In the case of Texas & Pacific Railway Company v. American Tie & Timber Co., Ltd., the U.S. Supreme Court was asked to determine whether a contract between the two parties had been breached, and if so, what damages were owed. The railway company had agreed to purchase timber ties from American Tie at a set price for five years; however, it failed to fulfill this agreement when it stopped buying after three years due to finding cheaper alternatives elsewhere. The lower court ruled in favor of American Tie and awarded them damages based on their lost profits for the remaining two years of the contract. The Supreme Court reversed this decision upon appeal by Texas & Pacific Railway Company stating that while there was indeed a breach of contract, calculating damages based on estimated future profits was speculative and not an accurate measure of actual loss suffered by American Tie as they could have sold those ties elsewhere or adjusted production accordingly. Instead, they should be compensated only for any losses directly resulting from having prepared specifically for performance under this particular contract which did not materialize because of its premature termination.

The dissenting opinion in the case of Texas & Pacific Railway Company v. American Tie & Timber Co., Ltd. argued that the majority's decision was inconsistent with previous rulings and failed to consider important factors related to contract law. The dissent emphasized that a party should not be held liable for damages if they were prevented from fulfilling their contractual obligations due to unforeseen circumstances beyond their control, such as natural disasters or acts of God - in this case, floods which made it impossible for the railway company to deliver timber ties according to schedule. They also pointed out that there was no evidence suggesting bad faith or negligence on part of the railway company, hence penalizing them would be unjustified and contrary to principles of fairness and equity inherent in contract law.