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Gibson v Manchester City Council

[1979] 1 WLR 294

Overview

This case involved an action for specific performance based on a claim that there was a contract for the sale of land.

The question before the House of Lords was whether the correspondence between parties gave rise to an enforceable contract.

Council had adopted a scheme by which tenants of council houses could purchase their homes. After local government elections the scheme was abandoned and it was agreed no more council houses should be sold beyond those for which there was a binding contract.

Mr Gibson relied on a letter from Manchester Corporation to claim there was a firm offer to sell and a letter from him to argue that this offer had been validly accepted.

Mr Gibson succeeded in the County Court and on Appeal to the Court of Appeal and specific performance was awarded. However, the House of Lords unanimously allowed the appeal, finding there was no offer from the Corporation capable of giving rise to a binding contract, making particular reference to a passage in the letter that stated: 'The Corporation may be prepared to sell the house to you'.

House for sale

 

Facts

Council had adopted a scheme by which tenants of council houses could purchase their homes. The scheme provided for sale at market value, less a discount that varied depending on the length of tenancy. In the case of Mr Gibson this would have meant a discount of 20%.

A brochure was circulated to tenants who had expressed an interest in buying their houses and Mr Gibson filled out a detachable form contained in that brochure, inquiring about the price of buying his house and also expressing interest in obtaining a mortgage.

Mr Gibson's house was inspected and valued and a letter was sent to Mr Gibson:

Dear Sir

...

I refer to your request for details of the cost of buying your Council house. The Corporation may be prepared to sell the house to you at the purchase price of £2,725 less 20% = £2,180 (freehold).

...

Maximum mortgage the Corporation may grant : £2,177 repayable over 20 years

Annual fire insurance premium: £2.45

Monthly Repayment charge calculated by

(i) flat rate repayment method: £19.02.

...

If you wish to pay off some of the purchase price at the start and therefore require a mortgage for less than the amount quoted above, the monthly instalment will change; in these circumstances, I will supply new figures on request. The above repayment figures apply so long as the interest rate charged on home loans is 8½%. The interest rate will be subject to variation by the Corporation after giving not less than three months' written notice, and if it changes, there will be an adjustment to the monthly instalment payable. This letter should not be regarded as firm offer of a mortgage.

If you would like to make formal application to buy your Council house, please complete the enclosed application form and return it to me as soon as possible.

...

Mr Gibson relied upon this letter as constituting an 'offer' by Manchester Corporation to sell the house.

Mr Gibson filled out the application form contained in the letter, leaving blank the space for purchase price. In a cover letter he requested that the Corporation either carry out repairs at their own expense or reduce the purchase price to account for the cost of repairs.

The corporation replied, stating that the condition (need for repair) had been taken into account when setting the purchase price. Mr Gibson then responded asking the Corporation to 'carry on with the purchase as per my application already in your possession'.

This was relied upon as an acceptance of the Corporation's offer to sell.

Council argued that the Corporation had made no offer and, even if they had, it had not been accepted by Mr Gibson.

 

Held (Court of Appeal)

Lord Denning rejected the traditional approach to offer and acceptance, instead looking at the correspondence and conduct of the parties as a whole to determine whether agreement was reached on material matters. Lord Justice Ormrod adopted a similar approach.

Lord Justice Geoffrey Lane dissented, finding there was no offer made capable of being accepted and forming a legally enforceable contract.

 

Held (House of Lords)

Appeal unanimously allowed; there was no offer capable of giving rise to a contract.

Lord Diplock

Lord Diplock noted that while there may be exceptional cases which do not 'fit easily into the normal analysis of a contract as being constituted by offer and acceptance', this was not one of them.

My Lords, 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. I can see no reason in the instant case for departing from the conventional approach of looking at the handful of documents relied upon as constituting the contract sued upon and seeing whether upon their true construction there is to be found in them a contractual offer by the corporation to sell the house to Mr. Gibson and an acceptance of that offer by Mr. Gibson. I venture to think that it was by departing from this conventional approach that the majority of the Court of Appeal was led into error.

Reviewing the letter which Mr Gibson claimed constituted an offer (and had been accepted by such as the county court judge and Ormrod LJ), Lord Diplock held that it was 'impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by Mr Gibson's written acceptance of it'. He noted, in particular, that the use of the words 'may be prepared to sell' were 'fatal' to Mr Gibson's claim.

Lord Diplock instead construed the letter as an invitation to make formal application; it merely set out the terms on which council may be prepared to sell.

Lord Diplock also addressed the relevance passage in the letter stating that it should not be regarded as a 'firm offer of a mortgage'. Mr Gibson had claimed that as no such reference was made with respect to the sale of the house, by implication it should be construed as a firm offer. Lord Diplock disagreed:

My Lords, with great respect, this surely must be fallacious. ... the presence of [those words in paragraph 2] cannot possibly affect the plain meaning of the words
used in paragraph 1.

 

As there was no offer, there could be no acceptance giving rise to a contract. Lord Diplock allowed the appeal, making a final observation about 'hard cases':

One can sympathise with Mr. Gibson's disappointment on finding that his expectations that he would be able to buy his council house at 20 per cent below its market value in the autumn of 1970 cannot be realised. Whether one thinks this makes it a hard case perhaps depends upon the political views that one holds about council housing policy. But hard cases offer a strong temptation to let them have their proverbial consequences. It is a temptation that the judicial mind must be vigilant to resist.

 

 

Lord Edmund-Davies

Lord Edmund-Davies commenced where Lord Diplock finished, observing this was a 'hard case' and 'we all know where hard cases can take judges'.

He agreed with Geoffrey Lane LJ, dissenting in the Court of Appeal, that it was 'impossible to regard the corporation's letter of February 10th 1971 as an offer to sell'.

There was at best no more than an invitation by the corporation to tenants to apply to be allowed to purchase freeholds.

If the letter had been an offer, Mr Gibson's letter of 5 March (seeking repair or discount) was not (as Lane LJ had thought) a counter-offer, but 'merely exploratory of the possibility of a reduction in price'. There followed 'no acceptance, but nothing more than an application to buy at an unstated price, coupled with an application for a loan'.

 

Lord Fraser of Tullybelton

Agreed with Lord Diplock and Lord Russell of Killowen.

 

Lord Russell of Killowen

Lord Russell offered a succinct judgment, setting out the claim and his findings:

The allegation of the respondent of a concluded contract for sale to him of his council house was quite simply based. He alleged an offer by the appellant to sell contained in the letter dated 10 February 1971 written by the City Treasurer to him: he alleged acceptance by him of that offer to him by a combination of the application form and his letter dated 18 March 1971. Thus he said was a contract for sale constituted, of which he claimed specific performance: a plain case of a contract constituted by offer to sell capable of acceptance as such. ...

My Lords, 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 to sell capable of acceptance so as to constitute a contract. The language simply does not permit such a construction. Nor can the statement that the letter should not be regarded as a firm offer of a mortgage operate to turn into a firm offer to sell that which quite plainly it was not.

On that short ground I would allow the appeal and set aside the orders of the Court of Appeal and the county court judge ...

 

 

Lord Keith of Kinkel

Agreed with Lord Diplock's reasoning and conclusions.