Chronister Oil Co. v. Unocal Refining and Marketing

Facts

This case concerns an alleged breach of contract between the Plaintiff, Chronister Oil Company (the "Plaintiff"), and the Defendant, Unocal Refining and Marketing (the "Defendant"). This matter was governed by the Uniform Commercial Code ("UCC"), as construed by the Illinois courts. The contract, which was agreed to on February 9, 1990, required that the Plaintiff, an oil trader deliver 25,000 barrels of oil to Colonial Pipeline ("Colonial") for shipment to the Defendant. The contract was to be on the "front seventh cycle" and provided for a fixed price of 60.4 cents per gallon. The term "front cycle" means "for the first half of what is normally a ten-day period for shipping a particular grade of product in a petroleum pipeline." "The cycles begin on January 1, so the "front seventh cycle" would be approximately the first five days of March–apparently no effort is made to pin down the dates of the cycles and half cycles more precisely." In order to fulfill the contract, the Plaintiff made an agreement with another oil trader, who made an agreement with another oil trader to deliver the oil to Colonial for subsequent transport to the Defendant. However, when the gas arrived at the Colonial on March 5, 1990 it included too much water, and Colonial refused to take it. The Defendant learned of this on March 6, 1990, still within the front seventh cycle, and immediately contacted the Defendant. The Plaintiff contacted another oil trader, Enron, and they agreed to provide the Defendant 25,000 barrels later in March (back seventh cycle product), but the Defendant was not interested. Instead, the Defendant diverted 25,000 barrels of oil it owned that were in transit to a storage facility as a "provisional cover" and gave the Plaintiff until March 7, 1990 to come up with the conforming product. For some reason, the Plaintiff accepted Enron's offer to substitute performance, but the Defendant refused to take it because they only wanted front seventh cycle product. The oil the Plaintiff acquired from Enron was sold to Aectra Refining at 55.3 cents per gallon. The Plaintiff filed this suit claiming that the Defendant broke the contract and claimed damages "based on the difference between the contract price and the lower price at which it sold the 25,000 barrels to Aectra." The Defendant counterclaimed and argued, the Plaintiff had "broken the contract and seeking damages equal to the difference between the contract price and the average cost of its inventory (63.14¢), from which it had made up the loss of the 25,000 barrels promised by [the Plaintiff]."