Chronister Oil Co. v. Unocal Refining & Marketing

Facts

Petitioner contracted to sell Respondent 25,000 barrels of gasoline at 60.4 cents per gallon. In order to fill this contract, Petitioner purchased gasoline from Enron, who in turn made a contract with a supplier, Crown Petroleum to deliver the 25,000 barrels to Colonial Pipeline’s pipeline at Pasadena, Texas. When Colonial Pipeline tested the gasoline, it determined that the gasoline contained too much water and refused to take it. Petitioner got in touch with Enron, which agreed to supply another 25,000 barrels but only at some time after the date for performance of the contract between Petitioner and Respondent. Respondent refused. Petitioner accepted Enron’s agreement and subsequently sold that gasoline to another purchaser at 55.3 cents per gallon. In the meanwhile, instead of searching for an alternative supplier, Respondent took the precaution of diverting 25,000 barrels of gasoline it already owned to cover the deficit. Because of an impending change in pressure by Colonial Pipeline, Respondent’s stored inventory would soon be unshipable and it took this opportunity to unload some of it. The gasoline in Respondent’s storage had been purchased for 63.14 cents per gallon. Petitioner subsequently brought suit against Respondent claiming that Respondent had breached the contract by refusing to accept the substitute performance.