In the late 1800s it was quite common for businesses selling medical and pharmaceutical products to make outlandish promises about these products. There were no real restrictions on advertising, product or trading standards, so retailers often promoted their products as ‘miracle cures’, capable of curing the incurable. In the early 1890s one English firm, the Carbolic Smoke Ball Company, advertised a device it claimed would “positively cure” a range of ailments, including influenza. So confident was the company in making this claim that it promised a reward of 100 pounds, payable to anyone who used its product in the correct fashion but later contracted influenza. The Carbolic Smoke Ball Company’s ad (see below) declared that £1,000 had been deposited at a London bank as a sign of the company’s good faith in offering such a reward.
In late 1891 Mrs Louisa Carlill purchased one of the Carbolic Smoke Balls. Following the instructions closely, Mrs Carlill used it three times daily for a period of two months. At the end of this period she subsequently contracted influenza. Represented by her husband, a qualified solicitor, Mrs Carlill attempted to claim the £100 reward from the company. After the company ignored three letters, Carlill initiated legal action against the Carbolic Smoke Ball Company, claiming that it had breached a contract it had entered into in its advertisement. The company’s lawyers, led by Herbert Asquith, a future prime minister of England, argued that the advertisement was “mere puff” and its conditions were so vague that it was not intended to be taken seriously.
The case progressed to the Court of Appeal. Since there had never been a case with a similar set of facts, the three-judge bench instead had to develop a new precedent. After deliberation, they unanimously found in favour of Carlill. They concluded that a binding contract existed for several reasons. Firstly, although the reward was promoted unilaterally (“an offer to the world”) it was still legitimate. The only stated conditions were correct use of the Smoke Ball as per the instructions, which Carlill complied with. Secondly, the advertisement induced customers to buy the Smoke Balls, which involved an inconvenience to the customer and a financial advantage to the company; this constituted an exchange of promises. Thirdly, the company’s claim that £1,000 had been deposited as surety suggested that the offer of a reward, and therefore the contract between the company and Carlill, was legitimate and binding.
The judgement set precedents in contract law that continue in both Britain and Australia. It established that an offer of contract can be unilateral and does not have to be made to a specific party. It also established that acceptance of such offers does not require notification; once the party purchases the item and/or meets the condition, the contract is active. And it established that such a purchase is an example of consideration, and therefore legitimises the contract. Carlill v. Carbolic Smoke Ball Company (1893) was a landmark case in protecting the rights of consumers and defining the responsibilities of companies. It continues to be cited in contractual and consumer disputes today.