In the case of Texas & Pacific Railway Company v. Gulf, Colorado & Santa Fe Railway Company in 1925, the Supreme Court was asked to determine whether a railway company could be held liable for damages caused by sparks from its locomotives setting fire to property along its route. The court ruled that under federal law and common law principles, a railroad company is not automatically liable for such damage unless negligence can be proven. In this particular case, it was found that there had been no negligence on the part of Texas & Pacific Railway Company because they had taken all reasonable precautions to prevent fires from occurring. Therefore, they were not held responsible for any damages incurred by Gulf, Colorado & Santa Fe Railway Company as a result of these fires.

In the dissenting opinion for Texas & Pacific Railway Company v. Gulf, Colorado & Santa Fe Railway Company, Justice Oliver Wendell Holmes Jr. argued that the majority's decision was inconsistent with previous rulings and failed to consider important aspects of contract law. He believed that a railway company should not be held liable for damages caused by an accident if it had taken reasonable precautions to prevent such incidents from occurring in accordance with its contractual obligations. Furthermore, he contended that the court should have considered whether or not there was negligence on part of both parties involved in this case before making their final ruling.