Chronister was an oil trader.
Chronister brought a diversity suit for breach of contract against
Unocal, to which Chronister had agreed to sell 25,000 barrels of
The contract was to provide 25,000 barrels of gasoline to a pipeline
for shipment to Unocal.
The contract price was 60.4 cents per gallon, to be scheduled the first
five days of March.
Chronister arranged through another oil trader to have Enron deliver
When the problem
Enron made the delivery on March 5, but the
pipeline owner refused to take the gasoline because it
contained too much water.
Offered to arrange delivery of replacement oil, but it would not arrive
until the middle of March.
Unocal Refused Delivery
Refused the offer.
Diverted gas that it already owned to satisfy its needs.
Chronister went ahead
Went ahead and contracted to purchase substitute gas from Enron for
Had to sale this gas to somebody else for 55.3 cents.
Charging that Chronister breached the contract.
Trial Magistrate Judge
Held that Chronister had broken the contract, and awarded damages of
$26,000 to Unocal.
Affirmed Magistrates ruling.
Unocal promised to pay Chronister 60.4 cent per gallon.
The price of gas had fallen on March 6.
Chronister sold 25,000 barrels to Aectra at 55.3 cents per gallon.
It makes no difference that instead of buying the gasoline on the open
market it took it from inventory.
The breach was a godsend.
At argument Unocals counsel candidly acknowledged that Unocal was
made better off as a result of the breach and that this was evident not
only by the time of trial, and hence early enough to figure in the
calculation of damages, but within 15 days after the Chronisters
Entitled by UCC 2-712 to cover by obtaining a substitute for the lost
25,000 barrels, even from itself, and to obtain as damages the
difference between the cover price, which it deems to be
63.14 cents a gallon, the average cost of the inventory from which it
obtained the substitute supply of gasoline, and the contract price of
This is a misreading of section 2-712.
2-712 defines cover as purchasing or making a contract to purchase a
Unocal did not purchase any gasoline
to take the place of the lost 25,000 barrels.
It decided not to purchase a substitute good but instead to use a good
that it already owned.
You can't "purchase," whether in ordinary language or UCCspeak (see
1-201(32)), what you already own.
Taking a good out of your inventory and selling it is not a purchase in
There is no purchase price to use as a ready index of the harm that the
buyer incurred by the seller's breach
Purpose Of Cover
The purpose of the cover provision is not to allow buyers to obtain
damages when they have not been hurt, but to provide a market measure of
Courts Unocal does
violence to the text.
Unocal sited the wrong section.
Correct Section to Site
The buyer can obtain damages measured by the difference between market
price and contract price.
If a reasonable response for the buyer to the breach would be
to make the product itself, then
the difference between the market price
of that product and the contract price
would be an appropriate measure of the harm from the breach.
Unocal Arg Redirect
Cost to redirect in transit to storage was reasonable.
The object of an award of damages is to put the victim in the same
place that he would have been in had the breach or other wrong of which
he complains not occurred.
It is to compensate him for a loss that he would have avoided had the
violation not occurred.
The concept of loss that underlies the computation of legal damages
thus resembles the economist's concept of "opportunity cost": the
opportunity one gives up by engaging in some activity is the cost of
What did Unocal give up as a consequence of the breach, and whether it
was something of value?
Unocal gave up the opportunity either to sell the gas on the market OR
to have a larger than usual inventory.
Neither course of action would have been equal to Unocals average cost
The 25000 barrels it diverted to its dealer cost it less and was worth
less than the oil Chronister failed to deliver.
Affirmed insofar as Chronister broke its contract with Unocal.
Reversed with respect to damages.
Remanded with directions to enter judgment for Unocal for nominal