• In the case of Hillas Co v Arcos Ltd [1932] 147 L.T. 503, it was held that a contract did not have to be interpreted literally. For the sake of preserving the bargain, judges may imply terms into a contract based on the past dealings of the parties rather than void the agreement.

Facts of the Case

  • C were merchants purchasing timber from D.
  • In 1930, the parties entered into a contract under which C bought 22,000 standards of ‘softwood goods of fair specification.’
  • This contract also contained the specific provision which stated that C had the option of entering into a second contract with D to purchase 100,000 standards for delivery in 1931 with a 5% reduction on the price.
  • After the completion of the first contract, D refused to honour to enter into the second contract. C sued D for breach of contract.
  • D claimed that the agreement could not be valid because it required further agreement in the future.

Issues

  • Was the provision negotiating the future sale a condition of the contract?
  • Can you make a contract to enter into another contract in future, or is this too uncertain to be enforceable?

Held by the House of Lords

  • Finding for C, that the option to enter into a future contract was not an agreement to agree, but an agreement to contract in future. Since the parties had already drafted and performed a previous contract, there was an implied term that the future contract would use the same provisions, and thus it could be enforced.

Lord Wright

  • This was more than a mere ‘agreement to agree;’ it was an agreement to contract. The only thing necessary for the agreement to be brought into existence was for the buyers to decide to exercise their option to purchase the wood.
  • While an exact price had not been specified, this was a natural result of the timber’s value fluctuating in response to market conditions. The provision had enough direction to allow for a value to be determined despite market conditions. As such, it was sufficiently certain to be enforced.
  • “It is clear that the parties both intended to make a contract and thought they had done so. Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents clearly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, [‘where a clause is ambiguous a construction which will make it valid is to be preferred to one which will make it void’]. That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except insofar as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some details” [511].

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