## Facts

- Federal regulators implemented the “Southwest Plan” to close, merge, liquidate, or sell troubled Texas thrift institutions.
- Centex Corp. sought to acquire certain thrifts under the plan and asked John Dalton, an experienced thrift-industry executive, to assist.
- Dalton identified four central Texas thrifts (the “Lamb Package”) and informed Centex that they were available.
- On December 23, 1988, Centex and Dalton signed a letter agreement under which Centex would pay Dalton $750,000 over three years if Centex successfully acquired the Lamb Package and obtained required regulatory approvals.
- Shortly after the agreement, Centex learned federal regulators would likely not approve payment of such fees, but Centex continued pursuing the acquisition and ultimately acquired the Lamb Package.
- Regulators later adopted measures prohibiting payment of similar fees connected to the acquisition structure, and the successor federal regulator later issued an order specifically prohibiting Centex (and its subsidiary) from paying Dalton under the agreement.
- Dalton performed the services contemplated by the agreement, but Centex refused to pay, asserting that payment was barred by federal regulation.

## Issues

1. Whether a post-contract governmental regulation that prohibits the promised performance renders the contract unenforceable and discharges the promisor’s duty.
2. Whether the payment obligation remained enforceable because Dalton performed his services and the acquisition was completed.
3. Whether enforceability depends on whether the regulatory change was foreseeable or on which party should bear the risk of regulation.

## Decision

- The Supreme Court of Texas reversed the court of appeals and rendered judgment for Centex.
- The court held the contract was unenforceable because intervening governmental regulation prohibited Centex’s performance, discharging Centex’s obligation to pay.
- The court treated the regulatory prohibition as a supervening illegality that excused performance rather than a mere increase in difficulty or cost.
- The court declined to allocate risk based on foreseeability because Centex was legally barred from paying the fee.
- The court noted that equitable recovery (e.g., quantum meruit) was not available because it was not pleaded and preserved in the trial court.

## Legal Principles

- A contractual duty is discharged when, after contract formation, a change in law or governmental regulation makes the promised performance illegal.
- Supervening illegality operates as impracticability/impossibility: when performance is forbidden by law, the contract is unenforceable as to that performance.
- Enforceability does not turn on whether the regulatory change was foreseeable when the later law directly prohibits performance.
- When a contract makes payment contingent on regulatory approval or conditions consistent with legality, a later regulatory ban can prevent the condition from maturing into an enforceable obligation.
- A party seeking alternative equitable relief must timely plead and preserve it; otherwise, appellate review is limited to the contract claim presented.

## Conclusion

The court held that federal regulatory action prohibiting payment of the agreed fee made Centex’s performance illegal, rendering the agreement unenforceable and discharging Centex from liability for breach of contract.


Centex Corp. v. Dalton, 840 S.W.2d 952 (Tex. 1992)