Globe Refining Co. v. Landa Cotton Oil Co.

Supreme Court of the United States · Contracts

ContractsDamagesConsequential Damagescontract damagesspecial damagesconsequential damagescontemplation of the partiesHadley v. Baxendale

Facts

The parties, through a broker, made a written contract for the sale of ten tanks of crude oil at a stated price, f.o.b. the buyer's tank at the seller's mill, with shipment partly in late August and partly in early September and shipping instructions to be furnished by the buyer. After the seller failed to perform, the buyer alleged special damages beyond the difference between contract and market price, including freight paid to send tank cars from Louisville to Texas, loss of use of the tanks, extra freight in rearranging tank destinations, losses from the buyer's own contracts with customers, and loss of customers, credit, and reputation. The buyer also alleged that the seller maliciously caused it to send tanks while contemplating breach and delayed notice of cancellation. The trial court rejected these special-damage allegations and treated the remaining claim as insufficient to support federal jurisdiction.

Issue

Whether the buyer's pleaded items of special damage for breach of the oil delivery contract were recoverable where the written contract did not expressly provide for them and the allegations showed at most that the seller had notice of some of the buyer's circumstances. Also, whether the court could disregard those items in determining that the jurisdictional amount was lacking.

Rule

In contract, damages are limited to consequences that may reasonably be supposed to have been in the contemplation of the parties at the time of making the contract, in the sense that the defendant fairly may be supposed to have assumed that risk or to have warranted the plaintiff reasonably to suppose it did. Mere notice to the seller of some interest, probable action, or special circumstance of the buyer does not, by itself and as a matter of law, enlarge liability for special damages. Expenses the buyer was willing to incur in order to perform are not recoverable in addition to the contract-market differential when that differential already represents the value of the goods in the buyer's hands.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Pine Harbor Chemicals, based in Cleveland, agreed in writing to sell 50,000 gallons of industrial solvent to Mason Drake of Indianapolis, with delivery due at Mason's rail cars at Pine Harbor's plant. Before signing, Mason told Pine Harbor he planned to resell the solvent to a factory in St. Louis at a large profit. Pine Harbor failed to deliver.

If Mason sues for the lost profits on his St. Louis resale contract, which is the best answer?

Explanation. The governing rule is that special contract damages are recoverable only for consequences contemplated at the time of contracting in the sense that the defendant fairly may be supposed to have assumed that risk, or to have led the plaintiff reasonably to think it did. Mere notice of the buyer's intended resale or probable profits is not enough as a matter of law. Ordinary damages remain available, but the lost resale profits are not recoverable on these facts. (Derived from Globe Refining Co. v. Landa Cotton Oil Co. (n.d.).)