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Hillas v Arcos

[1932] 147 LT 503

Case summary last updated at 03/01/2020 15:20 by the Oxbridge Notes in-house law team.

Judgement for the case Hillas v Arcos

P was in a contract to buy wood from D, one clause of which stated that P had an option “of entering into a contract” with D to order “100,000 standards of fair specification” if he wanted to exercise the option. When P sued D for selling all the stock that would have been used when P tried to use the option, D argued that the clause was too vague a description of the goods for them to be identified AND that a further agreement would be needed (i.e. the clause was unenforceable). HL rejected D’s defence and said that the clause was itself binding. 
Lord Tomlin:  On the vagueness, he says that the parties to the contract are well aware what the clause refers to, especially since under the rest of the contract “standards” were being sold without problem. It is fair to infer that they were talking about soft-wood goods. We can infer the meaning that the parties “undoubtedly attributed to the words”. On the point about a further agreement being necessary, the phrase “option of entering into a contract” with D, this means more than a broad agreement to enter another agreement (true, else why bother putting this into the original contract if it has no effect). It really means that there is no contractual liability until and unless P exercises the option. This is a good judgment: where the meaning would be obvious to those involved, a contract should not be voided on the grounds that it might appear unclear to a lay person. Lord Tomlin goes v. far to prevent contracts from being voided: “it is necessary to exclude as impossible all reasonable meanings which would give certainty to the words’ before enforcement would be denied.” This is necessary given imprecision likely in business agreements. 

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