Globe Refining Co. v. Landa Cotton Oil Co.

190 U.S. 540

 

RULE:

A party can only be held to be responsible for such consequences as may be reasonably supposed to be in the contemplation of the parties at the time of making the contract.

FACTS:

The parties entered into a contract for the sale of crude oil. The plaintiff, a Kentucky corporation claimed breach of contract. The agreement stated that the plaintiff would send its tank cars to the defendant’s oil mills and then the defendant would fill them with the oil. In order for this exchange, the plaintiff had to use the railroad to transport its tank cars. The plaintiff did so, and incurred the costs, only to find that the defendant cancelled the contract before delivering the goods into the tank cars. Additionally, the plaintiff lost the use of its tank cars, resulting in lost profits. At trial, the defendant claimed that the plaintiff fraudulently calculated its damages in order to gain the federal court’s jurisdiction. The trial court dismissed the plaintiff’s action, and it appealed.

ISSUE:

Is the plaintiff entitled to have its case proceed based on a breach of contract cause of action?

ANSWER:

No. The appellate court affirmed the trial court’s dismissal of the plaintiff’s case.

CONCLUSION:

The court held that the defendant could only be held accountable for the damages that could have been reasonably contemplated at the time of contract formation. It further held that mere notice to the defendant, or seller, of some interest the buyer was undertaking was not enough to hold the seller liable for that interest on the event of non-delivery. It held that the plaintiff’s calculation of damages was unreasonable and improper.

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