Carlill v. Carbolic Smoke Ball Co.

Citation(s): 2 Law Reports, House of Lords, Judicial Committee of the Privy Council and Peerage Cases 666

Brogden and the Metropolitan Railway Company were in an informal agreement for years that Brogden would supply Metropolitan with coal. Brogden then suggested they should have a formal written contract. Metropolitan drafted a contract and sent it to Brogden, who made some changes and added a section before signing and sending the contract back to Metropolitan. Metropolitan never signed the final contract, but both parties continued their relationship according to that version of the contract for some time. A significant dispute arose when the regular supply of coal stopped, and Metropolitan claimed that there was no valid contract between the parties. This suit followed.

The court, in analyzing the case, found that a valid contract existed. They held that Metropolitan accepted Brogden’s contract by acting in accordance with its terms. This case is often used to show that acceptance by conduct is valid.

The court in Carlill used Brogden for this precedent. It held that because Carbolic’s advertisement did not have language rejecting acceptance by conduct, and because the offer was never revoked, acting in accordance with the advertisement was enough to constitute acceptance. Furthermore, Justice Lindley addressed Carbolic’s argument that they never received acceptance of the offer by stating that, “if notice of acceptance is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition.”

Citation(s): 5 Law Reports, Common Pleas 561

The defendants, in looking to sell their stock in Messrs. G. Eilbeck & Co., released a circular inviting the public to tender an offer. Spencer, having seen the circular, sent a tender to Harding. This tender was the highest received, but Harding decided not to accept the offer. Spencer brought suit, arguing that the circular was a valid offer that they accepted by offering a bid. In response, Harding claimed that the circular was not an offer.

The court ruled that Harding’s circular was not an offer. Rather, it was merely an invitation for the public to submit tenders for the stock. After receiving the tenders, the defendants had the right to choose which would be accepted. The court further held that without specific language such as “we undertake to sell to the highest bidder,” there was no binding promise made by Harding. In this case, the initial circular was considered an invitation to submit offers, while the tenders were the initial offers.

Justice Willes, in distinguishing the circular from advertisements offering rewards, referenced the advertisement made in Williams v. Carwardine. He stated that in Williams, “there never was any doubt that the advertisement amounted to a promise to pay the money to the person who first gave information” and held that there was no such promise in Harding’s circular.

The court in Carlill used Spencer to differentiate Carbolic’s advertisement from a mere invitation for offers. By offering an exact value as a reward for an individual’s actions, it became a binding offer that could be accepted. Additionally, the court relied on Justice Willes’s opinion to hold that the advertisement was not too broad to be an offer, as it only made Carbolic liable to those who performed the conditions and came forward after relying on the advertisement.

Citation(s): 118 English Reports 845; 2 Ellis & Blackburn's Queen's Bench Reports 476

Bates, the promoter and managing director of a company, promoted 12,000 shares available to the public at the cost of 12s. 6d. per share. To encourage the purchase of these shares, the defendant promised that the purchasers of the shares would receive a 33% dividend each year, paid in half-year installments until the original purchase price was repaid. The plaintiff, Gerhard, became the owner of 2,500 of these shares but did not purchase them directly from the company. After not receiving any dividend payment, he brought suit against the defendant and the company. 

The court found that because Gerhard did not purchase the shares from the company, there was no privity of contract between the parties. The company received no consideration when the plaintiff purchased the shares from a third party. Therefore, the promise only applied to the original bearer and not the plaintiff. However, the court also found that the defendant, in promising the dividends when it was known that the type of company formed did not pay dividends to shareholders, acted with intent to defraud the public. Because Gerhard relied on the information about the dividends in making his purchase, he had a right to recover the purchase price of the shares under tort law.

Gerhard showed the necessity to have privity between the parties involved in a contract dispute. Because there was no privity between the parties, the promise did not apply to the plaintiff. The court in Carlill made a distinction: since the Carbolic Smoke Ball Company made a promise to a class of people that included Carlill, and because Carlill acted in the manner requested by Carbolic, privity of contract and valid consideration was present. On these grounds, the Carlill court found that Gerhard did not apply, against the arguments made by Carbolic.

Citation(s): 110 English Reports 590; 4 Barnewall & Adolphus' King's Bench Reports 621

After his brother was murdered, Carwardine published an advertisement offering a reward of £20 to anyone who provided information that led to the capture of the murderers. Mary Anne Williams, having witnessed the murder and knowing the identity of the murderers (one of whom was her husband), initially did not come forward despite being questioned before the magistrates. However, after being beaten by her husband and fearing for her life, she made a statement to the police identifying the murderers to clear her conscience. After the police confirmed Williams’s story, the suspects Williams identified were caught and found guilty. Williams then went to collect the reward promised in the advertisement but was denied. This suit followed.

The court found that even though Williams did not provide the information for the purpose of collecting the reward initially, her actions matched the requirements in the advertisement. Therefore, her intentions did not matter. As long as her actions led to the capture of the murderers, as they did, she was entitled to the reward.

The court in Carlill relied on Williams to show that an advertisement was a valid offer. As such, it did not need to be made to a specified individual but rather could be made generally to anyone who accepted the offer and abided by its conditions. Furthermore, Williams was used to directly refute the Carbolic Smoke Ball Company’s argument that because no individual was named in the advertisement, it did not create an offer for the plaintiff.

Citation(s): William Selwyn, An Abridgement of the Law of Nisi Prius, 8th ed.,vol. 1 (Philadelphia, 1807-8), p. 47

Selwyn’s Nisi Prius was one of the earliest versions of a restatement of the law. It was a collection of common law principles and abridged cases intended as a companion for attorneys and justices. This book has a wide scope, covering redresses available for civil wrongs. Its title echoes this scope, as nisi prius (“unless before”) refers to trial courts and courts of original jurisdiction where the cases would have been initially resolved.

The author, William Selwyn, was an established attorney during his time. He was a student at Lincoln’s Inn beginning in 1797 and was called to the Bar in 1807. He became the Queen’s Counsel in 1827 and was chosen to assist Prince Albert in his legal studies. 

The court in Carlill used Selwyn’s Nisi Prius for its discussion of consideration. The Nisi Prius defined consideration as “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.” Using this definition, the court found that Carlill, by using the ball as directed, suffered an inconvenience, while Carbolic derived a benefit from Carlill using the ball. Therefore, there was valid consideration, and the contract was valid.