1. Elements of a valid contract:-
1. Offer and acceptance
Sec 5
2. Free consent
Sec. 14
3. Consideration
Section 2(d)
Sec 3(a)
4. Legality of object
Sec 13 (e).
5. Parties to be autonomous:
Sec 4
6. Possibility of performance
Sec. 13(h) Nepalese Contract Act [section 8 (h)]
7. Certainty
Sec. 13(i) In section 8 of the Nepal Contract Act
Chapter 2
Contract
2.1 Introduction
· In broadest sense contract is an exchanges of promises by two or more parties. In strict sense, it is an exchange of promises by
two or more parties resulting in an obligation to do or not to do a particular act which obligation is recognized and enforced by law.
· Contract is an agreement between two or more parties creating obligation that are enforceable or otherwise recognizable at lat.
· Law of contract is an oldest branch of business and commercial transaction.
· From the beginning of the human civilization law of contract has been existed in one form or other.
· If criminal law is created for the purpose of safety and security of human being and property in the same way law of contract is
created for the security and stability of the business world.
· Business world is based on the enforceability of promise therefore; law of contract is concerned with the enforceability of
promises.
· Law of contract is the foundation for the other branches of commercial or business law.
· Law of contract affects every one of us and every one of us enters into contract day by day.
· When some one enters into a contract, the parties of a contract have two alternatives open to them.
· They may rely on another's honour to ensure performance or
· There should be legally enforceable obligation to perform the agreement.
· The first is insufficient protection therefore; legal means of enforcing promises has been developed in civilized society.
· Legally enforceable promises are termed contract.
· The function of the law of contract is to see that as far as possible, expectations created by promise of the parties are fulfilled and
obligation proscribed by the agreements f the parties are enforced.
· Therefore, it is said that contract is cement that holds our economic system together.
· Contract gives right to one person and cast a corresponding duty on another person.
· On this account law gives remedy for the breach of promise and recognizes its due performance as duty.
· Hence, it is an agreement creating obligation.
2.2 Meaning & Definitions
Salmond: " A Contract is an agreement creating and defining obligation between the parties"
David Walker, " A contract is an agreement between two or more persons intended to create a legal obligation between them and
to be legally enforceable.
Anson, " A contract is an agreement enforceable by law made between two or more persons by which rights are acquired by one or
more acts done or forbearance on the part of others"
J. B. Sounders Esce: "Contract is an agreement between competent persons upon a consideration to do or to abstain from doing
some acts"
As per the Sec 2 (a) of the Contract Act 2056, "Contract is an agreement between two or more persons to do or not to do
something, which can be enforceable by law."
All contracts are agreements but all agreements are not contracts.
2.3 Essentials of a valid contract
1. Two Parties: there are at least two persons to make the contract.
2. Proposal & Acceptance: proposal or offer by one party and acceptance of the proposal or offer by another party resulting in an

2. agreement.
3. Legal relationship: an intention to create legal relationship or an intent to have legal consequences
4. Free consent: genuine consent between the parties (not marred by mistake, undue influence, coercion, fraud or
misrepresentation)
5. Competent parties; the parties of the contract are capable of contracting.
6. Lawful objective; the object contracted for is legal and is not opposed to public policy.
7. Consideration; The agreement supported by lawful consideration.
8. Possibility of performance; The agreement is capable of being performed
9. Certainty; the terms of the contract are certain.
10. Verbal or written and registration
11. Not expressly declared void.
Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2 is a leading decision on English contract law, regarding the intention
to create legal relations in commercial arrangements. In the Court of Appeal, Atkin LJ delivered an important dissenting judgment
which was upheld by the House of Lords.
Facts
Rose and Frank Co was the sole US distributor of JR Crompton's carbon paper products. In 1913, the parties signed a new
document which included this clause:
This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement and shall not be subject to
legal jurisdiction in the law courts ..., but it is only a definite expression and record of the purpose and intention of the three parties
concerned to which they each honourably pledge themselves with the fullest confidence, based upon past business with each other,
that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation.
The relationship between the two parties broke down as JR Crompton refused to supply some of the orders of the plaintiff. Rose &
Frank Co sued on enforcement of the agreement.
Judgment
At first instance, the court held that the honourable pledge was repugnant to the intention of the rest of the document, and that
furthermore the enforceability of such a clause was contrary to public policy. In his decision, Bailhache J. reasoned that the
impugned clause was of no effect and that the document was a legally-binding contract and enforceable in the court.[1]
Court of Appeal
Scrutton LJ stated that parties are capable of forming an agreement that does not give rise to legal relations. "The reason of this is
that the parties do not intend that their agreement shall give rise to legal relations. This intention may be implied from the subject
matter of the agreement, but it may also be expressed by the parties. In social and family relations such an intention is readily
implied, while in business matters the opposite result would ordinarily follow."
Atkin LJ agreed that there was no contract but dissented on the order. He delivered the following judgment.
The first question in this case is whether the document signed by the defendants on July 11, 1913, with a counterpart signed
“ by the plaintiffs on August 12, 1913, constituted a contract between the parties. To create a contract there must be a common
intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly. Such an intention
ordinarily will be inferred when parties enter into an agreement which in other respects conforms to the rules of law as to the
formation of contracts. It may be negatived impliedly by the nature of the agreed promise or promises, as in the case of offer
and acceptance of hospitality, or of some agreements made in the course of family life between members of a family as
in Balfour v Balfour.[2] If the intention may be negatived impliedly it may be negatived expressly. In this document, construed
as a whole, I find myself driven to the conclusion that the clause in question expresses in clear terms the mutual intention of
the parties not to enter into legal obligations in respect to the matters upon which they are recording their agreement. I have
never seen such a clause before, but I see nothing necessarily absurd in business men seeking to regulate their business
relations by mutual promises which fall short of legal obligations, and rest on obligations of either honour or self-interest, or
perhaps both. In this agreement I consider the clause a dominant clause, and not to be rejected, as the learned judge thought,
on the ground of repugnancy
Balfour v Balfour [1919] 2 KB 571 is a popular English Contract law case related to social agreement which is not a contract.

3. It held that there is a rebuttable presumption against an intention to create a legally enforceable agreement when the
agreement is domestic in nature.
Intention to create legal relation is an essential element of a contract and in this case, there is no intention to create a legal
relation.
It may also be noted that since the offer made in this case is a social agreement, it is not a valid offer.
Contents
[hide]
1 Facts of the Case
2 Questions to be answered
3 Court decision
4 See Also
Facts of the Case
Mr. Balfour is the Defendant and Mrs. Balfour is the Plaintiff in the given case. The two lived in Ceylon and visited England on
a vacation. The plaintiff remained in England for medical treatment. The defendant has agreed to send her a specific amount
of money each month until she could return. The defendant later asked to remain separated. Mrs. Balfour sued for restitution
of her conjugal rights and for alimony equal to the amount her husband had agreed to send.
Mrs. Balfour obtained a decree nisi and five months later was granted an order for alimony. The lower court entered judgment
in favor of the plaintiff and held that the defendant‟s promise to send money was enforceable. The court held that Mrs.
Balfour‟s consent was sufficient consideration to render the contract enforceable and the defendant appealed.
Questions to be answered
The case has raised two important questions.
1. Is it necessary that both the parties intend that an agreement be legally binding so as to be an enforceable contract?
2. What are the circumstances in which a court can decline to enforce an agreement between spouses?
Court decision
The court said that:
1. It is essential that both the parties should intend that an agreement be legally binding so at to become enforceable.
2. The courts will not interfere between the spouses in their day to day affairs.
Competence to contract
The effect of section 3 of the Nepal Act is that a minor (i.e., a person below 16 years) or a
person of unsound mind, cannot enter into a contract. But his guardian can do so, “in his
interest” and on his behalf.
Proposal and acceptance
Sections 4, 5 and 6 of the Nepal Act contain very elaborate provisions as to (i) proposal, (ii)
acceptance, (iii) cancellation of proposal or acceptance, (iv) offer to the general public,
etc.

4. The rest of the Act is couched in simple and short provisions, but these sections are found
to be much more elaborate. Perhaps, some actual problems must have arisen in the
country, necessitating a statutory clarification.
Section 4 (1) of the Nepal Act lays down the basic proposition, that if a person “advances” a
proposal to a person who “gives his acceptance” thereto, they shall be deemed to have
concluded a contract. Section 4(2) contains a specific provision, by laying down that if a
person making a proposal states that he should be given notice of the acceptance of the
proposal within a specified period, but does not receive such notice within such period, then
no contract shall be deemed to have been concluded. Under section 4 (3), if no time limit is
specified in the proposal, then it must be accepted within reasonable time. Section 4 (4)
provides that an offeror cannot bind the offeree by a stipulation that if the offeror is not
given notice of rejection within a specific time limit, then he shall be deemed to have
accepted the offer.
Section 5 contains detailed rules as to cancellation of an offer, while section 6 deals with
offer made to the general public and is obviously reminiscent of the English case of Carlill v.
Carbolic Smoke Ball Co.
Free Consent
Section 7 of the Nepal Act provides that in certain circumstances, contracts “may be made
void by the party aggrieved thereby”. In this context, the following factors are mentioned:
(a) coercion;
(b) Undue influence;
(c) fraud;
(d) deceit (which is distinct from fraud and may cover even innocent misrepresentation).
[See “Fraud and deceit”, infra].
In regard to undue influence, one finds certain special features in the Nepal Act. “Undue
influence” means influence exercised by a person upon another person “who is under his
influence or is amenable to his wishes”, with the intention of deriving some advantage for
personal benefit or to fulfil some such interests. Explanation give specific instances, one of
which deals with persons of physical or mental weakness, while another speaks of persons
who can be subjected to economic pressures.
Incidentally, the draftsman in Nepal seems to have found the Indian legislative practice of
inserting an “Explanation” to be very useful.
Fraud and deceit
Section 7 (c) of the Nepalese Contract Act which defines “fraud”, covers wilful deception,
whether it be in the nature of suggestio falsi or suppressio veri.
Section 7 (d) deals separately with deceit and seems to cover even a misrepresentation
made innocently, because the Explanation states that a person commits deceit, if, without
the intention of committing fraud, he does the acts enumerated in clauses (a), (b) and (c).
Of these, clause (c) runs as under:
“(c) causes any mistake or error to be committed in respect to the particulars of the
contract, out of ignorance”.
These words definitly cover innocent misrepresentation. Incidentally, the draftsman, by
using the two words “mistake or error”, seems to show his awareness of the fine distinction,
between the two. “Mistake” leads to positive action, while “error” covers even inaction
(resulting from misrepresentation).

5. Illegality, immorality and public policy.
Certain agreements are declared invalid by section 8 of the Nepal Act. Section 8, clauses (a)
to (f) mostly cover agreements tainted by illegality or immorality or violating the public
interest, agreements in restraint of trade or marriage, etc. But two clauses of the section
are worth notice, as quoted below:
(c) "Contracts preventing any person from enjoying the privileges or facilities already being
enjoyed by the general public.
(d) Contracts seeking to prevent the legal rights of any person from being made applicable
by any government officer or court”.
Uncertainty
In section 8 of the Nepal Contract Act, uncertainty seems to have been taken care of, by the
following clauses:
(g) "contract which cannot be carried out, because the parties thereto do not exactly know
about the matter in relation to which it has been concluded:
(i) contract which is not explicit, because there is lack of a reasonable interpretation
thereof”.
Impossibility
A simple provision in the Nepalese Contract Act [section 8 (h)] declares, as invalid, a
contract, “work in respect to which is considered impossible at the time it is conducted or
after it has been conducted”.
Indirect contracts
Under the heading of “indirect contracts”, the Nepalese Act, in section 9, deals with five
situations of unjust enrichment.
Liability of the Parties
Section 10 of the Nepalese Contract Act spells out the obligation of each party to a contract,
“to meet his liabilities”. In the case of a joint contract, the liability is joint and several. A
joint promisor can be compelled to perform a contract and can (on such performance)
demand contribution from the other co-promisors.
A party must (under section 11) extend, to the other party, such facilities as are required,
so that the other party may render performance of the contract.
A contract can be abandoned, or the time for performance extended, by mutual consent,
under section 11 of the Nepalese Contract Act.
Time, manner and place of performance
Sections 13 and 14 of the Nepal Act deal with the time, manner and place of performance of
contracts. These are governed by agreement or (in the absence thereof), by the test of
“reasonableness”. The Act is salient as to the circumstances in which time shall be deemed
to be of the essence. The matter must therefore be left to be decided on the facts of each
case.
Damages for breach of contract
The thorny topic of damages for breach of contract is dealt with, in a fairly simple provision,
in the Nepal Act.
Section 15 reads as under:

6. (1) In case any party fails to carry out the contract, the opposite party may realise
compensation therefore
(2) In case the contract specifically provides for compensation for specific matters,
compensation shall be paid accordingly, and where no compensation is specified in the
contract, the party claiming compensation may receive compensation to the extent to which
he has actually suffered losses or damages.
Compensation shall not be realised for indirect or imaginary losses or damages” 15
Compensation.
This provision is of considerable interest, for more reasons than one. In the first place,
where the damages are liquidated by the contract, then the section steers clear of the
various controversies as to whether the damages are “penal”, or whether proof should be
given of actual loss and so on. Secondly, if the damages are not liquidated, then, (under the
section), compensation can be claimed for loss actually suffered. Obviously, the plaintiff will
have to prove it. Thirdly, by prohibiting recovery for indirect or imaginary losses, the section
incorporates the doctrine of “ordinary and natural consequences of breach” and thus, in a
sense, brings the Nepalese law very near to section 73 of the Indian Contract Act 1872, and
the common law rule in Hadley v. Baxendale
Summary of Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954).
Facts
One evening in December 1952 after several drinks, Zehmer (D) wrote a contract on a restaurant bill in which he agreed to sell his
farm to Lucy (P) for $50,000. Zehmer later insisted that he had been intoxicated and thought the matter was a joke, not realizing that
Lucy had been serious.
Lucy claimed that he was not intoxicated and believed that Zehmer was also sober. Zehmer testified that he was already “high as a
Georgia pine” when he began drinking with Lucy. He claimed that he was merely bluffing to try to get Lucy to admit that he did not
actually have $50,000.
Lucy brought suit for specific performance when Zehmer refused to complete the transaction. The trial court ruled for Zehmer
holding that Lucy had not established a right to specific performance.
Issue
In determining whether a party has made a valid offer, how does the court determine whether the party had the intent to contract?
Holding and Rule
In determining whether a party has made a valid offer, the words and actions of the party are interpreted according to a reasonable
person standard. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is
immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.
The court looks to the objective, outward expression of a person and not to their secret and unexpressed subjective intent. The test
is whether a reasonable person would conclude that the party‟s words and actions constituted an offer. In this case Zehmer‟s acts
and words could be reasonably interpreted by Lucy as an offer to sell his farm. The parties discussed the matter for over forty
minutes, addressed the issue of examination of title, and both Zehmer and his wife signed the agreement.
Disposition
Judgment for Zehmer reversed and remanded.
See Hyde v. Wrench for a contract law case brief in which the court held that in making a counteroffer to buy the defendant‟s farm,
the plaintiff rejected the original offer causing it to be withdrawn.
La Salle National Bank v. Vega, 520 N.E.2d 1129 (1988).
Facts: La Salle National Bank (P) filed a complaint seeking specific performance by Vega (D) of a contract for the sale of real
estate.

7. P„s first complaint alleged a contract for the sale for real estate with Vega and sought specific performance. Borg was permitted to
join and subsequently filed claims against P and D seeking specific performance of a different contract for the same land, or in the
alternative fraud damages. The court ruled that there was no valid contract between P and D as per its terms and granted partial
summary judgment in favor of Borg. By its terms the contract between P and D had called for execution by a trust. The contract
between P and D had been executed by Bernard Ruekberg and not the trust.
Issue: May another mode of acceptance be substituted when an offer requires a written acceptance by a specific party?
Holding and Rule: No. Another mode of acceptance may not be substituted when an offer requires a written acceptance by a
specific party.
An offeror has complete control over an offer and may condition that acceptance be made according to the terms of the offer. No
other mode may be used when an offer by its terms requires a written acceptance by a specific person or entity. In this case the
contract between P and D stated on the document that the contract would not be in full force until signed by the trust. Signing by the
trust was the only permissible mode of acceptance. In this case there was no acceptance and hence no contract because the trust
had not signed the document.
Disposition: Affirmed.
Facts: Dougherty (P) was eight years old when his aunt gave him a promissory note for $3000. The note included the words “value
received” and she told him “you have always done for me, and I have signed this note for you.” P brought suit against Salt (P), the
executrix of his aunt‟s estate for payment on the note.
At trial, the jury was asked to decide whether there was consideration given for the note. The jury found in favor of the plaintiff,
finding that there had been consideration. The trial court set aside the jury‟s verdict and dismissed the complaint. P appealed to the
Appellate division which reversed the lower court‟s judgment and reinstated the jury‟s verdict, holding that the writing constituted
sufficient consideration to make the promise binding. D appealed.
Issue: Whether a mere recital of consideration is sufficient to make a promise binding, and whether consideration given for a
promise can be based on prior acts.
Holding and Rule: No and No. A mere recital of consideration cannot serve as consideration if the facts speak otherwise. Past acts
cannot serve as consideration.
Discussion: The note was merely a voluntary but unenforceable executory promise. The aunt merely conveyed a charitable gift and
no consideration was asked or given in return. The writing alone was not valid consideration. A promise that is given in recognition
of some act in the past is not enforceable for lack of consideration.
Disposition: Reversed.
Summary of Balfour v. Balfour, 2 K.B. 571 (1919).
Facts
Mr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon and visited England on a vacation. The plaintiff remained in England for medical
treatment and the defendant agreed to send her a specific amount of money each month until she could return. The defendant later
asked to remain separated and Mrs. Balfour sued for restitution of her conjugal rights and for alimony equal to the amount her
husband had agreed to send.
Mrs. Balfour obtained a decree nisi and five months later was granted an order for alimony. The lower court entered judgment in
favor of the plaintiff and held that the defendant‟s promise to send money was enforceable. The court held that Mrs. Balfour‟s
consent was sufficient consideration to render the contract enforceable and the defendant appealed.
Issues
1. Must both parties intend that an agreement be legally binding in order to be an enforceable contract?
2. Under what circumstances will a court decline to enforce an agreement between spouses?
Holding and Rule
1. Yes. Both parties must intend that an agreement be legally binding in order to be an enforceable contract.
2. The court will not enforce agreements between spouses that involve daily life.
Agreements between husband and wife over matters that affect their daily lives are not subject to contractual interpretation, even
when consideration is present. Spouses normally intend that the terms of their agreements can be varied as situations develop. The
court held that it was presumed that the parties made the agreement as husband and wife and did not intend that it could be sued
upon. The court held that as a matter of public policy it could not resolve disputes between spouses.
Disposition

8. Judgment for plaintiff Mrs. Balfour reversed.
Note
Contracts related to the social aspect of marriage will not be enforced by the courts. Contracts between spouses related to business
relationships can be enforced, however. Courts are willing to support negotiated divorce settlements and written statements of
support
Alaska Democratic Party v. Rice – Case Brief Summary
Summary of Alaska Democratic Party v. Rice, 934 P.2d 1313 (Alaska 1997).
Facts
Kathleen Rice (P) worked for the Alaska Democratic Party (D) from 1987 until she was fired from her position as executive director
in 1991. Rice alleged that after Greg Wakefield was elected chair of the Party he made an offer for her to return to her position as
executive director for two years. Rice accepted the offer, resigned her position with the Gore vice-presidential campaign, and moved
to Alaska. Rice filed suit when she was later informed that she would not get the job. The trial court awarded Rice $28,864 in
damages under promissory estoppel and $1,558 for misrepresentation and the Alaska Democratic Party appealed, arguing that
the alleged contract was barred by the statute of frauds.
Issue
Can an oral employment contract be removed from the statute of frauds via promissory estoppel?
Holding and Rule
Yes. An oral contract can be removed from the statute of frauds via promissory estoppel under a heightened burden of proof
by showing existence of the promise of employment by clear and convincing evidence (Restatement (Second) of Contracts
section 139).
A promise is enforceable via promissory estoppel only if injustice can be avoided only by enforcement of the promise. The relevant
factors are: the availability and adequacy of other remedies, the definite and substantial character of the action or forbearances in
relation to the remedy sought, the extent to which the terms were established by clear and convincing evidence, the reasonableness
of action or forbearance, and the extent the action was foreseeable.
Rice‟s recovery was limited to reliance damages. The damages for misrepresentation were not awarded even though given to the
plaintiff by the jury because such damages would have put her in a better position than she would have been in if the promise had
never been made
Facts
Amway (D) offered a credit card based pay telephone called the TeleCharge phone to its distributors. All-Tech (P) was created for
the purpose of serving as an Amway distributor of TeleCharge phones. All-Tech had purchased a large number of units when
Amway withdrew from the market place. All-Tech claims that it was lured into this venture by a series of misrepresentations by
Amway regarding estimated revenue, product quality, and technical support.
All-Tech filed claims in federal district court based on breach of contract, breach of warranty, and misrepresentation. The district
court dismissed the misrepresentation claims based on the doctrine of economic loss. At trial the jury found in favor of All-Tech on
the breach of contract claim but awarded no damages. All-Tech appealed
Schnell v. Nell – Case Brief
Schnell v. Nell, 17 Ind. 29 (1861).
Facts: Theresa Schnell died without property because all of the property she owned jointly with her husband Zacharias Schnell (D)
reverted to him upon her death. Zacharias Schnell therefore agreed through contract to give each of three beneficiaries named in
his deceased wife‟s will $200. The contract indicated D‟s purpose for the contract; that Theresa had been a dutiful and loving wife
and had helped him acquire the property he owned. The contract stated that the consideration for the promise to the three
beneficiaries was his wife‟s love and affection and one cent. The contract also stated the condition that the beneficiaries must also
abstain from collecting claims against him or his estate arising from Theresa‟s will.
Nell (P), one of the beneficiaries, later sued D for nonpayment. The complaint did not aver that there had been any other
consideration other than that stated in the alleged contract and did not aver that the one cent consideration had ever been paid.

9. D‟s answer to the complaint stated that the alleged contract was given for no consideration. Nell demurred to Schnell‟s answer on
the grounds that it contradicted the alleged contract which had set out the consideration. The court sustained P‟s demurrer.
Issue: Can a nominal sum of money or prior acts or love and affection act as legal consideration sufficient to create an enforceable
contract?
Holding and Rule: No. The alleged contract set forth three distinct forms of consideration upon which the contract was to be
formed: the promise to pay one cent, the love and affection of his deceased wife, and the desire to leave a bequest to the three
beneficiaries. The court held that the consideration of one cent was not sufficient to render Schnell‟s promise enforceable. While
inadequacy of consideration will not vitiate an agreement, that doctrine does not apply to a mere unequal exchange of money. The
exchange would have been valid if the cent had been at item of indeterminate value because it was unique or different or
sentimental.
The also held that D had no legal obligation to honor his wife‟s bequests and his promise to pay them was not legally binding. A
moral consideration only will not support a contract. As for the promise by the beneficiaries not to pursue further claims arising from
the will, the court held that valid consideration for his promise did not exist because any such claims would have been legally
groundless. If a claim is legally groundless, a promise upon a compromise of it is not legally binding.
Disposition: Reversed with costs
Taylor v. Caldwell, King‟s Bench, 3 B. & S. 826, 122 Eng. Rep. 309 (1863).
Facts: Caldwell (D) contracted to permit Taylor (P) the use of the Musical Hall at Newington. Caldwell was to retain possession of
the hall and Taylor merely had the use of it for four days to present four concerts in exchange for 100 pounds per day. The contract
stated that the Hall must be fit for a concert but there was no express stipulation regarding disasters.
The Hall was destroyed by fire before the first concert was to be held and neither party was at fault. The concerts could not be
performed at any other location and Taylor sued for breach and sought reimbursement for costs in preparing for the concerts.
Issue: May contract performance be excused for impossibility of performance if performance depends on the continued existence of
a person or thing, and that person or thing ceases to exist?
Holding and Rule (Blackburn): Yes. If contract performance depends on the continued existence of a person or thing, and that
person or thing ceases to exist, performance may be excused for impossibility of performance.
If the nature of the contract is such that the parties must have known at the time of contracting that it could not be fulfilled unless
some specified thing continued to exist, it is not a positive contract, and there is an implied condition that the parties will be excused
from performance if that thing ceases to exist without fault of the parties. However, if a party gives an express or implied warranty
that that thing will continue to exist, that party is liable for breach if it ceases to exist.
When there is a positive contract to do a thing the contractor must perform it or pay damages, although in consequence of
unforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible. But this rule is
only applicable when the contract is positive and absolute and not subject to any condition either express or implied.
Regarding contracts for the services of a specific person, the executors are not liable if that person dies, even though the contract
by its terms will have been broken.
Disposition: Judgment for D.
Notes: This is an example of objective impossibility; it is impossible for either party to perform. If the parties in such an arrangement
do not allocate the risk at the time of contract the court will let the loss lie where it falls. In this example Taylor suffered the loss of
resources invested in preparing for the concerts, and Caldwell suffered the loss of the destroyed hall. This rule only applies if neither
party is at fault in the destruction of the person or thing
Pennzoil sued Texaco for inducing Getty Oil to breach an oral contract to sell Getty to
Pennzoil. The case was
heard in a Texas state court where the measure of damages for breach of a contract to sell is
treble the value of the object to be sold. Given fluctuations in the oil market, the value of
Getty's reserves at the time of the breach was $3.5 billion producing a whopping $10.5
billion judgement for Pennzoil. See id. To make matters worse, Texas required an appeals
bond equal to 125% of the judgement. See id Thus, to appeal, Texaco would have to post
a bond of almost $13 billion. See id. Bankruptcy, even for a corporation as large as Texaco,
was an attractive option
Texaco, Inc. v. Pennzoil Co., 729 S.W.2d 768 (Tex. App. 1987).

10. Facts: Pennzoil and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty.
Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued
a press release.
Texaco made an alternative offer to Getty’s board. Getty repudiated its agreement with Pennzoil and
accepted Texaco’s offer.
Pennzoil sued Texaco for tortious interference with contract. Texaco asserted that the Memorandum of
Agreement was not a binding contract because it was subject to the approval of Getty’s board of directors
and would expire by its own terms if not approved. Pennzoil asserted that the contract was binding
because the Memorandum had been executed by a group of parties that controlled the majority of
outstanding shares in Getty. The jury returned a verdict for Pennzoil and Texaco appealed
Issue: Does the Memorandum of Agreement sufficient to be a valid contract?
Court decision: There was substantial evidence of Pennzoil’s and Getty’s intention to be bound subject to
approval by their boards of directors. This intent was shown by the Memorandum of Agreement and the
press release. So the Court favored Pennzoil and Pennzoil would have received approximately $4.1
billion. Finally, just before Christmas, 1987, the two companies agreed on a $3-billion settlement as part
of Texaco’s financial reorganization