Sales Promotions and Unilateral Offers

The Carbolic Smoke Ball judgement found that notifying action upon a term of benefit in a unilateral offer satisfies both acceptance and consideration.

Unilateral Offers

A sales promotion, in which a reward or other benefit is offered subject to a buyer satisifying a specified condition, such as supplying proof of purchase describes a unilateral offer.

If a buyer goes on to perform the condition and notifies the buyer of that fact, they will have accepted the offer in law and therefore be entitiled to the benefit that has been offered.

That may seem simple enough but this describes a contractual obligation which, as Hoover found to its cost in with its free flights promotion in the early 1990s can lead to catastrophe if you get its terms and conditions wrong. A celebrated judgement in England’s Court of Appeal (1892) concerning a case between a Mrs Calill and the Carbolic Smoke Ball Company tells you why.

The Carbolic Smoke Ball Company’s Advertisement

The company had advertised a device known as the Carbolic Smoke Ball which if used “three times daily for two weeks” would protect the user from a number of ailments, including influenza.

The advertisement stated that they were so sure of the truth of this that if anyone used it as directed and subsequently fell ill with any of the ailments listed, the company would pay them the sum of £100. They claimed that £1,000 had been deposited with their bank for this purpose. Mrs Calill used the device as instructed for two months until she fell ill with influenza. When the company failed to come up with the £100 she sucessfully took them to court for breach of contract.

The Offer

On appeal the company put forward a number of arguments, designed to protect themselves from Mrs Calill’s claim. Two of these; that the advertisement was stating a policy, not a promise and further that the offer of a £100 was a bet and therefore unenforceable at the time were dismissed out of hand. The court made this clear when Lord Justice Linley said:

I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise as plain as words can make it.

He then went on to find that in the case of such offers:

They are offers to anybody who performs the conditions named in the advertisement and anybody who does perform the condition accepts the offer.

Notifying Acceptance of a Unilateral Offer

The company's lawyers then claimed that as Mrs Calill had not “notified” the company of her acceptance of the offer of £100 nor provided any consideration either, i.e. a thing of value in return, she could not have satisfied a contract. On this the court found that given the wording of the offer, Mrs Calill’s acceptance of it had been made on the grounds that;

…the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition

and went on to rule that anyone making an offer worded in the fashion of the company's;

…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.

In other words by the simple act of making the fact known to the company that despite using the device as directed in the advertisement she had gone down with influenza, Mrs Calill had satisfied the requirements for notification and acceptance.

Consideration for the Offer

The defence then argued that as the offer was of no value to the company it represented an unenforceable promise of gift.

The court found that there was a value to it as it had acted as an incentive to produce a sale which was clearly a thing of benefit. The court also found that anyone taking the trouble to use the product three times daily for two weeks as stated in the offer would have provided something of value in return and therefore satisfied the condition of consideration.

On this second point Lord Justice Linley posed the rhetorical question:

Does not the person who acts upon this advertisement and accepts the offer put himself to some inconvenience at the request of the defendants?

His answer to this was that by using the company’s device as stated Mrs Calill had suffered:

…some inconvenience at the request of the defendants

and that constituted a thing of value on Mrs Calill’s part which he ruled was:

...ample consideration for the promise.

The court found that Mrs Calill was therefore entitled to the reward of a £100 and the company's appeal was dismissed.

Implications

It is hard to imagine another case in which so many defences were put to the test and found wanting. Callil versus the Carbolic Smoke Ball company established clear and unequivocal definitions of the rights and responsibilities of all parties engaged in any form of contract, which is why it has become such a classic judgement.

Terms and conditions must always be carefully considered for any contract; especially so when considering a sales promotional offer containing a unilateral condition. For example if such an offer is to be directed to an individual, a designated group or the world at large or to be subject to a time limit, it should say so. Terms and conditions must pass the test of what can be construed to be reasonable and in no sense contradict each other or statutory and common law.

It should also be noted that the judge expressly made the point that the conditions of acceptance and consideration for the Carbolic Smoke Ball company's offer of a £100 were satisfied by Mrs. Cahill, simply by notifying the company that despite using the device as directed, she had fallen ill with influenza.

If a requirement to notify acceptance is ambiguous, the judgement in Calill v The Carbolic Smoke Ball Company could end up determining the outcome of any subsequent dispute, as was to be the case for the Hoover company's disastrous free flights promotion almost exactly a hundred years later - If in doubt; talk to your lawyer.

FAQs
How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions Depreciation