Today, we're going to discuss an incredibly famous English case decided in 1893 called Carlill versus Carbolic Smoke Ball. Law students have been reading this case for generations to learn about unilateral contracts. In that case, the court considered an offer made through a public advertisement and contemplated whether accepting that offer by performance also required notifying the offer roar. The defendant, the Carbolic Smoke Ball Company, ran a newspaper ad offering 100 pounds to any person who contracts the increasing epidemic of influenza after having used the Carbolic smoke ball three times daily for two weeks. The ad elaborated that the company had deposited 1,000 pounds in a bank to show its sincerity. The plaintiff, Carlill, bought a ball, used it as directed for about four weeks and then contracted the flu. The trial court found for the plaintiff and the instant court affirmed. So the central issue is this, did the Carbolic Smoke Ball Company's ad constitute a contractual offer accepted by plaintiff's performance. At this point in the course, we have long established that a valid contract requires consideration. So was there consideration in this case? The answer is yes. The Carbolic Smoke Ball Company argued that the contract was a nudum pactum. A promise unclothed by consideration, unsupported by consideration on the plaintiffs part. But the three judges hearing the case, each writing separately, disagreed. They concluded that the offer was supported by consideration. Remember, consideration need not be a benefit to the promissory, a legal detriment to the promises can also be consideration. Here, inconvenience sustained by one party at the request of the other is enough to create consideration. Applying the Carbolic smoke ball three times a day for two weeks is such an inconvenience. This is a case where consideration wasn't a return promise but was actual performance. It's interesting that the court treated Carlill's payment in exchange for the smoke ball to be a separate transaction. Now, with consideration established, let's consider whether there was an offer and an acceptance, which is really the subject of this part of the course. First, was the advertisement a serious offer or was it, like many advertisements, a mere hyperbole? Not meant to be taken seriously. The court concluded that the advertisement was not a mere puff but a serious offer. The court found that the company was serious in the advertisement itself in part because the advertisement disclosed that 1,000 pounds had been deposited with the Alliance banks showing our sincerity in the matter. Next, given that the advertisement was an offer giving Carlill, the offeree, the power of acceptance, the court had to determine whether the plaintiff adequately accepted the offer. The Carbolic Smoke Ball Company argued that the plaintiff never accepted the offer because she failed to notify the company that she had accepted the offer. Under Carbolic's theory, the plaintiff would have had to notify the company before starting to use the smoke balls, "So that the defendant might be at liberty to super intend the experiment." The court acknowledged 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 come together. However, the court continued in a case of this kind, performance is an adequate form of acceptance and no prior notification is necessary. One of the judges wrote, "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 the offer or to himself, performance of the condition is a sufficient acceptance without notification." The opinion suggests that the duty of timely notification is merely a default rule. But here, the Carbolic Smoke Ball Company impliedly, intimated that performance was sufficient form of acceptance thus waving the notification requirement. However, if the Carbolic Smoke Ball Company had put explicit conditions on the form of acceptance and required formal notification prior to playing this performance, presumably, the court would have required the plaintiff to notify the defendant according to the terms of the offer. The restatement of contracts endorses this approach. Section 54 of the restatement states, where an offer invites and offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. Although not used by the restatement, the phrase, unilateral contract, refers to a contract that is formed by an offer that invites acceptance by performance of the bargain for exchange and does not invite acceptance by a promise. The classic examples of a unilateral contract include an offer to climb a flag pole for a certain amount of money or an offer to pay a reward if someone can find the lost dog. In effect, in a unilateral contract the promisor exchanges a promise in exchange for a performance that operates as acceptance. In a bilateral contract, the promisor exchanges a promise for a return promise. So Alice tells Bob that she'll be out of town for the week. If he mows her lawn before she returns, she'll give him $20. "No need to decide now," Alice insists, "if the lawn is mowed when I return, I'll give you $20, if not, I'll just mow it myself." Is this an offer for a unilateral or bilateral contract? Well, this is a classic offer for a unilateral contract. Bob can accept the contract by mowing Alice's lawn and does not need to notify Alice of his intent ahead of time. If on the other hand Alice, had said that she needs to know before she leaves town so she can hire someone else if Bob refuses, this would be an offer for a bilateral contract. Bob would be exchanging a promise to mow Alice's lawn in exchange for Alice's promised to pay him $20. Bob would be bound by his promise if he accepted. In Carbolic Smoke Ball, the court also had to confront a separate issue. Was the offer void for vagueness? The advertisement did not specify a timeline over which Carbolic Smoke Ball would protect against influenza after the customers daily used for two weeks. Absent explicit terms, the court has two options. Either declare the offer void for vagueness or resolve the ambiguity. In this case, the court held that the offer was not void for vagueness and instead elected to fill in the terms to resolve the ambiguity. The court first considered, "construing the offer most strongly against the person who made it." The court rejected this contra proferentem approach, saying that it would be pushing the language of the advertisement too far to construe it as meaning that a person who used the smoke ball three times a day for two weeks would be, "guaranteed against influenza for the rest of that person's life." Note, that this approach would be consistent with a penalty default rule designed to encourage more precise offers. Instead, the court chose to fill the gap with two and possibly three reasonable constructions. Since the plaintiff had used the Carbolic smoke ball three times a day for two weeks and continue to do so until she contracted influenza, the court determined that under any of the reasonable interpretations, the plaintiff had stated a breach of contract. So let's review. Today, we learned that if an offer invites and offeree to accept by rendering performance, no additional notification is required to form an acceptance unless otherwise specified in the offer. Contracts that are formed from such offers are called unilateral contracts.
