Nanakuli Paving and Rock Company, a Division of Grace Brothers, Ltd., a Hawaii Corporation v. Shell Oil Company, Inc., a Delaware Corporation, Nanakuli Paving and Rock Company, a Division of Grace Brothers, Ltd., a Hawaii Corporation v. Shell Oil Company, a Delaware Corporation
664 F.2d 772 · Court of Appeals for the Ninth Circuit · 1981
Facts
Nanakuli Paving and Rock Company (Nanakuli), a Hawaiian asphaltic paving contractor, purchased all its asphalt requirements from Shell Oil Company (Shell) under long-term supply contracts from 1963 to 1974. The dispute arose from the 1969 contract, which stated the price would be "Shell's Posted Price at time of delivery." In January 1974, Shell raised its asphalt price from $44 to $76 per ton and refused to price protect Nanakuli on 7200 tons of asphalt already committed. Nanakuli contended that price protection was a universal usage of the asphaltic paving trade in Hawaii, incorporated into their agreement, and that Shell had previously price protected Nanakuli on two occasions (1970 and 1971) when prices increased. The Hawaiian market's government contracts did not allow escalation clauses, making price protection crucial for pavers.
Procedural history
Nanakuli initially filed a breach of contract action against Shell in Hawaiian State Court in February 1976. Shell removed the suit to the United States District Court for the District of Hawaii. A jury returned a verdict of $220,800 for Nanakuli, but the District Judge set aside the verdict and granted Shell's motion for judgment n.o.v. Nanakuli then appealed to the United States Court of Appeals for the Ninth Circuit.
Issue
Did Shell breach its 1969 contract with Nanakuli by failing to provide price protection in 1974, considering the express contract terms, trade usage, course of performance, and the implied obligation of good faith under the Uniform Commercial Code?
Holding
The court reversed the District Court's judgment notwithstanding the verdict (n.o.v.) and reinstated the jury verdict of $220,800 for Nanakuli. The court found that there was substantial evidence to support the jury's finding that Shell breached its contract.
Rule
Under the UCC, an agreement includes express terms, course of dealing, usage of trade, and course of performance, which should be construed as reasonably consistent with each other. Trade usage is a practice with sufficient regularity to justify an expectation of observance, and can bind parties if they are or should be aware of it, even if not members of that specific trade. Course of performance, demonstrated by repeated actions accepted without objection, is the most relevant evidence of the parties' interpretation of their agreement. Price protection, as a trade usage, can be reasonably consistent with an express term of "posted price at time of delivery" if it acts as an exception rather than a total negation. Additionally, merchants have an obligation of good faith, requiring observance of reasonable commercial standards of fair dealing in the trade, which can include giving advance notice of price increases.
Read the full opinion on CourtListener
Case brief last reviewed . Prepared by CaseReader from the published opinion.