 |
studentJD |
|
|
Students Helping Students |
Currently Briefing & Updating |
© 2010 No content replication for monetary use of any kind is allowed without express written permission
|
Chronister Oil Co. v. Unocal Refining & Marketing, 34 F.3d 462 |
United States Court of Appeals, Seventh Circuit |
1994 |
|
Chapter |
20 |
Title |
Contract Remedies |
|
Page |
765 |
Topic |
Expectation Damages Under the UCC |
|
Quick Notes |
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 the hurt |
||
|
Book Name |
Contracts Cases, Discussions, and Problems. Blum Bushaw, Second Edition. ISBN: 978-0-7355-7069-6. |
||
|
Issue |
o Whether a Pl is entitled to damages when the breach put them in a better situation? Yes (Nominal), but NOT for the difference between the contract price and the average cost of its inventory from which it made up the loss of the gasoline promised by plaintiff. |
|
Procedure |
|
|
Trial |
o Trial Magistrate Judge, Held that Chronister had broken the contract, and awarded damages of $26,000 to Unocal. |
|
Appellant |
o Affirmed insofar as Chronister broke its contract with Unocal. o Reversed with respect to damages. o Remanded with directions to enter judgment for Unocal for nominal damages. |
|
Facts |
Rules |
Reason |
|
Pl Chronister Oil Df Unocal What happened? o Chronister was an oil trader. o Chronister brought a diversity suit for breach of contract against Unocal, to which Chronister had agreed to sell 25,000 barrels of gasoline. o The contract was to provide 25,000 barrels of gasoline to a pipeline for shipment to Unocal. o The contract price was 60.4 cents per gallon, to be scheduled the first five days of March. o Chronister arranged through another oil trader to have Enron deliver the gasoline. When the problem Occurred o Enron made the delivery on March 5, but the pipeline owner refused to take the gasoline because it contained too much water. Chronister Offer o Offered to arrange delivery of replacement oil, but it would not arrive until the middle of March. Unocal Refused Delivery o Refused the offer. o Diverted gas that it already owned to satisfy its needs. Chronister went ahead o Went ahead and contracted to purchase substitute gas from Enron for delayed delivery. o Had to sale this gas to somebody else for 55.3 cents. Unocal Counterclaimed o Charging that Chronister breached the contract. Trial Magistrate Judge o Held that Chronister had broken the contract, and awarded damages of $26,000 to Unocal. Appellant Court o Affirmed Magistrates ruling. |
Damage Facts o Unocal promised to pay Chronister 60.4 cent per gallon. o The price of gas had fallen on March 6. o Chronister sold 25,000 barrels to Aectra at 55.3 cents per gallon.
Courts Analysis o It makes no difference that instead of buying the gasoline on the open market it took it from inventory. o The breach was a godsend. o 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 breach.
Unocal Argues o 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 60.14.
Courts Response o This is a misreading of section 2-712. o 2-712 defines cover as purchasing or making a contract to purchase a substitute good. o Unocal did not purchase any gasoline to take the place of the lost 25,000 barrels. o It decided not to purchase a substitute good but instead to use a good that it already owned. o You can't "purchase," whether in ordinary language or UCCspeak (see 1-201(32)), what you already own. o Taking a good out of your inventory and selling it is not a purchase in a market. o 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 Provision o 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 the hurt.
Courts Unocal does violence to the text. o Unocal sited the wrong section.
Correct Section to Site o The buyer can obtain damages measured by the difference between market price and contract price. o 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 Costs o Cost to redirect in transit to storage was reasonable.
Courts Response o 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. o It is to compensate him for a loss that he would have avoided had the violation not occurred. o 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 that activity.
Courts Question o What did Unocal give up as a consequence of the breach, and whether it was something of value?
Courts Answers o Unocal gave up the opportunity either to sell the gas on the market OR to have a larger than usual inventory. o Neither course of action would have been equal to Unocals average cost of inventory. o The 25000 barrels it diverted to its dealer cost it less and was worth less than the oil Chronister failed to deliver.
Holding o Affirmed insofar as Chronister broke its contract with Unocal. o Reversed with respect to damages. o Remanded with directions to enter judgment for Unocal for nominal damages.
|
|
|
Class Notes |
|
|