## Facts

- A Kentucky oil refiner contracted through brokers to buy ten tank-car loads of prime crude cottonseed oil from a Texas oil mill operator.
- The broker’s confirmation set price and timing and stated delivery terms as “f.o.b. buyers’ tank at your mill,” with shipment split between late August and early September; shipping instructions were to come from the buyer.
- The buyer alleged it was agreed the buyer would send tank cars to the seller’s mill and the seller would promptly fill them.
- The buyer sent tank cars and alleged it had to obligate itself to pay railroad freight to move the cars from Kentucky to Texas, paying about \$900.
- The buyer alleged the seller failed or refused to deliver the oil, the cars were detained about 30 days, and the buyer suffered consequential business losses (including loss of use of the cars and downstream customer-related harm).
- The buyer sued in federal circuit court for breach of contract, seeking the market/contract price differential plus special damages.
- The seller challenged the special-damage allegations and asserted the damages were fraudulently magnified to meet the jurisdictional minimum; the trial judge resolved jurisdiction first, rejected the special damages, found the jurisdictional amount unmet, and dismissed.

## Issues

1. Whether the buyer could recover special damages (freight for sending tank cars, detention/loss of use, and downstream business losses) beyond the contract/market price differential for nondelivery.
2. Whether a federal trial court may exclude legally unrecoverable special damages in assessing the amount in controversy and dismiss for lack of jurisdiction when the remaining recoverable damages fall below the statutory minimum, including where the amount is alleged to have been fraudulently inflated.
3. Whether the trial judge could try the jurisdictional question before the merits and dismiss on that basis.

## Decision

- The Supreme Court affirmed the dismissal.
- The Court held the pleaded special damages were not recoverable under the contract; recovery was limited to the ordinary measure (contract price versus market price at breach).
- The Court approved the trial court’s authority to determine jurisdiction first, strike or disregard legally unrecoverable damages, and dismiss when the legally cognizable amount in controversy did not meet the jurisdictional threshold, including where the claim appeared intentionally inflated.

## Legal Principles

- Contract damages for breach are limited to consequences that may reasonably be supposed to have been in the parties’ contemplation at the time of contracting.
- Mere notice that the buyer has particular plans, interests, or likely actions does not, as a matter of law, make the seller liable for special damages upon breach; there must be a basis to treat the seller as having assumed responsibility for that risk.
- In a sales contract for goods, absent an assumption of special risk, the standard measure for nondelivery is the difference between the contract price and the market price at the time of breach.
- A federal court may look past pleaded damage labels to determine whether the amount in controversy is legally recoverable; if special damages are legally unavailable and the remainder is below the jurisdictional minimum, dismissal for lack of subject-matter jurisdiction is proper.
- A court may try jurisdictional facts in advance of the merits and dismiss where the amount in controversy has been purposely and fraudulently magnified.

## Conclusion

The Court limited recovery for nondelivery to damages reasonably contemplated at contract formation and rejected special damages based on the buyer’s freight, equipment detention, and downstream business effects where the contract did not show an assumption of such risks; because excluding those legally unrecoverable items reduced the amount in controversy below the jurisdictional minimum, the federal suit was properly dismissed.


Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540 (1903)