Court: House of Lords
Citation: [1979] 1 WLR 294
Judges: Lord Diplock, Lord Russell of Killowen, Lord Simon of Glaisdale, Lord Keith of Kinkel, Lord Scarman
The case of Gibson v Manchester City Council [1979] UKHL 6 is a landmark decision in English contract law, particularly with respect to the formation of contracts and the distinction between offers and invitations to treat. The central issue in the case was whether a letter sent by Manchester City Council constituted a legally binding offer, which could form the basis of a contract, or whether it was simply an invitation to treat, inviting the claimant to make a formal application. The House of Lords, in a unanimous decision, held that there was no offer, and thus no contract was formed.
Facts of Gibson v Manchester City Council
In 1971, Manchester City Council, under Conservative Party control, had adopted a policy of selling council houses to the tenants who were occupying them. The claimant, Mr. Gibson, was one such tenant of a council house and applied to the council for details of the price and mortgage terms for purchasing the house he was renting.
In February 1971, the City Treasurer, in response to Mr. Gibson’s application, sent a letter stating:
“The corporation may be prepared to sell the house to you at the purchase price of £2,725 less 20% = £2,180 (freehold)… This letter should not be regarded as a 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.”
The letter from the council indicated that the terms for purchasing the house were provided, but it clearly stated that this was not a firm offer. Instead, it was an invitation to make a formal application to buy the house. Mr. Gibson duly completed the application form in March 1971, albeit with the exception of the date on which his lease was to end, and sent it back to the council.
However, in May 1971, following local elections, the political control of Manchester City Council shifted from the Conservative Party to the Labour Party. The new Labour administration decided that council houses would not be sold under the old Conservative policy unless a legally binding contract was already in place. Consequently, Mr. Gibson’s request to purchase the property was rejected.
Mr. Gibson then sued the council for breach of contract, arguing that the correspondence between him and the council had formed a legally binding agreement to sell the house to him.
Issue
The central issue in Gibson v Manchester City Council was whether the letter sent by the City Treasurer in February 1971 constituted a binding offer capable of being accepted, thereby creating a contract, or whether it was merely an invitation to treat.
House of Lords’ Decision in Gibson v Manchester City Council
The House of Lords, in a unanimous decision, allowed the appeal of Manchester City Council and ruled that no contract had been formed. The Lords held that the letter sent by the City Treasurer did not constitute an offer, but rather an invitation to treat. As such, there was no contract, and Mr. Gibson’s claim for breach of contract failed.
Lord Diplock’s Judgement
Lord Diplock, in his judgement, emphasised that the letter in question could not be construed as an offer because it contained language that indicated no firm intention to sell. He pointed out that the letter stated that the council “may be prepared to sell” the house and invited Mr. Gibson to submit a formal application to buy the house. These terms were not definite enough to create an offer capable of being accepted. Lord Diplock concluded that the letter was, in essence, an invitation to negotiate further, not a binding offer.
Lord Diplock also referred to Geoffrey Lane LJ’s dissenting opinion in the Court of Appeal, which he found convincing. He agreed that the letter from the council was not a binding offer but part of an ongoing negotiation process. The terms of the letter, especially the use of the words “may be prepared to sell” and the invitation to complete an application form, made it clear that the council was merely inviting Mr. Gibson to apply for the house, not offering to sell it outright.
Lord Russell of Killowen’s Agreement
Lord Russell of Killowen agreed with Lord Diplock, stating that the phrase “may be prepared to sell” was insufficient to constitute an offer. He stressed that the language used in the letter did not exhibit the characteristics of a clear and unequivocal offer. Lord Russell also highlighted that the letter specifically stated that it should not be regarded as a firm offer of a mortgage, reinforcing the idea that no contract had been formed.
Legal Principles
The decision in Gibson v Manchester City Council is significant for several reasons:
- Offer vs. Invitation to Treat: The case reaffirms the distinction between an offer and an invitation to treat. An offer is a clear and unequivocal statement of willingness to enter into a contract on specific terms, while an invitation to treat is an expression of willingness to negotiate. The letter from the council was deemed an invitation to treat because it did not contain the necessary elements of a firm offer.
- Intent to Create Legal Relations: The case highlights the importance of the parties’ intention to create legal relations. For a contract to be formed, both parties must demonstrate a clear intention to be legally bound by their agreement. In this case, the language of the letter indicated that the council did not intend to be bound until further negotiations (formal application) took place.
- Role of Language in Contract Formation: The case underscores the importance of precise and clear language in the formation of contracts. The words used in the letter, such as “may be prepared to sell” and the invitation to make a formal application, lacked the decisiveness required to constitute a binding offer.
Conclusion
Gibson v Manchester City Council [1979] UKHL 6 remains a pivotal case in the area of contract law. The House of Lords’ ruling clarified the principles of offer and acceptance, especially with respect to the role of invitations to treat in negotiations. The court emphasised that for a contract to exist, there must be a clear offer with the intention to create legal relations, which was absent in this case. The decision serves as a reminder that ambiguity in language can prevent the formation of a legally enforceable agreement, and parties must be mindful of their intentions when entering into negotiations.
This case continues to be an authoritative reference in understanding the dynamics of offer and acceptance in English contract law, and it reinforces the principle that contracts can only be formed when there is a clear and unequivocal offer, followed by a corresponding acceptance.
