Globe Refining Co. v. Landa Cotton Oil Co. and the Dark Side of Reputation
Larry T. Garvin
Ohio State University - Moritz College of Law
December 6, 2011
Ohio State Public Law Working Paper No. 162
This essay was written for a symposium on the worst Supreme Court decisions. Globe Refining Co. v. Landa Cotton Oil Co. is not one of the more obvious choices for such a symposium. But it typifies a class of bad decision that pops up again and again.
Globe Refining is the decision in which the Court set forth the "tacit agreement" test for consequential damages that do not come about in the ordinary course of events. That test requires not only that the promisor know of the potential source of damages, but that it "fairly be presumed he would have assented to [assume liability] if [the terms] had been presented to his mind."
The test had no real roots in American law and few in English law. Nor could the Court reach the merits without taking a most peculiar approach to jurisdiction. Nevertheless, the Court mangled the law of jurisdiction in its eagerness to mangle the law of consequential damages.
Globe Refining has been repudiated by an overwhelming majority of commentators and jurisdictions, though a few adhere to it still, and treatises and casebooks still take it into account if only to heap obloquy upon it. So why has so dubious a decision retained such effect? Because it was written by Oliver Wendell Holmes, apparently for reasons going well outside the record on appeal. Had the opinion been written by a lesser justice, it would long since have joined the mass of disused authority. But because it was written by the great Holmes, Globe Refining continues to get wildly inordinate attention. Hence the dark side of reputation. Holmes's justified stature gives even his loopier decisions undeserved authority, a phenomenon very much still with us. The challenge is to give due respect to ability while remaining skeptical about its exercise.
Number of Pages in PDF File: 27
Keywords: foreseeability, Holmes, Hadley, contracts, damages, jurisdiction, contract theory
JEL Classification: K00, K12, K29, K41
Date posted: December 6, 2011