contract Contracts

The Carbolic Smoke Ball offer, which bankrupted the Co. because it could not fulfill the terms it advertised

Contract is based on the Latin phrase pacta sund servanda (literally, promises must be kept). Almost everyone makes contracts everyday. Contracts can be made orally, like buying a newspaper, or in writing, like signing a contract of employment. Sometimes writing is required for a contract, like buying a house[2].

In common law jurisdictions there are four key elements to the creation of a contract, illustrated in Carlill v. Carbolic Smoke Ball Company [3]. A medical firm released an advert for its new wonderdrug: the Smokeball. The firm said anyone who bought and used its smokeball for throat problems and did not find results would get 100. The Smokeball did not work for a lot of people. They all sued for their 100. Fearing bankruptcy Carbolic argued advert was merely an ‘invitation to treat’: not every shop window advert means that there will be stock for the product, and so their advert was like a pre contractual negotiation. But the House of Lords ruled that Carbolic’s advert contained all four key elements for people to create contracts straight away: (1) Carbolic made an offer for 100 (2) people accepted it by simply using the Smoke Ball and not getting better (3) users and Carbolic both ‘intended’ to be legally bound because ‘intention’ is interpreted on an objective basis (4) both sides provided ‘consideration’ for the deal, by giving something of value to the other (money or the smoke ball).

In Civil Law jurisdictions, consideration is not necessarily a requirement for a contract[4]. However, in common law systems the concept of culpa in contrahendo or estoppel is increasingly used to create obligations during pre-contractual negotiations[5].