Legal Building Blocks: The relevance of the Carbolic Smoke Ball case in the age of influencers
The Carbolic Smoke Ball case sets the basis for much of our modern understanding of contract law. It is one of the first cases ever taught to law students and its significance remains in much of the world around us. It is an early sign of the importance of protecting consumers from misleading advertisements. From random draw competitions to giveaways, the existence of a contract and its terms hinge on the lessons from this important case.
In 1891, the Carbolic Smoke Ball company manufactured a product which they called a ‘smoke ball’ and claimed it was a cure for the flu and other diseases that were widespread at the end of the 19th century. The company ran an advertisement for this product in various newspapers. In its advertisement, the company made the bold claim to pay £100 to any person who, despite using the smoke ball according to the instructions provided with it, still got sick with the flu. This sum translates to the equivalent of £11,000 now, a very significant sum that drew the attention of many. The advertisement went so far as to declare that £1,000 was deposited to a specific bank account for the sole purpose of paying any of the smoke ball’s users who got the flu. It went on to state that none of the smoke ball’s users suffered from the flu during the last flu period.
Louisa Carlill saw the smoke ball advertisement and bought one. She used it in accordance with its instructions for almost two months before contracting the flu. She went on to claim the £100 sum from the Carbolic Smoke Ball company, arguing that the advertisement and her compliance with its terms amounted to a contract between her and the company. The company, on the other hand, argued that the advertisement was not a contract and that its statements were merely marketing puff.
The required elements for a contract to be formed were considered in the case, with a special emphasis on offer, acceptance, and the requirement for the intention to create legal relations.
A contract may only be formed where
there is an offer from one party,
which is accepted by the other party,
both parties have the intention to create legal relations
both parties have the legal capacity to enter into a contract, and
each party provides some consideration to the other.
Consideration is the price paid for the promise of the other party. It does not need to involve money and the courts won’t concern themselves with the value of the consideration, so long as it is something of some value. A chocolate wrapper or a promise to do nothing might be enough to qualify as consideration.
Advertisements are invariably considered as mere invitations to treat; a call for buyers to make their offers for the goods being sold. This approach is logical when considering the potential problems that treating an advertisement as an offer would create.
Consider a seller who runs an advertisement for some goods but runs out of stock. The seller’s inability to provide the goods to a buyer would render him in breach of contract. Similarly, a service provider, such as a tutor, who advertises his services, would be obliged to contract with all interested parties if the advertisement is regarded as an offer. If interest is high, this could result in him having to reject some potential buyers, as he would lack the time to provide his services to all parties. Hence, treating advertisements as invitations to treat is a sensible choice in most instances which protect the advertising party from being in breach of contract.
In this case, however, the court held that a valid and binding contract was in place between the two parties, meaning that the company had to pay Mrs Carlill the £100 it had promised to do in its advertisement. This was because the advertisement was considered an offer from the company towards the smoke ball’s users, in the same way as rewards for lost items are considered offers. Such offers can be accepted when relied upon and complied with, something that Mrs Carlill did. There was no need for Mrs Carlill to notify her acceptance of the offer to the company, her performance of the advertisement’s requirements was enough to signify her acceptance.
The purchase and use of the smoke ball constituted the consideration needed for the contract to arise and the mention of the £1,000 deposit to a bank was regarded as irrefutable evidence of the company’s seriousness in making its promise to pay, satisfying the requirement for intention to be legally bound and creating a legally binding contract.
Impact and Modern-day consequences
The court’s decision clarified that unilateral offers seemingly directed to the general public can create binding contracts, despite the lack of notification of the offer’s acceptance. This is usually relevant to competitions. Draw competitions are very popular methods of marketing, especially through social media. These competitions, sometimes referred to as ‘giveaways’, rely on the principles of Carbolic Smoke Ball case. The general public is instructed to do certain acts to enter into a competition or to win a prize. These may include following a specified account in a social media platform or collecting certain items, such as stamps, which will be exhibited to the seller. The seller will then be obliged to provide the reward it promised in its advertisement. There is no need to notify a buyer's acceptance in these circumstances and merely complying with the advertisement's requirements will suffice to create a binding contract.
The case also serves as an early indication of the embracing of consumer protection as a goal of the legal system. Subsequent cases and legislative interventions have ensured that advertisers and sellers must be careful in the statements they make and the impressions they leave on consumers. The Unfair Contract Terms Act, the Misrepresentation Act and the Protection Consumer Act have all codified the common law protection of consumers and, had the facts of this case taken place today, these exaggerating marketing antics would be caught by the provisions of these acts.
The Carbolic Smoke Ball case heralded the start of the era of consumer protection as one of the goals of contract law. Since then, the UK, the EU and the US have all developed their own consumer protection legislative frameworks to protect consumers from such inflated marketing stunts. At the same time, the emergence of social media marketing and draw competitions both work on the basis of the Carbolic Smoke Ball case, and its importance is likely to increase as influencers continue to prompt their followers to ‘like this picture and tag 2 friends to win’.