• In the case of Gibson v Manchester City Council [1979] 1 WLR 294,a tenant and council are in disagreement of whether a house can be brought based on communication by letter as opposed to standard form contracts.
  • This case begs the question of what happens to contractual obligations when local government policies intervene.
  • This case concerns obligations and specific performance.

Facts of the Case

  • C was a tenant occupying a council house owned by D. C wanted to buy the council house.
  • After a series of letters, it was determined that the property has a fixed price according to the condition of property. C carried out work done on the property. C signed a form and returned it to D.
  • The Labour Party introduced a policy not to sell council houses unless legally binding contracts were previously enforced and upheld. C therefore could not buy the house as the sale could not go ahead.
  • The lower courts held that there were legally binding contractual obligations on D. Geoffrey Lane L.J dissented: an offer was not made rather it was a simple negotiation made between parties.
  • C could not have lawfully accepted the legally binding agreement when there was no offer based on the documents used by the parties. The council appealed.

Issues

  • The main question is whether two parties agreeing to fixed price through letters counts as a formal contract in spite of changes in policy following an election.
  • Does an offer and acceptance of a contract have to take place for every contract to form?
  • Have both parties reached an agreement?

Held by House of Lords

  • Appeal allowed – a standard contract requires offer and acceptance to be considered even if it has been claimed to have been constructed through an exchange of correspondence.

Lord Diplock

Whether the contract is legally enforceable

  • The language in D’s letter to C constitutes an invitation to treat since the offer to buy the council house has not been communicated as acceptance.
  • A different political party was in charge when the documents relied upon by C dealing with tenant applications of council houses applied.
  • “The only contract that is alleged is one made by letters and accompanying documents passing between the parties. The outcome of this appeal depends upon their true construction.” [296]

Offer and acceptance

  • Lord Denning in the lower courts held that the conduct of the parties should be prioritized rather than the offer and acceptance. However, there was no evidence C had knowledge of the terms at or prior to contract formation.
  • This case deviates from Storer v Manchester City Council [1974] 1 W.L.R. 1403 where the transaction was valid in spite of no formal contractual obligations binding both parties.

Editor’s Notes

  • This case raises wider questions on how to balance formal and informal agreements when it comes to standard contracts. It is assumed that business common sense should apply but the courts should take into account unexpected circumstances like elections changing the meaning of agreements.

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