Yeoh Khee Hing explains why the advertisement was held to be more than a mere puff.
 
INTRODUCTION
 
The essential elements of a contract are the agreement between the parties, the contractual intention of the parties and the consideration for the contract. Before a contract can come into existence, there must be an offer and the acceptance of that offer.
 
Knowing when an offer has been made is important. For example, the efficiency of modern day trade and commerce would be hampered if there is no definite instance when an offer can be accepted so as to give rise to a legally binding contract between the parties. The importance of knowing what amounts to an offer cannot be overemphasised for if there is no offer, there can be no acceptance that would result in a contract that is enforceable in law.
 
An "offeror" is the party who makes an offer whilst an "offeree" is the party to whom the offer has been made. In short, an offer is an expression of willingness to contract made by the offeror with the intention to be bound as soon as it is accepted by the offeree. The Malaysian Contracts Act 1950 uses the term "proposal" which is synonymous with the English terminology of "offer".
 
CARLILL v CARBOLIC SMOKE BALL
 
Carlill v Carbolic Smoke Ball Company [1893] Q.B. 256 is one of the leading cases for the fundamental contract law doctrine of offer and acceptance.
 
The case was set against the backdrop of Victorian London in the 1890s where an influenza epidemic had swept through Britain and other parts of Europe. This Russian flu pandemic took many lives including that of the eldest son of the Prince of Wales, who was then second in line to the throne of England.
 
The extensive press coverage over his death caused widespread fear among the public as medical treatments at that point in time had not been developed sufficiently to effectively combat influenza.
 
Faced with under-developed scientific medicine and the deadly influenza, the fearful public resorted to quack treatments which included inter alia, the "smoke ball", a device that consisted of a rubber ball with a tube filled with powdered carbolic acid. The user would stick the tube into his nose and squeeze the smoke ball which released puffs of acidic smoke to clear the nose, thereby causing the cold to be flushed out.
 
Riding on the public’s sentiment, manufacturers of quack cures quickly advertised their products in the pages of respectable newspapers. This inadvertently produced one of the greatest precedents in the law of contract.
 
In this case, the defendants, the manufacturers and the sellers of the "Carbolic Smoke Ball", placed an advertisement in the Pall Mall Gazette on 13 November 1891 and other newspapers, stating that £100 would be paid to anyone who contracted influenza after having used one of their smoke balls in a specified manner three times a day for two weeks. As a gesture of their sincerity, the defendants deposited £1,000 in the Alliance Bank of Regent Street.
 
Mrs. Louisa Elizabeth Carlill, who saw the advertisement, decided to buy a smoke ball and used it in the specified manner for the specified period. Despite doing so, Mrs. Carlill contracted influenza. She then brought an action against the defendants to claim the £100 reward.
 
Essentially, the question in law boiled down to whether the advertisement constituted a valid offer by the defendants or was a mere puff which was not intended to be legally binding on the defendants.
 
The defendants contended that they were advertising the medicine like any other manufacturers (at that time) and no reasonable minded person would have expected it to be a valid offer.
 
In affirming the decision of the High Court, the Court of Appeal held that the advertisement amounted to an offer made to any person who performs the conditions set out in the advertisement and that the offer was accepted when a person performs those conditions. Hence, Mrs. Carlill had accepted the offer when she performed the specified conditions, thereby giving rise to a legally binding contract with the defendants.
 
Although at that point in time there were numerous manufacturers, apart from the defendants, who proclaimed that their medicines had the ability to cure and prevent influenza, the essential distinguishing feature was that the defendants' advertisement represented that they were committed to the promise and were prepared to pay out the £100 to whoever that contracted influenza after using their smoke balls.
 
The three judges in the Court of Appeal rejected the defendants’ argument that the advertisement was a mere puff as there was a clear intention by the defendants to be bound by the promise to pay £100 to anyone who contracted influenza after using the smoke ball. This intention was clearly evidenced by the fact that the defendants had deposited £1,000 with the bank.
 
Had the judges decided otherwise, it would have given rise to a situation where advertisers could market their products by making spurious claims to entrap customers and thereafter avoid liability by claiming that the advertisements were mere "puff" which no person in his right mind would have taken seriously.
 
Subsequent to the decision, the Carbolic Smoke Ball Company raised the ante by advertising in the Sketch on 15 February 1893 that they offered £200 to anyone who contracted influenza after using the smoke balls, subject to certain strict requirements being fulfilled. However the controversial "£1,000 deposit with the bank" was omitted from this subsequent advertisement.
 
It is clear from the Carbolic Smoke Ball Case that what amounts to an offer is to be viewed objectively, and not in isolation of the context in which the offer is being made. There is however, a need to distinguish between a legitimate offer and an invitation to treat.
 
INVITATION TO TREAT
 
An invitation to treat is a communication that invites other parties to make an offer. Unlike an offer, an invitation to treat is not intended to give rise to a binding contract through acceptance by the party to whom it is addressed.
 
Some common examples of invitations to treat are goods displayed in shop windows and supermarkets. The displayed goods are considered as invitations to treat, and not offers. The offer is only made when the goods are brought to the check-out counter, and the cashier has the choice to either accept or reject the offer. Of course, no cashier in his right mind would, in ordinary circumstances, reject the offer.
 
Similarly in the case of an initial public offer of shares for listing on a stock exchange, the prospectus that is issued to potential investors is usually drafted on terms that it is merely an invitation to the public to apply for the company's shares. The offer is made when the investors submit their application forms to the company which then has a choice to either accept the offer, in whole or in part, or to reject the same. If there is an over-subscription of the shares of the company, then the company would usually determine which offer to accept (and to what extent) by a process of balloting.
 
In an auction, the auctioneer’s request for bids is not an offer. It is merely an invitation to the prospective purchasers to submit their bids. The auctioneer may then accept or reject the offers submitted by the bidders and the contract is only formed at the fall of the auctioneer’s hammer.
 
CONCLUSION
 
The principle enunciated in the Carbolic Smoke Ball Case is still applicable in this modern age of consumerism where almost every company has an advertising budget to market its products. If the advertisement is objectively construed as a valid offer to the public, then a contract would be formed when the recipient performs the affirmative actions that constitute an acceptance of the offer.
 
Nevertheless, it is essential to distinguish between an offer and an invitation to treat. The distinction lies in the intention of the maker of the statement. If the party’s intention is to be bound immediately upon acceptance by the party to whom the statement is made, then it will be regarded in law as an offer and not as an invitation to treat.
 
Therefore, it is important to know whether an offer or an invitation to treat is being made. It may look like an offer, it may even sound like an offer, but is it an offer?
 
As for Mrs. Carlill, she lived until the ripe old age of 96 and passed away on 10 March 1942. The cause of death? Influenza.