## Facts

- Tesoro Petroleum Corporation alleged it contracted, through a broker, to sell Holborn Oil Company Limited roughly 10 million gallons of gasoline at $1.30 per gallon after acquiring the cargo for about $1.26 per gallon.
- Tesoro nominated a vessel and gave Holborn notice identifying the vessel expected to deliver the gasoline.
- After receiving vessel notice, Holborn stated it would not accept the gasoline, asserting there was no binding agreement due to untimely acceptance.
- With the loaded vessel already en route, Tesoro arranged a substitute sale of the same gasoline cargo to Esso Sapa in Argentina for $1.10 per gallon.
- Tesoro alleged the market price at the time of the purported breach had fallen to roughly $0.75–$0.80 per gallon, making the Esso Sapa price substantially above market.
- Tesoro sued for breach of contract and related relief, seeking damages beyond the contract–resale differential.

## Issues

1. If Tesoro proves a contract and breach, whether seller’s damages are governed by U.C.C. § 2-706 (contract price minus resale price) or U.C.C. § 2-708(1) (contract price minus market price at time and place for tender).
2. Whether Tesoro could avoid § 2-706 by characterizing itself as a “lost volume” seller entitled to a larger recovery despite an actual resale of the same identified cargo.

## Decision

- The court addressed cross-motions for partial summary judgment limited to the measure of damages, assuming arguendo that Tesoro could establish contract formation and breach.
- The court ruled that, if liability were established, damages would be measured under U.C.C. § 2-706, not § 2-708(1).
- The court rejected Tesoro’s effort to obtain contract-minus-market damages in addition to the benefit reflected by its actual resale.
- The court denied Tesoro’s request for a damages ruling under § 2-708(1) and granted Holborn’s request to apply § 2-706.

## Legal Principles

- When a seller resells the specific goods identified to the breached contract in good faith and in a commercially reasonable manner, U.C.C. § 2-706 provides the operative damages formula: contract price minus resale price (plus incidental damages, less expenses saved).
- U.C.C. § 2-708(1) is generally not used to replace § 2-706 where a qualifying resale of the same goods has occurred; the remedies are construed to avoid overcompensation.
- Contract remedies are compensatory: damages should place the aggrieved party in as good a position as performance would have done, but not better.
- A “lost volume” theory is not supported where the resale is a substitute disposition of the same specific, identified goods, rather than an additional sale from inventory the seller would have made even if the buyer performed.
- New York’s enactment history did not justify using § 2-708(1) to obtain market-based damages that exceed the seller’s actual loss when § 2-706 applies.

## Conclusion

The court held that if Tesoro proved Holborn’s liability, Tesoro’s damages would be limited to U.C.C. § 2-706 resale damages because Tesoro resold the same identified gasoline cargo; contract-minus-market damages under § 2-708(1) were unavailable to increase recovery beyond the contract–resale differential plus permissible incidentals.


Tesoro Petroleum Corp. v. Holborn Oil Co., 547 N.Y.S.2d 1012 (Sup. Ct. N.Y. Cnty. 1989)