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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

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

TABLE OF CONTENTS
Chapter I.4
Overview.4
Research Methodology4
Research Question4, 5
Facts of case..5
Chapter II6
Issues raised in the Case..6
Ratio.6
Holding of Court...6, 7
Aftermath.7
Chapter III8
Legal Principles Involved in the Case9
Offer- General Offer.9
Acceptance by Conduct10
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
Conclusion24
Bibliography24

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 Methodology
The 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.
4

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
5

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.

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

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
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.
Offer may be general or specific:

A case on this occasion is Mrs. Carlill Vs Carbolic Smoke ball Company 1. 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 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 dutt 2. 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 indicating
a person's assent tothe proposed bargain. An implied acceptance occurs when a shopper selects a
n 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,

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


2 Lalman Vs. Gauri Dutt (1913) 11 All LJ 489
9

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.
-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 Chefalkar 4, 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 India 5, 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.

3 AIR 1954 Pat 14


4 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 2331
10

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.
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
6 Carlill Vs. Carbolic Smoke Ball Co. (1893) 1 QB 256
11

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
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 dont want to intent to enter into a
contract or its mere a puffery dont result to show their intention but its 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

12

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

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

7 Balfour Vs. Balfour, (1919) 2 KB 571


8 McGregor Vs McGregor,(1888) 21 QBD 424
9 Rose & Frank Co. Vs. J.R Crompton & Bros, (1923) 2 KB 261; (1925) AC 445
13

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 Courts 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:
A contract in which only one party makes an express promise, or undertakes a performance wit
hout 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 exchan
ge 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 cann

10 Rose Vs. Crompton, (1923) 2 KB 261; (1925) AC 445


11 See at p. 13, Contract & Specific Relief Act, Avtar singh.
14

ot 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 i
s 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:

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.

12 C.J Hamson, The Reform of consideration, (1938) 54 LQR 233,234


13 Abdul Aziz Vs. Masum Ali, AIR 1914 All 22: 36 All 268
15

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 Viceroys 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 acceptance16:


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 231


15 Jamuna Das Vs Ram Kumar, AIR 1937 Pat 358: 169 IC 396
16 Carlill Vs. Carbolic Smoke Ball Co., (1893) 1 QBD 256
16

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 clients 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 others 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
defendants 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 wont 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 plaintiffs offer to buy at Rs10, 000 and, therefore, no concluded
contract.

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


17

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 Ansons definition of wager As a promise to give money or moneys 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
18 Adikanda Biswal Vs. Bhubaneshwar Development Authority, AIR 2006 Ori 36
19 Gherulal Vs Mahadeodas Maiya, AIR 1959 SC 781; (1959) 2 SCA 342
18

Narayana Ayyanagar Vs. K.V Ambalam20

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
20 Narayana Ayyanagar Vs. K.V Ambalam, (1927) ILR 50 Mad 696 (FB)
21 (1893) 1 QBD 256
22 Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottamdas and Co. and Ors., AIR 1966 SC 543
19

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.
".......................... 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 respondents 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:
23 (1893) 1 QBD 256
24 (1893) 1 QBD 256
25 Hindustan co-operative Insurance Society Ltd. Vs. Shyam Sunder and Ors., AIR 1952 Cal 691
20

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.

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

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.
27 The Madras Race Club by its Secretary Vs. The State of Tamil Nadu by its Secretary to Government
Home Department, AIR1975Mad238, (1975)ILR 3Mad102
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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
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

28 Saloo choudhary and Anr. Vs. Nissan Europe N.V. and Ors., III(2007)BC595,
(2004)3CALLT392(HC)
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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.
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 Butterworths,
New Delhi, 2006, Vol.1, 13th edition
Rao, V.K., Contracts me- Cases and Materials, LexisNexis Butterworths, New Delhi,
2004.

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

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