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UNILATERAL CONTRACTS & THEIR LEGAL IMPLICATION

There are two types of contracts, one being bilateral (between two or more parties) and the other being unilateral (one sided contracts).

This Article is written by Oishee Chaudhuri, student of Heritage Law College.

Introduction:

“Why would anyone write about unilateral contracts today?

American scholar, Karl Llewellyn argued convincingly more than forty years ago “that unilateral contracts are rare, unimportant and should be relegated to the freak tent” The essence of the argument since has modified according to the needs of the present times. The English Contract Law has evolved through years of erudite interpretations and discussions which has cultivated sharp judicial and legal minds all across the globe. The quintessence of a contract is reflected in the Latin term, ‘consensus ad idem’, which can be translated to ‘meeting of minds’. Therefore, we can consider that mutual assent is of paramount importance in Contract law. The conundrum arises, when the elements of Contract Law are broken down to fit into the sphere of unilateral contracts. Before exploring the depths of the Contract Law, it is pertinent to comprehend the basics revolving around it.

Legal Implications:

A contract is an agreement between the parties which create mutually binding legal obligations and is enforceable by law. As per Section 2(h) of the Indian Contract Act, 1872, an agreement enforceable by law is a contract.

There are two types of contracts, one being bilateral (between two or more parties) and the other being unilateral (one sided contracts).  Bilateral agreements are most customary. In the most simplistic definition, a bilateral contract is an agreement between two or more parties. Most business and contracts fall into this category. Whereas, a unilateral contract is an agreement where, action is usually taken by one party alone.  One party promises to fulfill a certain promise or obligation on the condition of performing certain task. However, legal issues typically do not arise until the offeree claims to be eligible for remuneration tied to acts or occurrences.

For the contract to be valid, it must meet a few prerequisite elements, which are namely:

  • Offer- An offer is an expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed.
  • Acceptance- An acceptance is a final and unqualified expression of assent to the terms of an offer.
  • Consideration- In English Law, a promise is not, as a general rule, binding as a contract unless it is either made in deed or supported by some consideration. Sir Frederick Pollock has, accordingly, described consideration, simply as “the price for which the promise is bought”.
  • Intention to contract- An agreement is only binding when entered into with an intention to create a legal relation.
  • Capacity- Capacity is the competence of parties to enter into a contract.
  • Legality- The contract entered into should not be illegal, immoral, against public policy or inconsistent with the laws of the land, forbidden by law or defeating any provisions of law.

Let us delve into one such landmark case which has set precedence and has paved a new dimension for Contract Law.

Case Law Facts:

Louisa Carlill v. Carbolic Smoke Ball Co. (1892) EWCA Civ. 1, 1 QB 256

Prior action: Carlill v. Carbolic Smoke Ball Co, 2 QB 484 (QBD)

It is an English decision revolving around Contract Law decided by the Court of Appeal. It was a decision of much expertise and proficiency laid by Honorable Judges namely Lindley LJ, Bowen LJ and A.L Smith LJ. It was decided on December 7th 1893.  It is noteworthy to mention that the subject matter of this case went on to decide the course of Contract Law.  In the span of 1889-1890, the defendant, Carbolic Smoke Ball Co. manufactured a product called ‘Smoke Ball’. The smoke ball was a rubber ball with a tube fixed to its opening. The ball was filled with carbolic acid (Phenol). The tube was to be inserted in one of the nostrils and the rubber ball was to be pressed. The gas entered the respiratory tract and flushed out the infection. The Company sprung up an idea of advertisement where they would advertise that their smoke ball did wonders and would cure influenza, hay fever, flu, cold and many such diseases, in the midst of an outbreak of a Flu pandemic. As a part of the advertisement strategy, it claimed that the Company will be liable to award 100 pounds to anybody who would succumb to influenza or cold centralizing around the pandemic, if the smoke ball after use does not work, provided the smoke ball is used three times daily for two weeks, according to the printed directions supplied with each ball and for a specified span of time. The Company went to the extent of depositing 1000 pounds in one Alliance Bank, as a precautionary measure in the event of any claims in regards to their advertisement. The plaintiff, Mrs. Louisa Elizabeth Carlill, in all her sincerity and accuracy of the advertisement, purchased the smoke ball and utilized it in accordance with the printed directions from around mid November, 1891 to around 17th Jan, 1892, when she caught influenza despite the advertisement’s promise of the smoke ball’s efficacy. Upon the aftermath of using the smoke ball, the plaintiff’s husband called upon the defendant Company, to keep their legally binding promise. The defendant vehemently refused and denied. Hence, an action was brought before the Court of Appeal.

The Court of Appeal consisting of a three Judges bench, unilaterally ruled in favor of the Plaintiff.

Issues:

The issues raised in the matter are stated as follows:

  1. Whether there was a binding contract between the parties?
  2. If a formal notification or communication of acceptance to the contract was required?
  3. Whether there was any consideration provided by the plaintiff in exchange for the 100 pounds reward by the defendant Company?

Arguments:

  • Defendant:
  • The defendant, Carbolic Smoke Ball Company argued that their offer did not create any legally binding implications; also the advertisement was too vague to form a valid contract.
  • There was no specific time limit or any form of supervision as to the utilization of the smoke balls by the customers.
  • There existed no valid contract because there was neither communication of acceptance of offer or performance nor any intention to create a contract which is an essential requirement to a valid contract.
  • Plaintiff:
  • The plaintiff argued that there was an offer by the defendant Company. The Company had an obligation to fulfill the promise advertised.
  • The Plaintiff also argued, the interpretation of the offer was obvious that if the smoke ball does not work after prescriptive use, the Company would be liable to reward 100 pounds to such claimant.
  • The Company, also extended monetary consideration for the offer and deposited 1000 pounds in one Alliance Bank to prove their intention to contract.

Therefore, the advertisement of the defendant conformed to most of the prerequisites to constitute a valid unilateral contract.

Court’s Judgment:

The English Court of Appeal unanimously held that the contract was a legally binding one. The various stances of the Judges were that:

  • The Company’s advertisement claiming to have deposited 1000 pounds as a reward with one Alliance Bank, conveying their sincerity to pay is evident, and hence was not a mere puff. It can be considered as valid consideration.
  • The offer made by the Company, was a unilateral offer made to the world at large and would ripen at the moment anybody performs the condition is deemed to have accepted the offer, therefore the promise is binding.
  • The offer can be construed as a promise since it is not vague.
  • A specific notification of acceptance is not required in the present scenario. Thus, it was held “notification of acceptance need not precede performance.”

Therefore, most of the essential conditions are existent and fulfilled for it to be constructed as a valid contract.

Conclusion:

This case law has changed and expanded the legal landscape of English Contract Law. The Court of Appeal had laid down the exhaustive and inventive principles to set the course of Contract Law in present times. Businesses practice caution in publishing advertisements. It has also given an expansive interpretation to contracts where unilateral contracts are equivalently valid as bilateral ones. If any advertisement made to the world at large has a promissory intention attached to it, it can be considered as a legal unilateral contract. It has set a legal precedent in the doctrine of contracts. The insight of the legal aspects of this matter was argued with utmost passion and dedication and had set the course of futuristic Contract Law. Some scholars believe that unilateral contracts should not be recognized as enforceable in law. Their reasoning is based on the fact that there is no exchange of bargains or negotiations involved between the offeror and offeree. Even then, there are plethoras of judgments, with the reasoning of seasoned judicial minds where they uphold the validity of these contracts. Unilateral contracts fulfill all the basic criteria of a valid contract and has gained universal recognizance. The legal implications on certain sections of society will be immense if unilateral contracts were to be absent from the legal dimension. The commercial units of the society will be squandered and their profit margins will dwindle. The advertising units will be at serious loss because they might not be able to advertise their products and reach their customers. Similarly, in a closely functional economic society; absence of these contracts will inevitably lead to its downfall. Hence, this case has laid down the basic notions revolving around Contract Law and has shed new light on principles of a contract and has paved a way for recognizance of unilateral contracts.

References:

  • EDWIN PEEL, the Law of Contract 10 19 26 79 187 (14th South Asian Ed. 2017)  Thomas Sweet & Maxell
  • K SAHARAY, Dutt on Contract, 71 113 127 118 (11th Ed. 2013), Eastern Law House.
  • P FURMSTON, Law of Contract, 102- 112 (9th Ed. 1976) London Butterworths.

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