Gibson v Manchester City Council (1979)

The decision of the case

In its decision,[1] the House of Lords, on 8th March 1979, unanimously allowed the appeal of the appellant, Manchester City Council, from the decision of the Court of Appeal (Lord Denning MR and Ormerod LJ, Geoffrey Lane LJ dissenting), dated 17th January 1978, to order specific performance on a contract for the sale of 174 Charlestown Road, Blackley from the appellant, to the respondent, Mr Robert Gibson; after the Court of Appeal had dismissed Manchester City Council’s appeal against a similar order for specific performance made by Judge Bailey sitting at Manchester County Court dated 15th December 1976.

The House of Lords quashed the order for specific performance, because despite the approach taken by the Court of Appeal, they could not construe a legally enforceable contract.

The legal issues arising in the case

The issues in this case go to the root of the law of contract. Lord Diplock regarded them as “settled, indeed elementary principles of English law”.[2]

What constitutes an offer capable of acceptance, and in the circumstances, was the Council conduct capable of acceptance?

Can an exchange of correspondence amount to a legally enforceable agreement?

Do all contracts fall into the category of being formed by offer and acceptance?

It is relevant to point out that there was no allegation that the ‘contract’ fall fowl of the provisions of section 40 of the Law of Property Act 1925,[3] which requires “Contracts for sale, of land to be in writing etc.”[4]

The material facts

The respondent, Mr Gibson was a tenant living in 174 Charlestown Road, Blackley, and had been since 1959. The freehold was owned by the appellant, Manchester City Council (“the Council”). In 1968 he began enquiring about the possibility of purchasing his council house. In September 1970, the Council resolved to sell freehold interests in its council houses to tenants.

On February 10th 1971, the Council wrote to Mr Gibson, in response to his enquiry as to a price for his council house, stating:

“The Corporation may be prepared to sell the house to you at the purchase of £2,725 less 20 per cent = £2,180 (freehold)”.[5]

The letter further stated:

“If you would like to make a formal application to buy your council house, please complete the enclosed form and return it to me as soon as possible”.[6]

Mr Gibson completed the application form, and sent it with a covering letter, which made some general enquiries about repairs to Mr Gibson’s tarmac path and that he intended to put down a deposit of £500 upon purchase of the house. Sometime after this the Council took 174 Charlestown Road off the list of houses they were responsible for and Mr Gibson commenced with the repairs.

In May 1971, following local government elections, political control of Manchester City Council changed hands from Conservative to Labour. In July 1971, the Council suspended its policy of selling council houses. On 4th August 1971, Mr Gibson was informed that his sale would not proceed. By September, the Council resolved to formally abandoned sale of council houses.

Mr Gibson commenced proceedings in the County Court in September 1974 requesting specific performance.

The steps in reasoning employed by the judges

Lord Edmund-Davies makes the pertinent point that “… had the corporation not altered its policy, the parties would in the ordinary way have entered into a Standard Agreement for the Sale of a Council House”. There is much sympathy for the situation Mr Gibson found himself in, but nonetheless the judges were not able to find in his favour.

The Court of Appeal (Lord Denning MR and Ormerod LJ) took a different approach to the case than the House of Lords did, and it is perhaps important to look briefly at this approach to understand why the House of Lords ultimately found in the Council’s favour. The major difference in opinion between Lord Denning and the House of Lords is based on how English law constructs a contract. Lord Denning makes his argument most forthrightly by stating:

“To my mind it is a mistake to think that all contracts can be analysed into form of offer and acceptance… as I understand the law, there is no need to look for a strict offer and acceptance. You should look at the correspondence as a whole and at the conduct of the parties and see therefrom whether the parties have come to an agreement on everything that was material’.[7]

Lords Diplock, Edmund-Davies and Russell of Killowen are in near total agreement as to the reasons why Lord Denning’s judgment, albeit very much Denning-esque, was in law, wrong. The ‘conventional’ approach to contracts is that one party makes an offer, and to be legally bound the other must unconditionally accept all the terms. In this context an offer is not always what seems to be an offer. For example, an invitation to treat is merely the first step in the negotiations that may eventually lead to an offer being made. As can be shown from two famous cases, those of Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953][8] and Fisher v Bell [1961][9], what seems like an offer, is to a legal mind, not an offer, but an invitation to treat.

Their Lordships looked at the Council’s letter sent to Mr Gibson on 10th February 1971, and concluded that on true construction, this letter, whilst it may later have shown as per Lord Denning’s view be ‘an agreement on everything material’, it lacked certainty because of its wording. The question that the House of Lords had to first answer was an ‘offer’ in its true legal meaning ever made? Their Lordships thinking is perhaps best (if not slightly brutally) summed up by Lord Russell of Killowen, in that he states “I cannot bring myself to accept that a letter which says that the possible vendor ‘May be prepared to sell the house to you’ can be regarded as an offer capable of acceptance so as to constitute a contract. The language does not permit such a construction”.[10] In essence, this was merely an invitation to treat. Further reference to making a ‘formal application’ shows that it was Mr Gibson who would make an offer to buy (as opposed to the Council’s offer to sell), and one which because of the delay and the elections, was ultimately never accepted by the Council in a formal agreement.

The handling of precedents

Perhaps unusually for a case of such importance, there was comparatively little discussion of established precedent. Much of the law in this case has been built up over many centuries, and the issues are more a question of the construction of language, than finer points of contract law. Of the few cases cited in argument and mentioned by their Lordships, is one of particular significance. It arose out the same political decision as Gibson v Manchester City Council.

In Storer v Manchester City Council [1974][11] the transaction had not yet been formally completed, but a similar standard ‘Agreement for the Sale of a Council House’ as was discussed in the present case, had been completed and signed by Mr Storer. It was then returned to, but not completed by, the council. The Court of Appeal held “Mr Storer had done everything which he had to do to bind himself to the purchase of property.” The conventional approach of offer and acceptance was adhered to as Lord Denning points out by stating “The offer was contained in the letter of March 9 in which the town clerk said: ‘I enclose the agreement…The acceptance was made when Mr Storer did sign it, as he did, and return it as he did on March 20. It was then that a contract was concluded.”[12]

Ultimately, the only distinguishing factor between these two cases amounts to a delay in paperwork. Whilst the legal mind can understand this distinction, it may seem unfair to many that Mr Gibson did not get his council house.

An example of narrow obiter in the case

Whilst he could not find a legally enforceable contract, Lord Diplock in his judgment considered the basis on which English law constructs contracts. Legal opinion varies on whether all contracts need to conform to the ‘Conventional approach’ of offer and acceptance. Lord Diplock (and by virtue of their concurring judgments, Lord Fraser of Tullybelton and Lord Keith of Kinkel) states:

“There may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance, but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another, is not one of these”. Lord Diplock here is in partial agreement with Lord Denning in the Court of Appeal, although the extent to which the point is applicable is significantly different, and the limited scope of what Lord Diplock says makes it a largely moot point.

(1511 words)

[1] Gibson v Manchester City Council [1979] 1 WLR 294

[2] Ibid at 296 per Lord Diplock

[3] Law of Property Act 1925 (15 & 16 Geo V, c. 20)

[4] Ibid at s40

[5] Gibson v Manchester City Council [1979] at 298, 300

[6] Ibid at 298, 300

[7] Gibson v Manchester City Council [1978] 1 WLR 520 at 523 per Lord Denning

[8] Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401

[9] Fisher v Bell [1961] 1 QB 394

[10] Gibson v Manchester City Council [1979] at 304 per Lord Russell of Killowen

[11] Storer v Manchester City Council [1974] 1 WLR 1403

[12] Ibid at 1407 per Lord Denning MR

Bibliography

Legislation

•  
• Law of Property Act 1925 (15 & 16 Geo V, c. 20)

Cases

•  
• Pharmaceutical Society of Great Britain v Boots Cash Chemists

(Southern) Ltd [1953] 1 QB 401

•  
• Fisher v Bell [1961] 1 QB 394
• Storer v Manchester City Council [1974] 1 WLR 1403
• Gibson v Manchester City Council [1978] 1 WLR 520 at 523
• Gibson v Manchester City Council [1979] 1 WLR 294

Books

•  
• Elliot, C, and Quinn, F, Contract Law (2003, 4th ed, Longman)
• Poole, J, Casebook on Contract Law (2003, 6th ed, Oxford)

Further Reading

Cases

•  
• Brogden v Metropolitan Railway Company (1887) 2 App.Cas 666)