Facts[edit | edit source]

Hillas & Company were merchants purchasing timber from Arcos. They reached an agreement to purchase 22,000 standards of timber, under the specific condition that they should also have the option of entering into a contract with Arcos to purchase 100,000 standards the following year with a 5% reduction on price. Arcos refused to sell them the 100,000 standards the following year. Hillas brought action against Arcos for breach of contract. Hillas was successful at trial, which Arcos appealed successfully to the Court of Appeal but the decision was overturned by the House of Lords in favour of Hillas.

Issue[edit | edit source]

  1. Was the term negotiating the future sale a condition of the contract?
  2. Can you make a contract to enter into another contract?

Decision[edit | edit source]

Appeal allowed; a binding contract existed to sell the 100,000 standards.

Reasons[edit | edit source]

The court finds that there was a binding contract for the subsequent sale of 100,000 standards. They say that this term indicated more than an agreement to make an agreement, and was an offer that merely had to be accepted by Hillas & Co. The only thing that had to be negotiated was the price, but this was because prices change yearly. In his judgment, Wright says that "words are to be interpreted so that subject matter is preserved not destroyed", a legal realist position focusing on the intention of the parties.

2020 Independent user notes:

The House of Lords found that there was a binding contract for the subsequent sale of 100,000 standards. The Court relied on the legal maxim verba ita sunt intelligenda which means “words are to be so understood that the subject matter may be preserved rather than destroyed.” The Court found that cl. 9 was a valid condition of the contract and not merely a contract to contract. “In law, there cannot be a contract to enter into a contract.” 

Ratio[edit | edit source]

  • A contract to negotiate is enforceable.
  • The courts should intervene to determine the terms of an agreement through context and intentionality of the contract.
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