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  1. 1. Elements of a valid contract:-1. Offer and acceptance Sec 52. Free consent Sec. 143. Consideration Section 2(d) Sec 3(a)4. Legality of object Sec 13 (e).5. Parties to be autonomous: Sec 46. 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 anothers 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. 2. agreement.3. Legal relationship: an intention to create legal relationship or an intent to have legal consequences4. Free consent: genuine consent between the parties (not marred by mistake, undue influence, coercion, fraud ormisrepresentation)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 performed9. Certainty; the terms of the contract are certain.10. Verbal or written and registration11. 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 intentionto create legal relations in commercial arrangements. In the Court of Appeal, Atkin LJ delivered an important dissenting judgmentwhich was upheld by the House of Lords.FactsRose and Frank Co was the sole US distributor of JR Cromptons carbon paper products. In 1913, the parties signed a newdocument 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 tolegal jurisdiction in the law courts ..., but it is only a definite expression and record of the purpose and intention of the three partiesconcerned 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.JudgmentAt first instance, the court held that the honourable pledge was repugnant to the intention of the rest of the document, and thatfurthermore the enforceability of such a clause was contrary to public policy. In his decision, Bailhache J. reasoned that theimpugned clause was of no effect and that the document was a legally-binding contract and enforceable in the court.[1]Court of AppealScrutton LJ stated that parties are capable of forming an agreement that does not give rise to legal relations. "The reason of this isthat the parties do not intend that their agreement shall give rise to legal relations. This intention may be implied from the subjectmatter of the agreement, but it may also be expressed by the parties. In social and family relations such an intention is readilyimplied, 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. 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 contractThe effect of section 3 of the Nepal Act is that a minor (i.e., a person below 16 years) or aperson of unsound mind, cannot enter into a contract. But his guardian can do so, “in hisinterest” and on his behalf.Proposal and acceptanceSections 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. 4. The rest of the Act is couched in simple and short provisions, but these sections are foundto be much more elaborate. Perhaps, some actual problems must have arisen in thecountry, necessitating a statutory clarification.Section 4 (1) of the Nepal Act lays down the basic proposition, that if a person “advances” aproposal to a person who “gives his acceptance” thereto, they shall be deemed to haveconcluded a contract. Section 4(2) contains a specific provision, by laying down that if aperson making a proposal states that he should be given notice of the acceptance of theproposal within a specified period, but does not receive such notice within such period, thenno contract shall be deemed to have been concluded. Under section 4 (3), if no time limit isspecified 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 notgiven notice of rejection within a specific time limit, then he shall be deemed to haveaccepted the offer.Section 5 contains detailed rules as to cancellation of an offer, while section 6 deals withoffer made to the general public and is obviously reminiscent of the English case of Carlill v.Carbolic Smoke Ball Co.Free ConsentSection 7 of the Nepal Act provides that in certain circumstances, contracts “may be madevoid 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. “Undueinfluence” means influence exercised by a person upon another person “who is under hisinfluence or is amenable to his wishes”, with the intention of deriving some advantage forpersonal benefit or to fulfil some such interests. Explanation give specific instances, one ofwhich deals with persons of physical or mental weakness, while another speaks of personswho can be subjected to economic pressures.Incidentally, the draftsman in Nepal seems to have found the Indian legislative practice ofinserting an “Explanation” to be very useful.Fraud and deceitSection 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 misrepresentationmade innocently, because the Explanation states that a person commits deceit, if, withoutthe 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 thecontract, out of ignorance”.These words definitly cover innocent misrepresentation. Incidentally, the draftsman, byusing 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. 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 publicinterest, agreements in restraint of trade or marriage, etc. But two clauses of the sectionare worth notice, as quoted below:(c) "Contracts preventing any person from enjoying the privileges or facilities already beingenjoyed by the general public.(d) Contracts seeking to prevent the legal rights of any person from being made applicableby any government officer or court”.UncertaintyIn section 8 of the Nepal Contract Act, uncertainty seems to have been taken care of, by thefollowing clauses:(g) "contract which cannot be carried out, because the parties thereto do not exactly knowabout the matter in relation to which it has been concluded:(i) contract which is not explicit, because there is lack of a reasonable interpretationthereof”.ImpossibilityA simple provision in the Nepalese Contract Act [section 8 (h)] declares, as invalid, acontract, “work in respect to which is considered impossible at the time it is conducted orafter it has been conducted”.Indirect contractsUnder the heading of “indirect contracts”, the Nepalese Act, in section 9, deals with fivesituations of unjust enrichment.Liability of the PartiesSection 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. Ajoint 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 performanceSections 13 and 14 of the Nepal Act deal with the time, manner and place of performance ofcontracts. 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 deemedto be of the essence. The matter must therefore be left to be decided on the facts of eachcase.Damages for breach of contractThe 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. 6. (1) In case any party fails to carry out the contract, the opposite party may realisecompensation 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 thecontract, the party claiming compensation may receive compensation to the extent to whichhe has actually suffered losses or damages.Compensation shall not be realised for indirect or imaginary losses or damages” 15Compensation.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 thevarious controversies as to whether the damages are “penal”, or whether proof should begiven of actual loss and so on. Secondly, if the damages are not liquidated, then, (under thesection), compensation can be claimed for loss actually suffered. Obviously, the plaintiff willhave to prove it. Thirdly, by prohibiting recovery for indirect or imaginary losses, the sectionincorporates the doctrine of “ordinary and natural consequences of breach” and thus, in asense, brings the Nepalese law very near to section 73 of the Indian Contract Act 1872, andthe common law rule in Hadley v. BaxendaleSummary of Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954).FactsOne evening in December 1952 after several drinks, Zehmer (D) wrote a contract on a restaurant bill in which he agreed to sell hisfarm to Lucy (P) for $50,000. Zehmer later insisted that he had been intoxicated and thought the matter was a joke, not realizing thatLucy 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 aGeorgia pine” when he began drinking with Lucy. He claimed that he was merely bluffing to try to get Lucy to admit that he did notactually have $50,000.Lucy brought suit for specific performance when Zehmer refused to complete the transaction. The trial court ruled for Zehmerholding that Lucy had not established a right to specific performance.IssueIn determining whether a party has made a valid offer, how does the court determine whether the party had the intent to contract?Holding and RuleIn determining whether a party has made a valid offer, the words and actions of the party are interpreted according to a reasonableperson standard. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention isimmaterial 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 testis whether a reasonable person would conclude that the party‟s words and actions constituted an offer. In this case Zehmer‟s actsand words could be reasonably interpreted by Lucy as an offer to sell his farm. The parties discussed the matter for over fortyminutes, addressed the issue of examination of title, and both Zehmer and his wife signed the agreement.DispositionJudgment 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 realestate.
  7. 7. P„s first complaint alleged a contract for the sale for real estate with Vega and sought specific performance. Borg was permitted tojoin and subsequently filed claims against P and D seeking specific performance of a different contract for the same land, or in thealternative fraud damages. The court ruled that there was no valid contract between P and D as per its terms and granted partialsummary judgment in favor of Borg. By its terms the contract between P and D had called for execution by a trust. The contractbetween 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 aspecific party.An offeror has complete control over an offer and may condition that acceptance be made according to the terms of the offer. Noother mode may be used when an offer by its terms requires a written acceptance by a specific person or entity. In this case thecontract between P and D stated on the document that the contract would not be in full force until signed by the trust. Signing by thetrust was the only permissible mode of acceptance. In this case there was no acceptance and hence no contract because the trusthad 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 “valuereceived” and she told him “you have always done for me, and I have signed this note for you.” P brought suit against Salt (P), theexecutrix 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 theAppellate division which reversed the lower court‟s judgment and reinstated the jury‟s verdict, holding that the writing constitutedsufficient 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 apromise 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 actscannot serve as consideration.Discussion: The note was merely a voluntary but unenforceable executory promise. The aunt merely conveyed a charitable gift andno consideration was asked or given in return. The writing alone was not valid consideration. A promise that is given in recognitionof some act in the past is not enforceable for lack of consideration.Disposition: Reversed.Summary of Balfour v. Balfour, 2 K.B. 571 (1919).FactsMr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon and visited England on a vacation. The plaintiff remained in England for medicaltreatment and the defendant agreed to send her a specific amount of money each month until she could return. The defendant laterasked to remain separated and Mrs. Balfour sued for restitution of her conjugal rights and for alimony equal to the amount herhusband 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 infavor of the plaintiff and held that the defendant‟s promise to send money was enforceable. The court held that Mrs. Balfour‟sconsent was sufficient consideration to render the contract enforceable and the defendant appealed.Issues1. 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 Rule1. 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, evenwhen consideration is present. Spouses normally intend that the terms of their agreements can be varied as situations develop. Thecourt held that it was presumed that the parties made the agreement as husband and wife and did not intend that it could be suedupon. The court held that as a matter of public policy it could not resolve disputes between spouses.Disposition
  8. 8. Judgment for plaintiff Mrs. Balfour reversed.NoteContracts related to the social aspect of marriage will not be enforced by the courts. Contracts between spouses related to businessrelationships can be enforced, however. Courts are willing to support negotiated divorce settlements and written statements ofsupportAlaska Democratic Party v. Rice – Case Brief SummarySummary of Alaska Democratic Party v. Rice, 934 P.2d 1313 (Alaska 1997).FactsKathleen Rice (P) worked for the Alaska Democratic Party (D) from 1987 until she was fired from her position as executive directorin 1991. Rice alleged that after Greg Wakefield was elected chair of the Party he made an offer for her to return to her position asexecutive director for two years. Rice accepted the offer, resigned her position with the Gore vice-presidential campaign, and movedto Alaska. Rice filed suit when she was later informed that she would not get the job. The trial court awarded Rice $28,864 indamages under promissory estoppel and $1,558 for misrepresentation and the Alaska Democratic Party appealed, arguing thatthe 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 relevantfactors are: the availability and adequacy of other remedies, the definite and substantial character of the action or forbearances inrelation to the remedy sought, the extent to which the terms were established by clear and convincing evidence, the reasonablenessof 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 theplaintiff by the jury because such damages would have put her in a better position than she would have been in if the promise hadnever been madeFactsAmway (D) offered a credit card based pay telephone called the TeleCharge phone to its distributors. All-Tech (P) was created forthe purpose of serving as an Amway distributor of TeleCharge phones. All-Tech had purchased a large number of units whenAmway withdrew from the market place. All-Tech claims that it was lured into this venture by a series of misrepresentations byAmway 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 districtcourt dismissed the misrepresentation claims based on the doctrine of economic loss. At trial the jury found in favor of All-Tech onthe breach of contract claim but awarded no damages. All-Tech appealedSchnell v. Nell – Case BriefSchnell 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 inhis deceased wife‟s will $200. The contract indicated D‟s purpose for the contract; that Theresa had been a dutiful and loving wifeand had helped him acquire the property he owned. The contract stated that the consideration for the promise to the threebeneficiaries was his wife‟s love and affection and one cent. The contract also stated the condition that the beneficiaries must alsoabstain 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 otherconsideration other than that stated in the alleged contract and did not aver that the one cent consideration had ever been paid.
  9. 9. D‟s answer to the complaint stated that the alleged contract was given for no consideration. Nell demurred to Schnell‟s answer onthe 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 enforceablecontract?Holding and Rule: No. The alleged contract set forth three distinct forms of consideration upon which the contract was to beformed: the promise to pay one cent, the love and affection of his deceased wife, and the desire to leave a bequest to the threebeneficiaries. The court held that the consideration of one cent was not sufficient to render Schnell‟s promise enforceable. Whileinadequacy of consideration will not vitiate an agreement, that doctrine does not apply to a mere unequal exchange of money. Theexchange would have been valid if the cent had been at item of indeterminate value because it was unique or different orsentimental.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. Amoral consideration only will not support a contract. As for the promise by the beneficiaries not to pursue further claims arising fromthe will, the court held that valid consideration for his promise did not exist because any such claims would have been legallygroundless. If a claim is legally groundless, a promise upon a compromise of it is not legally binding.Disposition: Reversed with costsTaylor 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 ofthe hall and Taylor merely had the use of it for four days to present four concerts in exchange for 100 pounds per day. The contractstated 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 beperformed 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 ofa 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 thatperson 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 unlesssome specified thing continued to exist, it is not a positive contract, and there is an implied condition that the parties will be excusedfrom performance if that thing ceases to exist without fault of the parties. However, if a party gives an express or implied warrantythat 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 ofunforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible. But this rule isonly 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 contractby 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 arrangementdo 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 ofresources invested in preparing for the concerts, and Caldwell suffered the loss of the destroyed hall. This rule only applies if neitherparty is at fault in the destruction of the person or thingPennzoil sued Texaco for inducing Getty Oil to breach an oral contract to sell Getty toPennzoil. The case washeard in a Texas state court where the measure of damages for breach of a contract to sell istreble the value of the object to be sold. Given fluctuations in the oil market, the value ofGettys reserves at the time of the breach was $3.5 billion producing a whopping $10.5billion judgement for Pennzoil. See id. To make matters worse, Texas required an appealsbond equal to 125% of the judgement. See id Thus, to appeal, Texaco would have to posta bond of almost $13 billion. See id. Bankruptcy, even for a corporation as large as Texaco,was an attractive optionTexaco, Inc. v. Pennzoil Co., 729 S.W.2d 768 (Tex. App. 1987).
  10. 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 issueda press release.Texaco made an alternative offer to Getty’s board. Getty repudiated its agreement with Pennzoil andaccepted Texaco’s offer.Pennzoil sued Texaco for tortious interference with contract. Texaco asserted that the Memorandum ofAgreement was not a binding contract because it was subject to the approval of Getty’s board of directorsand would expire by its own terms if not approved. Pennzoil asserted that the contract was bindingbecause the Memorandum had been executed by a group of parties that controlled the majority ofoutstanding shares in Getty. The jury returned a verdict for Pennzoil and Texaco appealedIssue: 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 toapproval by their boards of directors. This intent was shown by the Memorandum of Agreement and thepress release. So the Court favored Pennzoil and Pennzoil would have received approximately $4.1billion. Finally, just before Christmas, 1987, the two companies agreed on a $3-billion settlement as partof Texaco’s financial reorganization