This blog is inscribed by Naman Jain
The aim of this article is to critically analyse the ingredients that constitute generaloffer under contract law. The paper further evaluates the loopholes and uncertainties in the law regarding advertising and marketing. Practice of puffery has been lime-lighted in the paper including “bait and switch” advertisement tactics.
Offer and General Offer : It’s Scope
Offer[i] is said to be made when “one person signifies to another his willingness to do or to abstain from doinganything with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”.
The above definition concludes that for a formation of contract, ingredients relating to proposal should be strictly of legal nature, with a requirement of consideration from the offeree and must be certain in nature. Further, willingness to make proposal should be signified or communicated properly.
Invitation to offer– an invitation to offer is an action inviting other parties to make an offer to form a contract. These actions could appear to be offer themselves, leading to ambiguity in understanding the meaning of offer and invitation to offer. The distinction for the same is important because accepting an offer creates a binding contract while “accepting” an invitation to offer is actually making an offer.
In Harris v. Nickerson[ii] case, the defendant was an auctioneer who had advertised in the newspapers that certain goods would be sold by him by auction at a certain place over a period of three specified days. The plaintiff, attended the sale on the last day and came to the conclusion that more than a few goods were withdrawn from the sale by the defendant. The plaintiff sought to recover his expenses and the time which he wasted in attending the auction from the defendant. The contention of the plaintiff was that the withdrawal of the lot was a breach of contract which has been formed by the advertisement as a general offer in return accepted by the plaintiff when he attended the auction.
The court held that the advertisement was a mere declaration to inform potential purchasers that the sale was taking place the defendant had wrongly misplaced the notion of general offer. The ad was not an offer to contract with anyone who attended the auction, nor a warranty that all the articles advertised would be put for sale. Therefore, it didn’t legally bind the defendant to auction the items in question on any particular day hence rejecting the claim of the plaintiff.
The distinction between offer and invitation to offer depends upon intention of the person making it. It is an offer if the person making it with the intention that he would be bound but
no sooner the offeree signifies his assent to it. Whereas, it is not an offer if the person making it is not bound merely by other party notifying his assent. For example- A voluntary retirement scheme offered by an employer is not a proposal/offer but a mere invitation to offer. The application made by the employees constitutes the proposal to be accepted by the employer
Intention : It’s Importance in Making A Offer
In England, intention has become a major ingredient of a contractual agreement. Earlier in the western countries, the courts found that it was a necessity of those systems where consideration was not a ‘requisite of enforceability’.
In the case of CWT V. Abdul Hussain Mulla Muhammad Ali[iii], Supreme Court concluded that in addition to the existence of an agreement and the presence of consideration there is also a third contractual element which is a must to create legal relations i.e., intention.
General Offer: Jurisdictional Differences
When an offer is made to public at large, the offer is said to be a general offer and can be accepted by any person who wishes to fulfil the terms of the offer. When an offer is accepted by the individual to whom it is directed, the offeror and the offeree enter into a contract.
If the offer is accepted by a large number of people, the number of contracts formed will be equal to the number of individuals who accept the offer. The reward if offered for completing a certain task, will only be rewarded to the person who completes the task can accept the offer. Therefore, it is concluded that an offer can be made to entire world but a contract for the same has to be made with a single person or an entity.
In the case of Carlill V. Carbolic Smoke Ball Co Pvt Ltd[iv], an Australian smoke ball company created a product and advertised in the newspaper commercial saying that the
company would reimburse 100 euros to anyone who caught influenza after using their product for a prescribed period of time(special condition) as the company believed that their product could avoid influenza. It was also claimed in newspaper that the company had already deposited 1000 euros as a proof. Louisa Carlill after using the product for prescribed period of time in stated manner, she caught influenza and sued the company for the breach of contract as the company refused to reward Mrs. Carlill(plaintiff) 100 euros as per the advertisement, on the ground that there was no consideration and intention to create legal relation. Court permitted the lawsuit and the company was accountable for the violation of breach of contract. Carbolic Smoke Ball Co Ltd was held liable for the promise made by them in the advertisement. It was concluded that the act of depositing 1000 euros in the Alliance Bank proof their seriousness for their claim. It was also concluded that anyone after reading the advertisement and performing the conditions by any means is meant to accept the offer and no communication of acceptance to a general offer is required. The contract of the company was considered as a unilateral contract and was deemed as an offer that constitute a legal and binding contract.
Analysis of Smokeball Case and its Relevance Today
The supra case arose from Australia. Both Australia and India are common law countries and share almost same contractual laws. If the above case had arisen in India in 1900s, the judgement would have been the same but if the same case take place in the today’s India; it would lead to a totally different situation and defence of puffery came into action.
Nowadays, companies use ads to expand their client base. As puffery is not an offence; the nature, the literal meaning and the language of these ads must be taken seriously.
The first issue that came in front of the court in any advertisement cases is that whether that advertisement is an offer or an invitation to offer. The next concern is in determining that if that commercial was an offer, whether the regulations relating to the approval and correspondence are extended to that agreement. The final concern to be dealt with by the court was whether the entities had a legitimate contract commitment.
In the supra case, it was held that the advertisement was a world-wide offer. Further, the offer was approved, and court found this to be of professional dimension. The fact that 1000 euros were paid by the company showed their clear intent to be tied. The above judgement was on basis that the commercials or the advertisement is a contingent contract and not an
invitation to offer. There is no consideration for a contract, but offeror has undergone discomfort due to promisor’s instructions.
The concern of the above case in today’s world is great enough to have a crystal-clear difference between a puff and an offer. The above case is a one-sided contract or a unilateral contract. The fulfilment of contract terms by the second party automatically ties the first party into a contract. Another aspect of this type of agreement is that an approval notice for confirmation of contract is not required.
Puffery- Opening the Paradox Box
Pufferies are declarations of overstatements that are not conditions of an offer. There couldn’t be legal ramifications for a mere puff under the law. In the supra case, the claim of the company was a mere puff but the fact of depositing money into the bank shows the commitment of company making it liable for the claim.
Puffery would be considered as a loophole in the advertising and marketing laws as it leads to ambiguity in recognition of a commercial or an advertisement as an offer or an invitation to offer/puff. Marketing is an invitation to individuals to come and take the offer. This issue can be made more clear by the case of Pharmaceutical Society of Great Britain v. Boots Cash Chemists[v] . Thedefendant a registered pharmacist ran a shop in which non-prescription drugs and medicines, many of which were listed in the Poisons List provided in the Pharmacy and Poisons Act 1933, were sold. The said items were on an open display allowed unsupervised access to the customers till the medicines were checked out. Which brought on proceedings against the defendant for breach of Section 18(1) of the Pharmacy and Poisons Act 1933, which requires strict supervision of a registered pharmacist for the sale of any item in the said List.
The Court held that the defendant was not in breach of the Act, as the contract was completed on payment which was supervised and overviewed by the pharmacist. The open display of the goods was not an offer ; rather, the proper construction was that the customer made an offer to the cashier upon at the time of checkout, which was in turn accepted when payment was taken. Therefore, it was concluded that it was merely an invitation to offer. This analysis was supported by the common fact that the customer had a free reign to return any of the items to the shelves before payment was made and also the shop owner has full authority to deny any customer from selling the goods at the payment counter.
Contra to the above cases, court concluded the Smoke Ball Co. case as an unusual situation. The principle of contract law says that an offer should be specific in its words not leading to any ambiguity in the phrased words. Giving defence to the Smoke Ball Co, the contract of the company was a “agreement with the world” which had no prospect of being bound by the law thus creating ambiguities in interpreting an advertisement as an offer or a puff. The court also concluded that in a general offer, the establishment of binding contract was done by anyone who happens to come out to meet the terms. But if the contract was not binding under law, in this case a mere ‘puff’, the Co. should not be held liable. Approval of accepting a general offer is not required, but if the above is a puff and not a general offer; then talking about approval becomes irrelevant.
Moreover, the advertisement statements that are too vague and uncertain to make a contract did not amount to offer. In the case of Gunthing V. Lynn[vi], the offeror promised to pay the extra sum of money if the horse/stallion proved lucky for him. It was held that contracts that are too vague to make a contract, are not valid or binding as the statement horse being lucky for the plaintiff creates ambiguity. Similarly, in Smoke Ball Co. case, there being no limit as to time, a person might claim who got influenza ten years after using the remedy making the advertisement phrases vague and non-binding.
A contract without consideration is still a valid contract and still binding if it is created with an intent of forming a contractual relationship. In the case of Smoke Ball Co, there is no consideration as a contract prerequisite. Further, it was justified that an advertisement involving puffery cannot have an intention to create legal ties.
It was also arguable that the words express intention but not necessarily amount to a promise. In the case of Weeks V. Tybold[vii], defendant affirmed and published that he would give 100 pounds to anyone that would marry his daughter with his consent wooing her daughter. Further, the court held that it was unreasonable that the defendant to be bound by such general words spoken to excite suitors. Therefore, any kind of advertisement didn’t constitute as an offer.
Therefore, due to many uncertainties arising from the above case and after a critical analysis of the situations. There is a need to investigate advertising and marketing laws to remove the loopholes and ambiguities being faced today in the system. Contract law is said to be a complicated in nature. Hence, the rules and standards applicable more often than not varies from state to state. If one desires to enter into contracts relating to marketing and commercializing, proper guidelines and protection should be taken from lawyers and business attorneys. Advertisements nowadays are “bait and switch” tactics having a good defence under the law. Therefore, the viewers should be attentive and should have enough legal knowledge to protect them from these tactics
[i] S.2(a), Indian Contract Act,1872
[ii] (1872) LR 8 QB
[iii] (1988) 3 SCC 562
[iv] (1893) 1 QB 256 (CA)
[v] (1953) 1 Q.B. 401
[vi] (1831) 2 B7 AD 232
[vii] (1605) NOY