Hillas & Co Ltd v. Arcos Ltd (1932) 147 LT 503, House of Lords

By an agreement dated 21 May 1930 the appellants agreed to buy from the respondents ‘22,000 standards of softwood goods of fair specification over the season 1930’ subject to a number of conditions, one of which, clause 9, was in the following terms:

‘Buyers shall also have the option of entering into a contract with sellers for the purchase of 100,000 standards for delivery during 1931. Such contract to stipulate that, whatever the conditions are, buyers shall obtain the goods on conditions and at prices which show to them a reduction of 5%. on the f.o.b. value of the official price list at any time ruling during 1931. Such option to be declared before the 1st Jan. 1931.’

The appellants purported to exercise the option on 22 December 1930 but the respondents had already agreed to sell the whole of the output of the 1931 season to a third party. The appellants sued for damages for breach of contract but were met by the defence that the document of 21 May 1930 did not constitute an enforceable agreement because it did not contain a sufficient description of the goods to be sold to enable them to be identified and it contemplated in the future some further agreement upon essential terms. The House of Lords rejected the defence and held that, the option having been exercised, the agreement was complete and binding in itself and was not dependent on any future agreement for its validity.

Lord Tomlin

In the present case one or two preliminary observations fall to be made.

First, the parties were both intimately acquainted with the course of business in the Russian softwood timber trade, and had without difficulty carried out the sale and purchase of 22,000 standards under the first part of the document of the 21st May 1930;

Secondly, although the question here is whether Clause 9 of the document of the 21st May 1930, with the letter of 22nd Dec. 1930, constitutes a contract, the validity of the whole of the document of the 21st May 1930 is really in question so far as the matter depends upon the meaning of the phrase ‘of fair specification’; and,

Thirdly, it is indisputable, having regard to clause 11, which provides that ‘this agreement cancels all previous agreements’, that the parties intended by the document of 21st May 1930 to make, and believed that they had made, some concluded bargain.

The case against the appellants is put on two grounds.

First, it is said that there is in Clause 9 no sufficient description of the goods to be sold; and

Secondly, it is said that clause 9 contemplates a future bargain the terms of which remain to be settled.

As to the first point it is plain that something must necessarily be implied in clause 9. The words ‘100,000 standards’ without more do not even indicate that timber is the subject matter of the clause. The implication at the least of the words ‘of softwood goods’ is in my opinion inevitable, and if this is so I see no reason to separate the words ‘of fair specification’ from the words ‘of softwood goods’. In my opinion, there is a necessary implication of the words ‘of softwood goods of fair specification’ after the words ‘100,000 standards’ in clause 9.

What, then, is the meaning of ‘100,000 standards of softwood goods of fair specification for delivery during 1931’?

If the words ‘of fair specification’ have no meaning which is certain or capable of being made certain, then not only can there be no contract under clause 9 but there cannot have been a contract with regard to the 22,000 standards mentioned at the beginning of the document of the 21st May 1930. This may be the proper conclusion, but before it is reached it is, I think, necessary to exclude as impossible all reasonable meanings which would give certainty to the words. In my opinion, this cannot be done.

The parties undoubtedly attributed to the words in connection with the 22,000 standards, some meaning which was precise or capable of being made precise . . .

Reading the document of 21st May 1930 as a whole, and having regard to the admissible evidence as to the course of the trade, I think that upon their true construction the words ‘of fair specification over the season 1930,’ used in connection with the 22,000 standards, mean that the 22,000 standards are to be satisfied in goods distributed over kinds, qualities and sizes in the fair proportions, having regard to the output of the season 1930 and the classifications of that output in respect of kinds, qualities and sizes. That is something which if the parties fail to agree can be ascertained just as much as the fair value of a property.

I have already expressed the view that clause 9 must be read as ‘100,000 standards of fair specification for delivery during 1931,’ and these words, I think, have the same meaning, mutatis mutandis, as the words relating to the 22,000 standards. Thus, there is a description of the goods which if not immediately yet ultimately is capable of being rendered certain.

The second point upon clause 9, that it contemplates a future agreement, remains to be considered.

The form of the phrases ‘the option of entering into a contract’ and ‘such contract to stipulate that’ upon which stress has been laid by the respondents seems to me unimportant. These phrases are but an inartificial way of indicating that there is no contract till the option is exercised. The sentence that such contract is to stipulate that whatever the conditions are the buyers are to obtain the goods at a certain reduction is more difficult. The words ‘whatever the conditions are’ being governed by the word ‘that’ which follows the words ‘to stipulate’ must be intended to be part of the contract. If so the word ‘conditions’ cannot mean terms of the contract, but must connote some extrinsic condition of affairs, and the condition of affairs referred to is, I think, the conditions as to supply and demand which may prevail during 1931.

Upon this view of the matter it cannot, I think, be said that there is nothing more than an agreement to make an agreement.

It is also urged as a minor point that there was no provision as to shipment, and that this was an essential of such a contract. I am not prepared without further consideration to accept the view that in the absence of a provision in relation to shipment there can be no contract in law in such a case as the present.

In my opinion, however, the point does not arise here. Clause 9 is one of the clauses containing the conditions upon which the sale of the 22,000 standards is made. This fact, together with the presence of the word ‘also’ in clause 9, satisfies me that upon the true construction of the document the sale conditions in relation to the 22,000 standards are so far as applicable imported into the option for the sale of this 100,000 standards, and in particular that clause 6, relating to shipping dates and loading instructions, is so imported.

Reference was made in the course of the arguments before your Lordships and in the judgments in the Court of Appeal to the unreported case before your Lordships’ House of May & Butcher, Ltd v. Rex.

In the agreement there under consideration there was an express provision that the price of the goods to be sold should be subsequently fixed between the parties. Your Lordships’ House reached the conclusion that there was no contract, rejecting the appellants’ contention that the agreement should be construed as an agreement to sell at the fair or reason[1]able price or alternatively at a price to be fixed under the arbitration clause contained in the agreement.

That case does not, in my opinion, afford any assistance in determining the present case, the result of which must depend upon the meaning placed upon the language employed . . .

It was urged on behalf of the respondents before your Lordships that if there was a contract still it was one upon which only nominal damages should have been awarded . . . because the respondents were free to give to other customers an equal or greater reduction in price. . . . I think the phrase ‘the official price list at any time ruling during 1931’ makes plain that the reduction given is from the general operative price and not from a merely nominal price which is not being adhered to in actual practice.

Lord Wright

The document of the 21st May 1930 cannot be regarded as other than inartistic, and may appear repellent to the trained sense of an equity draftsman. But it is clear that the parties both intended to make a contract and thought they had done so. Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them 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 fairly 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 verba ita sunt intelligenda ut res magis valeat quam pereat. 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 in so far 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 detail. Thus, in contracts for future performance over a period the parties may neither be able nor desire to specify many matters of detail, but leave them to be adjusted in the working out of the contract. Save for the legal implication I have mentioned, such contracts might well be incomplete or uncertain; with that implication in reserve they are neither incomplete nor uncertain. As obvious illustrations I may refer to such matters as prices or times of delivery in contracts for the sale of goods, or times for loading or discharging in a contract of sea carriage. Furthermore, even if the construction of the words used may be difficult, that is not a reason for holding them too ambiguous or uncertain to be enforced, if the fair meaning of the parties can be extracted.

[Lord Wright proceeded to consider the construction of the words used in some detail and concluded]

In the result, I arrive at the same conclusion as MacKinnon, J, viz., that the contract is valid and enforceable and that the appellants are entitled to recover damages from the respondents for its repudiation.

Lord Thankerton, Lord Warrington, and Lord Macmillan concurred in the judgment delivered by Lord Tomlin.