In the 1894 case of Texas and Pacific Railway Company v. Interstate Transportation Company, the U.S. Supreme Court ruled in favor of Texas and Pacific Railway (T&P). The dispute arose when T&P refused to honor a contract with Interstate Transportation Company for transporting cattle because it was not profitable due to low rates set by the state's Railroad Commission. When sued by Interstate, T&P argued that they were unable to fulfill their contractual obligations as they would be operating at a loss which is against public policy. The court agreed with this argument stating that contracts requiring parties to operate at a loss are unenforceable as per public policy considerations since companies should not be forced into bankruptcy through such agreements. Therefore, even though T&P had initially agreed on these terms, it was within its rights to refuse fulfilling them later considering financial implications.

In the dissenting opinion for Texas and Pacific Railway Company v. Interstate Transportation Company, it was argued that the majority's decision failed to properly consider the nature of a contract between two parties. The dissent emphasized that when a party enters into an agreement with full knowledge of its terms and conditions, they should be held accountable for their obligations under said contract. In this case, Interstate Transportation Company had agreed to use Texas & Pacific Railway’s services exclusively in exchange for reduced rates; however, they later violated this agreement by using another railway service. Despite this clear breach of contract on part of Interstate Transportation Company, the court ruled in favor of them due to certain technicalities regarding interstate commerce laws at that time which were deemed more significant than upholding contractual agreements between private entities. This interpretation was seen as flawed by those who dissented because it undermined basic principles governing contracts and business relationships.