## Facts

- Chronister Oil Co., an oil trader, agreed to sell Unocal Refining & Marketing 25,000 barrels of gasoline at 60.4 cents per gallon, to be delivered into the Colonial Pipeline during the “front seventh cycle” (early March 1990).
- Chronister arranged performance through Enron, which arranged for Crown Petroleum to deliver the gasoline into Colonial’s pipeline at Pasadena, Texas, scheduled for March 5.
- Colonial refused to accept the gasoline after testing showed excessive water content.
- On March 6, Unocal demanded assurances of performance; Chronister secured a replacement supply through Enron only for a later pipeline cycle (back seventh or eighth cycle).
- Unocal refused later-cycle delivery as untimely under the contract.
- Chronister sold the replacement gasoline to another buyer at 55.3 cents per gallon.
- Unocal covered the shortfall by diverting 25,000 barrels from its own existing inventory within the Colonial system, inventory it had previously purchased at 63.14 cents per gallon and needed to move before a pipeline pressure change would make it difficult to ship.

## Issues

1. Whether Chronister breached the contract by failing to deliver conforming gasoline within the agreed “front seventh cycle,” thereby excusing Unocal from accepting a later-cycle tender.
2. Whether Unocal could recover damages under U.C.C. § 2-712 based on treating its diversion of existing inventory as “cover,” measured by the difference between the inventory’s historical purchase price and the contract price.

## Decision

- The Seventh Circuit affirmed the finding that Chronister breached by failing to deliver conforming gasoline within the contract delivery window.
- The court reversed the $26,000 damages award to Unocal.
- The court held Unocal’s use of its own inventory was not “cover” under U.C.C. § 2-712 and did not establish compensable loss; Unocal was entitled at most to nominal damages.

## Legal Principles

- A seller’s failure to deliver conforming goods within the contract’s specified delivery period constitutes breach, and the buyer is not required to accept a materially late substitute tender.
- U.C.C. § 2-712 “cover” requires a post-breach purchase of substitute goods; reallocating the buyer’s own preexisting inventory is not a cover purchase.
- Contract damages compensate actual economic loss (akin to opportunity cost) and may not be computed from historical accounting figures that would yield a windfall.

## Conclusion

Chronister was liable for breach because it did not deliver conforming gasoline on time, but Unocal could not convert the historical cost of its own diverted inventory into cover damages under U.C.C. § 2-712; absent proof of real economic loss, Unocal could recover only nominal damages.


Chronister Oil Co. v. Unocal Refin. & Mktg., 34 F.3d 462 (7th Cir. 1994)