Intention to Create Legal Relations in Contract

This assignment examines the principle of 'intention to create legal relations' in contract law. It uses the landmark case *Carlill v. Carbolic Smoke Ball Co.* to illustrate how courts determine whether a legally binding agreement exists, even in the absence of traditional bargained-for exchange (consideration). The analysis delves into the historical development of this concept and its application in Australian jurisprudence, ultimately concluding that the case provides valuable guidance for resolving ambiguity in commercial transactions.

Running head: Carlill v Carbolic Smoke Ball Co 1
Carlill v Carbolic Smoke Ball Co
Author Name(s)
Institutional Affiliation(s)
Author Note

Carlill v Carbolic Smoke Ball Co 2
Abstract
Any person engaging in the advertisement should be able to differentiate between potential
offers and business invitations to treat. The principles underlying the two are different, but
sometimes it is difficult to distinguish them especially when the wording of the advertisement
looks a bit confusing. An invitation to treat does not have the capabilities of provoking an
acceptance from the promisee. It is merely a situation where one party asks the other to come
and make an offer. The second party has the right to accept or ignore the invitation without any
legal repercussion. However, if the party tendering the invitation makes it look like an offer, the
acceptance that may result from the other party will lead to a legally binding agreement. This
paper will take a critical position in analyzing the case of Carlill V Carbolic Smoke Ball Co. The
paper will review the reasons why the court decided that the invitation to treat was a potential
offer. Ultimately, the paper will look at the significance of this case to Australian law.
Keywords: Invitation to treat, Offer, Acceptance, Consideration

Carlill v Carbolic Smoke Ball Co 3
Carlill v Carbolic Smoke Ball Co
Business may be intending to use advertisements as invitations to treat. That is, inviting
customers to come and open negotiations before concluding a contract. However, there is a need
to take the form, factual context and the wording of these advertisements seriously. This paper
will use the case of Carlill in analyzing how and when an advertisement will amount to an offer. I
will also look at the significance of this case to Australian law.
Summary of Carlill v Carbolic Smoke Ball Co
This authority arose from Carbolic Smoke Ball Company’s invention of a device that
they claimed it could prevent influenza. They made an advertisement of their device in the
newspaper affirming that they would pay £100 to anyone who contracted influenza having their
devices. Users had to use the device thrice a day for 14 days. In the advertisement, the company
stated that it had already deposited £1000 as a confirmation for their sincerity. Louisa Carlill
contracted even after using the device as per the instructions. She brought a claim for a breach of
the contract. To her favor, the court found the advertisement as a unilateral offer made to the
entire world at large. The fact that the defendant had even deposited £1,00 affirmed that he was
ready for any claim for breach of the contract. The court allowed the claim, and Carbolic
company was liable for breach.
Subsequent Impact of Carlill On Contracts Law In Australia And The Nature Of A Legally
Binding Agreement
The significance of this case in Australian contract law and the nature of a binding agreement is
seen in three distinct issues. The first one is the principles of unilateral contract. The second issue
is the distinction between a promise and puff. Unilateral contracts happen where one party
provides a promise while the other party proceeds to the performance (Barron, 2013). The

Carlill v Carbolic Smoke Ball Co 4
bargain of this contract is completed by the performance of the promisee as requested by the
promisor (Roberts, 2017). One example is where a person loses his wallet. Then the person states
that he will pay $100 to whoever finds the wallet. There would be no need for the finder to
communicate his entrance to the search. A finder just need to search for the wallet and bring it to
the owner. Upon delivery, the finder becomes entitled to $100. One main relevance laid out by
this authority regards acceptance of an offer. The original rule requires notification of acceptance
to the promisor. This communication creates what the law calls the meeting of minds (Graw,
Parker, Whitford, Sangkuhl & Do, 2012). The law makes acceptance a requirement to create a
binding acceptance. This case brought a different development regarding the binding of
agreements where notice of acceptance would not be necessary. Bowen LJ stated that there are
some situations where the performance of acceptance would become a notification (Miles &
Dowler, 2013).
The next development that this case enlightened on was the issue of promises and
puffery. The concept of a "puff" that this case developed remained as a rule in marketing and
advertising laws ever since (Khoury & Yamouni, 2010). Lord Justice A L Smith noted the law
regards advertisements as an invitation to treat but not an offer. However, that advertisement of
the smokeball seemed more of a request for acceptance. The sincerity of this offer was even
demonstrated by depositing the money at the bank. This was contrary to the rules guiding the use
of pufferies. The principle laid the authority in cases where a mere puff can convert to an offer.
Significance of Carlill v Carbolic Smoke Ball Co. Ltd in Australian Courts.
The case of Carlill v Carbolic Smoke Ball Co. Ltd is significant to Australian courts in
different ways. For one, this is a landmark decision that brought several rules regarding the
formation of a contract as derived from the defense side.

Carlill v Carbolic Smoke Ball Co 5
Legal issue
The main issue before the court was to determine the position of the contract between
Mrs. Carlill and the smoke Ball company. The court was dealing with these three questions. The
first one was deciding a dispute as to the nature of this advertisement. Was it an offer or a form
of an request to make an offer? Then if the court finds that the advertisement was an offer, it then
had to decide whether the rules pertaining to the communication of acceptance applied to this
contract. The second question that the court was dealing with was whether the parties had an
intention for a legal bond. Lastly, the court had to conclude whether the claimant provided
consideration for Smoke Ball company’s promise of the reward.
Decision
The Court unanimously concluded that the advertisement suited an offer instead of an
invitation. It was an offeror to all the world. There was no need for acceptance since the
defendant had waived such requirement. The performance was the acceptance of this offer
(Miles & Dowler, 2013). Further, whether the claimant provided consideration or not was a
question of the parties’ intent for a legal bond in their agreement. Firstly, the court considered
that this was a commercial context. As a general rule, there is a presumption that parties in a
commercial setting always have an intention to creating a legal bond. In this regard, the court
took an objective approach to interpreting the agreement in the general public viewpoint (Gulati,
2011). The fact that Smoke Ball company had deposited 1000 pounds demonstrated their
intention to be bound.
Significance to Australian Courts
This ruling presents what is now the advertisement rules where the advertisement
amounts to a conditional offer instead of an invitation to treat. It also acts as the authority in the

Carlill v Carbolic Smoke Ball Co 6
situations where the promisee waives the necessity of the communication of acceptance
(Latimer, 2011). The authority sets that performance of particular conditions will constitute
acceptance without necessarily informing the promisee. This case also acts as the authority
where an agreement lacks consideration, yet the offeree suffered inconvenience following
directions of the offeror. Lastly, the case demonstrates that there is a belief that there is always
the parties’ projection for a legal relation whenever they are dealing within a business or
commercial setting (Saprai, 2017).
Nature of A Contract in The Light of Carlill V Carbolic Smoke Ball Co. Ltd
The nature of this contract is a unilateral one. A unilateral contract is a form of a single-
sided agreement. It is only one party that makes a promise with the intention of inducing the
other to undertake a particular task (Graw, Parker, Whitford, Sangkuhl & Do, 2012). Unlike
bilateral contracts, the second party in a unilateral contract does not have a legal obligation to
perform as per the terms of the contract. However, the performance of the second party and its
compliance with the set conditions binds the first party into the agreement (Latimer, 2011).
Another feature of the unilateral contract is that it does not require notification of acceptance.
This dismisses the rule that acceptance of a contract must be timely as found in bilateral
contracts since the offer is ongoing.
Analysis of
The relevant legal principle within this case were offer and acceptance, intention to
creating a legal relation, and consideration.
Issue as to Mere Puff
The rule of law states that pufferies are statements of exaggerations which are not terms
of an offer (Latimer, 2011). An example of a puffing statement was found in(Dimmock v

Carlill v Carbolic Smoke Ball Co 7
Hallett,1866). While auctioning a piece of land, Dimmock stated that the land was “very fertile
and improbable.” Hallett relied on this statement while buying the land. Later, she discovered
that it was untrue. The court described the term as a mere puff, and such a term could not amount
to legal repercussions. Compare this rationale with the case of (Smith v Land & House Property
Corp, 1885). The claimant bought a hotel from the defendant. The defendant had stated that the
property was let to a ‘most desirable' tenant. In fact, the defendant knew that the tenant was in
arrears and approaching bankruptcy. This statement was held as a fact rather than a mere puff.
I concur with the application of the same rationale in the case of Smoke Ball Co. The
court did not accept that the company statement was a mere puff. The fact that the company had
even deposited the money in the bank showed their sincerity. The court stated that a reasonable
man would not have taken it as a puff.
Issue as to Advertisement as Opposed to an Offer
The general rule is that advertisements are not offers but an invitation to people asking
them to come and make an offer (Bruce, 2011). An application of this authority was affirmed in
(Fisher v Bell, 1961). The seller had displayed a flick knife and a ticket for sale behind it stating
‘Ejector Knife—4s’. The police charged the seller with offering to sell the flick knife which was
against the law. The court found the seller not guilty stating that goods on display are invitation
to treat but not offers. The ruling of this case confirms the rationality established by the Smoke
Ball Co's authority. Even though advertisements are an invitation to treat, the court found that
this one unusual situation. Its characteristics fitted an offer as opposed to an invitation.
Issue as to Vague or ambiguous
It is a general principle in the law of contract that an offer which is a proposal must be
certain in its terms (Lambiris & Griffin, 2014). These terms should not be too vague. An

Carlill v Carbolic Smoke Ball Co 8
application of this rule was affirmed in (Gurthing v Lynn,1831). Mr. Gurthing was buying a
horse from Mr. Lynn for £63. Mr. Gurthing accepted the price with a £5 ‘if the horse was lucky.'
The court did not find a meaning of the term ‘if the horse was lucky’ as it was too indefinite. The
Smoke Ball Company's defense was relying on this rule in the ambiguity as to time limit.
Though the defense argued that there was no time limit, the court found three possible time
limits. The first was the continuity of the epidemic. The second one was treating influenza when
someone had the smoke ball. Third, treating influenza at its reasonable time which the company
had given as three weeks.
Issue as to an Offer made to the World
The rule that governs such issue regards unilateral contracts. The rule is that acceptance
of unilateral contracts relies on the completion of the performance (Graw, 2012). A similar case
in this nature was decided in (Harbhajan Lal v Harcharan Lal, 1924)
In this case, a boy ran away from his father. The father issued a pamphlet offering to
reward anyone who could find the boy with Rs. 55. The claimant got the boy and sent a telegram
to his father. The court concluded that the pamphlet was an offer made to the public. Therefore, I
agree with the judgment of the case of Carlill v Carbolic Smoke Ball Co which had set these
principles. In Carlill v Carbolic Smoke Ball Co, the defendant was arguing that his contract was
a 'contract with the world' which had no possibilities of amounting to a binding agreement. The
court rebutted the argument stating that it was not a contract made to the entire world, but it was
an offer made to the world. The court advised that anyone who comes out to perform the
conditions completes the formation of a binding agreement.

Carlill v Carbolic Smoke Ball Co 9
Issue as to Communication of Acceptance
It is a rule that the offeree should communicate his acceptance to the offeror to make a
binding agreement (Miles & Dowler, 2013). However, the court noted that this rule could not
nullify disputed agreement as such an offer did not require communication of acceptance. It only
required fulfillment of the conditions. This rationale was later affirmed in the case of (Brogden v
Metropolitan Railway Company, 1877) The claimant had been selling coal to the defendant for
several years with an unwritten contract. The parties later contemplated having a formal
agreement. The defendant posted the draft contract to the claimant. The claimant made some
alteration and then sent it back to the defendant. The parties continued to trade until when the
dispute arose. The court found that even though the claimant altered the document, his action
complied with the unsigned terms.
Issue as to Consideration
Even though it is a requirement that an agreement must have an item of the bargain, an
agreement lacking consideration is still enforceable if it was formed with the intention to create a
legal relation (Miles & Dowler, 2013). The general presumption is that parties to a commercial
agreement intend to create a legal bond. On the other hand, there is a presumption that domestic
and social agreements do not have such as intention (Gulati, 2011). For instance, in (Balfour v
Balfour, 1919) the court decided that a domestic agreement is made without the intention to
create a legal relation. A husband had promised a pay his wife as house allowance. Later the
husband suspended the allowance after the separation. The court refused to enforce the
agreement since it lacked the intention for a legal bond.
This rationale is witnessed in the case of Carlill V Carbolic Smoke Ball Co when it
rebutted the claim that there was no consideration as a requirement of an agreement. The court

Carlill v Carbolic Smoke Ball Co 10
found that such a rule did could not apply in this agreement. The court affirmed that as far as
there was an intention to create a legal relation, consideration was not a requirement. These rules
as laid out in Carlill v Carbolic Smoke Ball Co formed a relevant case law in Australia courts.
In overall, I agree with the position taken by this case in setting curing the ambiguity that
such scenarios would have created in commercial practices.
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Carlill v Carbolic Smoke Ball Co 11
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