Hillas and Co v Arcos Ltd (1932) 147 LT 503
Interpretation of Terms – Agreement to Negotiate – Enforceability
Hillas bought some timber from the timer merchants Arcos Ltd. They purchased 22,000 units of timber, and the agreement also contained an option that they would be able to buy up to 100,000 units the next year at a discounted rate of 5%. The next year, Arcos refused to sell them the timber at this rate and Hillas sued for breach of contract. Arcos claimed that the agreement could not be valid because it required further agreement in the future.
Whether or not the agreement to enter into another agreement was an enforceable term of the first agreement. Whether or not the contract to enter into a future contract was valid.
There was a valid and enforceable agreement that allowed Hillas to purchase 100,000 staves of wood for at a reduced rate. This was more than a mere ‘agreement to agree’ because 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. Whilst the price had yet to be agreed, this was only because it naturally fluctuated as a commodity depending on market conditions. Where the issue was in the balance, as here, it was held that the court should try to interpret the words of the agreement in such a way as to preserve the subject matter of the agreement rather than destroying it, and contracts made between merchants in this way should be upheld where the court can interpret the terms in order to do so.