In the 1906 case of Chattanooga Foundry and Pipe Works v. City of Atlanta, the U.S. Supreme Court ruled in favor of the City of Atlanta. The dispute arose when Chattanooga Foundry and Pipe Works sued for breach of contract after Atlanta refused to pay for water pipes that were delivered late due to a strike at the foundry's plant. The city had contracted with another company to supply its needs during this delay, arguing it was necessary due to public health concerns related to their water supply system. The court held that while ordinarily a party who breaks a contract must compensate the other party for any loss incurred as a result, there are exceptions where performance becomes impossible or impracticable through no fault of either party - such as an unexpected event like labor strikes which could not have been foreseen or avoided by reasonable diligence and prudence on part of contractor (Chattanooga). Thus, under these circumstances, non-performance is excused without liability. This decision established an important precedent in American law regarding impossibility defense in contracts: if unforeseeable events make contractual obligations impossible or unreasonably burdensome then parties may be relieved from their duties without penalty.

In the dissenting opinion for Chattanooga Foundry and Pipe Works v. City of Atlanta, Justice Harlan argued that the city of Atlanta did not have a right to impose conditions on its water contracts that would limit competition or discriminate against out-of-state businesses. He believed this was in violation of the Commerce Clause, which gives Congress exclusive power over interstate commerce. Harlan maintained that while states do have some authority to regulate local matters impacting commerce indirectly, they cannot directly control or restrict it in favor of local interests at the expense of out-of-state entities. In his view, Atlanta's actions were an unconstitutional interference with interstate trade because they effectively barred non-local companies from competing fairly for municipal contracts.