Gibson v Manchester City Council

Factual and Procedural Background

The Respondent was a long-term tenant of a dwelling owned by the Appellants. In late 1970 the Appellants—then under a different political administration—operated a scheme allowing tenants to purchase their homes at market value less a discount. The Respondent completed an inquiry form, after which the Appellants sent a standard-form letter dated 10 February 1971 stating that they “may be prepared to sell” the property for £2,180 and inviting a “formal application.”

The Respondent returned the application form and subsequent correspondence ensued, including a request for path repairs and a letter on 18 March 1971 asking the Appellants to “carry on with the purchase.” In May 1971 political control of the Appellants changed, the house-sale scheme was suspended, and in July 1971 it was formally discontinued.

In September 1974 the Respondent sued in The County Court for specific performance, alleging a concluded contract formed by the February letter (offer) and his March correspondence (acceptance). The County Court judge ordered specific performance. The Court of Appeal, by majority, affirmed; one judge dissented. The House of Lords (constituted by Judge Diplock, Judge Edmund-Davies, Judge Fraser, Judge Russell and Judge Keith) granted leave because the case affected hundreds of similar tenants. The present judgment allows the appeal, discharges the Court of Appeal order (save as to costs) and remits the matter to The County Court.

Legal Issues Presented

1. Whether the Appellants’ letter of 10 February 1971 constituted a contractual offer capable of acceptance.
2. Whether subsequent correspondence by the Respondent amounted to an unconditional acceptance creating an enforceable contract under section 40 of the Law of Property Act 1925.
3. Whether, in the absence of a strict offer-and-acceptance analysis, the totality of correspondence and conduct nonetheless evidenced a binding agreement.

Arguments of the Parties

Respondent’s Arguments

• The 10 February 1971 letter was a firm offer to sell at £2,180.
• Completion of the application form and the 18 March 1971 letter constituted unconditional acceptance.
• Alternatively, looking at the correspondence and conduct as a whole demonstrated consensus on all material terms.
• Internal memoranda and statements by the Appellants’ officers acknowledged the existence of a binding contract.

Appellants’ Arguments

• The words “may be prepared to sell” showed the letter was merely an invitation to treat, not an offer.
• No acceptance could occur because no offer existed; in any event, the Respondent’s correspondence introduced new terms (repair deduction) and left the price blank.
• Section 40 of the Law of Property Act 1925 was not satisfied because essential terms—particularly restrictive covenants routinely contained in standard council-house contracts—were neither written nor agreed.
• The internal memorandum and statements relied on by the Respondent could not create a contract where none existed.

Table of Precedents Cited

Court's Reasoning and Analysis

1. Conventional offer-and-acceptance test. Judge Diplock, delivering the principal speech, emphasised that contracts formed through correspondence should be assessed using orthodox offer and acceptance principles. The February letter’s wording—particularly “may be prepared to sell” and the invitation to “make formal application”—showed it was an invitation to treat, not an offer.

2. Effect of conditional language. The letter expressly denied being a “firm offer” for a mortgage, reinforcing its tentative nature regarding sale. The Court found it “fatal” to the Respondent’s case.

3. No acceptance possible. Because no offer existed, the Respondent’s application form and subsequent letters could not constitute acceptance. Even if construed as an offer by the Respondent, there was no evidence of acceptance by the Appellants.

4. Rejection of alternative ‘consensus’ theory. The majority below looked to the overall correspondence and conduct. The House held this approach overlooked section 40 of the Law of Property Act 1925 and improperly imported unagreed restrictive covenants from standard contracts.

5. Section 40 compliance. Any binding contract for the sale of land must be in writing and include all material terms. The restrictive clauses normally contained in council-house sales were absent and could not be implied without the Respondent’s knowledge or assent.

6. Policy considerations. Although sympathetic to the Respondent and the many tenants in similar positions, the Court cautioned against letting “hard cases” distort settled principles of contract law.

Holding and Implications

APPEAL ALLOWED. The order of the Court of Appeal dated 17 January 1978 is discharged save as to costs. No order for costs was made in the House of Lords other than taxation of the Respondent’s costs under the Legal Aid Act 1974. The cause is remitted to The County Court for further proceedings consistent with this judgment.

Implications: The decision reaffirms orthodox offer-and-acceptance analysis for contracts formed by correspondence, underscoring that conditional or tentative language (“may be prepared to sell”) cannot create a legally binding offer. It affects numerous tenants whose negotiations reached a similar stage but confirms no new precedent; it restates established contract principles.