill the reward offer. Anofferee can sue for breach of contract, however, if the offeror does not provide the reward after the offeree has fulfilled the contract'srequirements.

Are Advertisements Unilateral Contracts?

Although most advertisements are not considered contracts, some advertisements may be considered unilateral contracts. For example, if A published a notice in the newspaper informing the public that they will pay $100 to anyone who finds their lost cat, this might form a contractual relationship. If someone responds to the ad by finding the lost cat, a may then be legally bound to pay them the $100.

e.g.:- In smoke ball case, the advertisement published by the company is an unilateral promise made by the company to pay £ 1000 to howsoever consumed the smoke ball accordingly in the prescribed way and contracted to influenza.

“An act done at the request of the offeror in response to his promise is consideration, and consideration in its essence is nothing else but response to such a request.”

– C.J Hamson, The Reform of consideration12

Abdul Aziz Vs. Masum Ali13:

12 C.J Hamson, The Reform of consideration, (1938) 54 LQR 233,23413 Abdul Aziz Vs. Masum Ali, AIR 1914 All 22: 36 All 268

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The defendant promised Rs. 500 to a fund started to rebuild a mosque but nothing had been done to carry out the repairs and reconstruction. The subscriber was, therefore, held not liable.

CIT Vs Kameshwar Singh14:

In this case an assesse purchased government securities and had agreed that the amount of interest on them would be paid to the Viceroy’s War purposes fund for the duration of war. The court held that the agreement was not legally enforceable.

Jamuna Das Vs Ram Kumar15:

In this case the defendant had agreed to pay from time to time, out of his own pocket certain sums proportionate to the value of the goods imported by him, to a charitable society, the promise was held to be enforceable, being without consideration.

Dispensing with notice of acceptance 16 :

A notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so; there can be no doubt that where a person in an offer made by him to another person expressly or impliedly, intimates a particular mode of acceptance as sufficient to make the bargain, it is only necessary for the other person to whom such offer expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is sufficient acceptance without notification; carlill Vs. carbolic smoke ball co. (1893) 1 QBD 256

Offer and Invitation to treat:

14 CIT Vs Kameshwar Singh, AIR 1953 Pat 23115 Jamuna Das Vs Ram Kumar, AIR 1937 Pat 358: 169 IC 39616 Carlill Vs. Carbolic Smoke Ball Co., (1893) 1 QBD 256

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An offer is a statement of the terms which the client (the offeror) is prepared to be contractually bound. The offer must be complete, specific and capable of being accepted. It must include the fundamental terms of the agreement with the intention that no further negotiations are to take place. Client offer contractor the work and therefore the contractor must carry out the work under the client’s terms and conditions. It is possible to make a conditional offer. The effect of this is that an offer cannot be accepted if the condition has not been satisfied. For example the client requires the contractor to have a specific tool or machine before an offer can be made.

An invitation to treat is different to an offer as it only invites the party to make an offer and it is not intended to be binding. The contractors are invited to bid on the job, by calculating the total work cost and to have the tenders submitted in a specified time. The main difference between this situation and an auction is that person submitted the tender, does so in ignorance of other’s bids because the final decision is up to the client.

An offer should be distinguished from an invitation to receive offers. When a man advertises that he has got a stock of books to sell, or houses to let, there is no offer to be bound by any contract.

“Such advertisements are offers to negotiate-offer to receive offers-offers to chaffer.”

- BOWEN LJ (Carlill vs. Carbolic Smoke Ball co.)

But where a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he does not make an offer, but only invites the other party to make an offer on those terms.

McPherson Vs. Appana17:

The plaintiff offered to purchase a lodge owned by the defendant for Rs 6000. He wrote the defendant’s agent asking whether his offer had been accepted and saying that he was prepared to accept any higher price if found reasonable. The agent replied “won’t accepted less than rupees Ten thousand”. The plaintiff accepted this and brought a suit for specific performance. It was held that the defendant did not make any offer or counter-offer in his cable but merely inviting offer. There was no assent to the plaintiff’s offer to buy at Rs10, 000 and, therefore, no concluded contract.

17 McPherson Vs. Appana, AIR 1951 SC 184; 1951 SCR 161

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Adikanda Biswal Vs. Bhubaneshwar Development Authority18:

A development authority made an announcement for making an allotment of plots on first come first served basis on payment of full consideration. An application in response to this made with full consideration was held to be an offer and. Therefore could be no concluded contract till the offer was accepted.

Wagering Agreements:

“Agreement by way of wager is void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.”

-Section 30 of Indian Contract Act, 1872

Section 30 says that “agreements by way of wager are void”. The section does not define “wager”.

SUBBA RAO J (afterwards CJ) in Gherulal Vs Mahadeo19 said:

Sir William Anson’s definition of “wager” As a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event, bring out the concept of wager declared void by section 30 of the contract act.

In Carlill v. Carbolic Smoke Ball co., Hawkins, J. defined a Wagering Contract  as “.... one which two persons professing to hold opposite views touching the issue of future uncertain mutually agree that, dependent on the determination of that event one shall pay or handover to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or state he shall win or lose there being no real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose being dependent on the issue of the event and therefore remaining uncertain until that is known.”

‘A chit fund does not come within the scope of wager’

– Narayana Ayyanagar Vs. K.V Ambalam20

18 Adikanda Biswal Vs. Bhubaneshwar Development Authority, AIR 2006 Ori 36 19 Gherulal Vs Mahadeodas Maiya, AIR 1959 SC 781; (1959) 2 SCA 342 20 Narayana Ayyanagar Vs. K.V Ambalam, (1927) ILR 50 Mad 696 (FB)

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CHAPTER IV

After effects of Carlill Vs. Carbolic Smoke Ball co.

Carlill Vs. Carbolic Smoke ball Co.21 case has a great impact on the Indian Contract Act and the cases related to contract. As most of the Indian Contract law is derived from the common English law the smoke ball case is used in many Indian cases dealing in contract law for the interpretation of the legal principles. E.g. - General offer, unilateral contract, wagering contract, acceptance by conduct etc.

This thing is much clearer by discussing some leading Indian cases:-

Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottamdas and Co. and Ors.

Fact of the case22:

In this case the plaintiff offered to get certain goods supplied at Ahmedabad to defendants who accepted the offer at Khamgaon through telephone. On defendants’ failure to supply requisite goods, plaintiff sued them at Ahmedabad. Dispute arose as to where was contract formed- at Khamgaon where acceptance was given by defendants or at Ahmedabad where acceptance was received by plaintiffs.

Issues raised in the case:

Defendants contended that according to the section 2, 3 and 4 of ICA, the place where the offer is accepted is the place where the contract is made and therefore Ahmedabad trial court did not have the jurisdiction to try the suit.

Section of ICA in this case: section 2, 3 & 4 of Indian Contract Act, 1872

The first question arises here is whether the general rule or the special rule applies to contracts made on the telephone and the second what is the position under the Indian Contract Act. The answer to the first question is that there is difference of opinion in the countries of the world on that point and for the answer of the second question Hidayatullah J said “A contract is an agreement enforceable by law and is the result of a proposal and acceptance of the proposal. The proposal when accepted becomes a promise” and quoted words of BOWEN LJ from the Smoke ball case.

21 (1893) 1 QBD 25622 Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottamdas and Co. and Ors., AIR 1966 SC 543

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".......................... As an ordinary rule of law an acceptance of an offer made ought to be notified to the person who makes an offer, in order that the two minds may come to there."

-BOWEN LJ in Carlill vs. Carbolic Smoke Ball Co.23

Apart from this Hidayatullah J. also mention that General offer can also be accepted by fulfilling the condition or by conduct.

“The offer being to the whole world, the acceptance need not be notified and the contract is made when the condition is fulfilled.” - Carlill vs. Carbolic Smoke Ball Co.24

After reading the case and from the words of Hidayatullah J this seems that the Smoke Ball Case is needed for the most logical and correct interpretation of section 2, 3, 4 of Indian Contract Act.

Hindustan co-operative Insurance Society Ltd. vs. Shyam Sunder and Ors.

Facts of the case25:

In this case the respondent’s brother applied for insurance policy and paid half-yearly premium by cheque. The cheque encashed by company but their was no intimation whether policy was accepted or not and on death of policy holder company denied any contract between parties as there was no communication of acceptance to deceased to make valid contract - no communication necessary to complete acceptance.

Issues raised in case:

Whether the communication of acceptance is necessary to enter into a contract?

Sections of ICA in this case: section 3 & 4 of Indian Contract Act, 1872

In this case to remove the ambiguity of whether the communication of acceptance is necessary or not, Harries C.J. & Banerjee J. relied his faith on the words of BOWEN L.J. & LINDELY L.J. from the Carlill Vs. Carbolic Smoke Ball Co. case.

23 (1893) 1 QBD 25624 (1893) 1 QBD 25625 Hindustan co-operative Insurance Society Ltd. Vs. Shyam Sunder and Ors., AIR 1952 Cal 691

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"One cannot doubt that as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that, the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary according to the English Law-I say nothing about the laws of other countries-to make a contract. But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of the person who makes the offer, the person who mikes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose there can be no doubt that where a person in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification."

-BOWEN L.J. in Carlill Vs. Carbolic Smoke Ball Co. case

“"Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified.....I apprehend that they are an exception to that rule, or, if not an exception, they are open to the observation that the notification of the acceptance need not precede the performance ... If notice of acceptance is required-which I doubt very much, for I rather think the true view is that which was impressed and explained by Lord Blackburn in the case of Brogden v. Metropolitan By. Co. (1877) 2 A. C. 666-if notice of acceptance is required, the person who mike3 the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that is principle, is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shows by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance.”

- LINDLEY L.J. in Carlill vs. Carbolic Smoke Ball Co.

From the words of the BOWEN L.J. & LINDELY L.J in smoke ball case it clears that the offerer may however indicate the mode of communicating acceptance either expressly or by implication both in India and English Law. Thus a person who addresses to another an offer by post indicates unless anything to the contrary is said that the acceptance if any should or can be communicated by post. Further the offered may indicate expressly or impliedly that an offer can be accepted by the performance of an act or indeed he may dispense with the necessity of communicating the acceptance.

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The smoke ball case here used to determine that whether communication of acceptance is necessary to enter into a contract and from the words of BOWEN L.J. & LINDELY L.J. clears the ambiguity of section 3 & 4 of Indian Contract Act. The court in this case held that encashment of the cheque is the condition of become an offer into promise. The insurance company held liable to pay.

Subbammal Vs. Masanamuthu Thevar and Others26:

Facts of case:

This is a case of appeal the plaintiff demand suit for the specific performance. The plaintiff by oral and documentary evidence proved the valid agreement between defendant 1st and 2nd to sell property in her favour. The 3rd defendant with full knowledge of earlier sale purchased suit property without notice and not a bona fide purchaser. The plaintiff is ready to perform her part of contract.

Issue raised in the case:

In this case the plaintiff had to prove that whether there was any intention to create a legal relationship to enter into a contract?

Section of ICA in this case:

After establishing such an intention, the main question before the Court was whether there is a valid offer and acceptance and whether there is consideration, such cases may fall either under a category "social family or other domestic agreement" on the one hand or "commercial agreement" on the other.

In the case of "social family or other domestic agreement" the intention can be inferred from the language used by the parties and the circumstances in which they use it. But what in “commercial agreement”?

For this the Madras High Court said “  In the case of commercial agreements where intention to create legal relationship is presumed, such presumption could be rebutted in the case of advertisements as illustrated by Carlill Vs. Carbolic Smoke Ball Co., 1893 (1) QB 256; where they expressly declare that it is not to be binding in law”.

This shows the reliance of Madras High Court on Smoke Ball Case to define the intention to enter into agreement in a Commercial agreement.

26 Subbammal Vs. Masanamuthu Thevar and Others, 1999(1)CTC35, (1999)IMLJ505

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The Madras Race Club by its Secretary Vs. The State of Tamil Nadu by its Secretary to Government Home Department27 :

1. This challenges the constitutional validity of Tamil Nadu Horse Races (Abolition of wagering or Betting Act (XLIV of 1974). 

2. But is betting or wagering on horse races gambling? 

Section of ICA involves in this case: section 30 of the Indian Contract Act, 1872

Madras High Court in this case quoted HAWKINS J. to define a wagering agreement.

“ a wagering contract  was one by which two persons professing to hold opposite views touching the issue of a future uncertain event, mutually agreed that, depending upon the determination of that event, one should win from the other, and that the other should pay or hand over to him a sum of money or stake, neither of the contracting parties having any other interest in that contract  then the sum or stake he would win or lose and there being no other real consideration for the making of such contract by either of the parties.”

-HAWKINS J. in Carlill vs. Carbolic Smoke Ball Co.

Madras High Court held that betting on horse races is a worldwide pleasurable sport of great popularity and has evoked amazing interest and enthusiasm everywhere. There is no doubt that it is a great and ancient sport and turf has not been abolished anywhere else in the world, including India. Though we have nothing to do with the policy of Government in abolishing betting or wagering on horse races, it seems to us that the reasons which prompted the policy can well be satisfied by not necessarily abolishing horse races, but by introducing suitable restrictions.

Saloo choudhary and Anr. Vs. Nissan Europe N.V. and Ors.28:

In this case an application seeking cancellation of suit filed by respondent plaintiff. The respondent filed suit against appellants for using their name in publicity of products of appellants without their permission. The appellants contended that suit of respondent vexatious as high amount of compensation claimed by them. High Court observed that seeking high rate of

27 The Madras Race Club by its Secretary Vs. The State of Tamil Nadu by its Secretary to Government Home Department, AIR1975Mad238, (1975)ILR 3Mad10228 Saloo choudhary and Anr. Vs. Nissan Europe N.V. and Ors.,  III(2007)BC595, (2004)3CALLT392(HC)

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compensation in relief did not by itself make suit vexatious. The respondent had appropriate cause of action to file suit -contentions of appellants wholly misplaced.

Bone of contention in the case:

The bone of contention in this case was whether which court have jurisdiction over the case. To remove this ambiguity J.K BISWAS J. cited the decision of Carlill Vs. Carbolic Smoke Ball Co. case.

“As was held in Carlill Vs. Carbolic Smoke Ball Co. (1893) 1 QB 256 in a given case acceptance of an offer can take place by performance of the offeree; and the Court having jurisdiction over the place of such acceptance of the offer by performance is competent to entertain and try a suit for damages for breach of the contract. So this Court has jurisdiction to try and determine the suit.” - J.K. BISHWAS J. in Saloo choudhary and Anr. Vs. Nissan Europe N.V. and Ors

CONCLUSION:-

This is the most frequently cited case in the common law of contract, particularly where unilateral contracts are concerned. It provides an excellent study of the basic principles of contract and how they relate to everyday life. Essential elements of contract including Offer & Acceptance, Consideration, Intention to create Legal Relations, etc. were mentioned in this case. This case forms the foundation of Contract law.

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Post the case Carlill Vs. Carbolic Smoke Ball Co. the courts in India have intrepearted the Indian Contract act following the interpretation done in this case. In this project all the cases which I cited have relied on the Smoke Ball Case in order to understand the concept of Offer & Acceptance, Consideration, Intention to create Legal Relations, general offer, wagering agreement. For ex. - In bhagwandas case the court interpreted the meaning of general offer from the Smoke Ball Case and in other cases my findings were the same.

So, in my view this is a land mark case which helps us to understand the Indian Contract Act in a better way.

BIBLIOGRAPHY

Books:

Pollock and Mulla, Indian Contract and Specific Relief Acts, LexisNexis Butterworth’s, New Delhi, 2006, Vol.1, 13th edition

Rao, V.K., Contracts me- Cases and Materials, LexisNexis Butterworth’s, New Delhi, 2004.

Websites:

http://www.law.cornell.edu/wex/carlill http://Manupatrafast.in/ http://SCConline.in/

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