"Given the House of Lords' strict interpretation of the doctrine of offer and acceptance in Gibson v Manchester City Council [1979] 1 All ER 972, would The Satanita [1895] P 248 be decided the same way today?"

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Law of Obligations 1: The Law of Contract

Question:

“Given the House of Lords’ strict interpretation of the doctrine of offer and acceptance in Gibson v Manchester City Council [1979] 1 All ER 972, would The Satanita [1895] P 248 be decided the same way today?”

9 January 2007

 In order to answer this question, it is essential to outline the basics of the formation of a contract and the doctrine of offer and acceptance.

A contract is a legally enforceable agreement between two or more parties. It is formed when one party (the “offeror”) makes an offer which is accepted by the other party (the “offeree”). Offer and acceptance are two components of a valid contract which result in a “meeting of the minds”. Offer is a specific proposal to enter into an agreement with another. Acceptance validates the contract and it must be clear, unequivocal, unconditional and made by the person to whom the offer is intended.

It is necessary to differentiate an offer from an invitation to treat. An invitation to treat is simply an indication of a person's willingness to negotiate a contract. In Gibson v Manchester City Council  the courts had to decide whether something said, written or done in the negotiation process was actually a contractual offer capable of acceptance or a mere invitation to treat.

In November 1970, Manchester City Council (then led by the Conservatives) sent out brochures outlining their scheme to sell council houses. If recipients of the brochures wanted further information they were to return a form attached to the brochure. Mr Gibson did precisely this. Afterwards he received an application form and a letter on February 16th 1971 stating that MCC may be willing to sell him a council house at a price of £2,180. The letter asked Mr Gibson to make a formal application on the form provided - which he did. In May 1971, political control of the Council changed. Labour came to power and promptly reversed the policy of selling council houses, only completing those deals in which an exchange of contracts had taken place. Mr Gibson was told that as his transaction had not reached the stage of exchanging contracts, the council was no longer prepared to sell him a council house.   Mr Gibson tried to argue that they were bound to sell on the grounds that the letter of Feb 16th, 1971 from the Council constituted an offer which he had accepted when he submitted the application form and therefore a binding contract. The council refused to sell the house and Mr Gibson brought an action for specific performance of the contract.

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The case was first decided at Manchester county court in favour of Mr. Gibson. This verdict was affirmed by the majority of the Court of Appeal, where Lord Denning stated:

“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…”

The House of Lords took a different view and held that no binding contract had come into existence. Lord Diplock favoured the conventional approach of looking at the correspondence and seeing whether offer and acceptance can be ...

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