Globe Refining Co. v. Landa Cotton Oil Co.
190 U.S. 540 (1903)
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Rule of Law:
For a breaching party to be liable for special or consequential damages, the parties must have contemplated these damages at the time of contracting, and the breaching party must have tacitly or expressly agreed to assume liability for such damages. Mere notice of the non-breaching party's special circumstances is insufficient to impose this liability.
Facts:
- Globe Refining Company ('Globe'), a Kentucky corporation, contracted to purchase ten tanks of prime crude cottonseed oil from Landa Cotton Oil Company ('Landa'), a Texas corporation.
- The contract, arranged by a broker, set the price at 15¾ cents per gallon, with delivery terms of 'f.o.b. buyers’ tank at your mill.'
- The contract specified that Globe would provide shipping instructions for the oil.
- To take delivery, Globe sent its own tank cars from Louisville, Kentucky, to Landa's mill in New Braunfels, Texas.
- Landa subsequently breached the contract by failing to deliver the oil as promised.
- Globe had existing arrangements with its own customers to furnish the oil it expected to receive from Landa.
Procedural Posture:
- Globe Refining Co. sued Landa Cotton Oil Co. in the United States Circuit Court for breach of contract.
- Landa filed a plea asserting that Globe had fraudulently magnified its damages claim solely to meet the court's jurisdictional minimum of $2,000.
- Landa also filed exceptions (objections) to Globe's specific allegations of special damages, such as transportation costs and lost profits.
- The trial judge sustained Landa's exceptions, effectively striking the special damages claims from the lawsuit.
- After a hearing on the jurisdictional issue, the trial judge found that the remaining damages did not meet the jurisdictional amount and dismissed the case.
- Globe Refining Co. appealed the dismissal to the U.S. Supreme Court on a writ of error.
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Issue:
Does a seller's mere knowledge of a buyer's potential special circumstances at the time of contracting, without an express or tacit agreement to assume liability for them, make the seller responsible for special damages arising from a breach of contract?
Opinions:
Majority - Mr. Justice Holmes
No. A seller's mere notice of a buyer's potential special circumstances is not enough, as a matter of law, to charge the seller with special damages if the seller fails to deliver the goods. The law of contract damages holds a party responsible only for consequences that may be reasonably supposed to have been in the contemplation of both parties at the time of making the contract. For liability for special damages to attach, the knowledge of the special circumstances must be brought home to the party sought to be charged under such circumstances that they must know the other party reasonably believes they accept the contract with that special condition and liability attached. Here, the contract only contemplated that Globe's tanks would be at Landa's mill; it did not incorporate the costs of getting them there from a great distance or Globe's potential lost profits from its own customers. Landa never expressly or tacitly assented to assume the risk for these special damages, and therefore cannot be held liable for them.
Analysis:
This case significantly refines the rule from Hadley v. Baxendale by establishing the more stringent 'tacit agreement' test for consequential damages. Instead of foreseeability alone, Justice Holmes requires evidence that the breaching party implicitly or explicitly consented to assume liability for the special damages. This raises the bar for plaintiffs seeking such damages, requiring proof not just of notice, but of an assumption of risk as part of the bargain. While influential, this 'tacit agreement' doctrine has been rejected by the Uniform Commercial Code (UCC § 2-715), which returned to a more lenient foreseeability standard for the sale of goods.
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