Chronister Oil Company (Chronister) (defendant) was an oil trader. Chronister contracted with Union Oil Company (Unocal) (plaintiff) to sell 25,000 barrels of gasoline for 60.4 cents per gallon. Chronister agreed to deliver the gasoline by March 5. Chronister arranged for another company to deliver the gasoline to Unocal on March 5, but Unocal refused the delivery due to the gasoline containing too much water. Chronister offered to deliver a replacement order by the middle of March, but Unocal refused. Unocal used gasoline from its own inventory to replace the gasoline ordered from Chronister. The market price for a barrel of gasoline was approximately 55 cents per gallon in early March. Chronister sued Unocal for breach of the contract. Unocal counterclaimed, also alleging breach of the contract. The district court ruled that Chronister had breached the contract. The district court awarded $26,000 in damages to Unocal based on the difference between the contract price and the average cost of Unocal’s inventory. Chronister appealed to the United States Court of Appeals for the Seventh Circuit.