In the case of American Railway Express Company v. Royster Guano Company, the U.S. Supreme Court ruled in 1926 that a contractual clause limiting liability for negligence was not enforceable if it violated public policy or was against good morals. The dispute arose when Royster Guano Company sued American Railway Express for damages after a shipment of goods was destroyed due to alleged negligence by the railway company's employees. The railway company argued that their contract with Royster included a clause absolving them from any responsibility for losses caused by employee negligence, but this argument was rejected by the court on grounds that such clauses were contrary to public interest and therefore unenforceable.

In the dissenting opinion for American Railway Express Company v. Royster Guano Company, Justice Stone disagreed with the majority's interpretation of a Virginia statute that allowed recovery for damages to goods while in transit. He argued that the law should be interpreted as allowing recovery only when there was negligence on part of the carrier and not simply because damage occurred during transportation. According to him, this would align more closely with common-law principles governing carriers' liability and would prevent unjust enrichment at their expense. Furthermore, he contended that it is unreasonable to hold carriers liable without fault since they cannot control all circumstances under which goods are transported or foresee every possible risk involved therein.