Quick Summary
Nanakuli Paving and Rock Company (Nanakuli), a Hawaiian paving contractor, alleges that Shell Oil Company (Shell), its asphalt supplier, breached their 1969 contract by failing to provide price protection when Shell raised prices in 1974.
The jury initially awarded Nanakuli damages, but the district court granted Shell’s motion for judgment notwithstanding the verdict. On appeal, the court reinstated the jury verdict, holding that there was sufficient evidence to support Nanakuli’s claim.
Facts of the Case
From 1963 to 1974, Nanakuli purchased all its asphalt requirements from Shell under two long-term supply contracts. These contracts were part of a mutually advantageous arrangement between the two companies to expand their respective businesses on the island of Oahu.
The contract in question was signed in 1969 and included provisions for price protection. Evidence showed that price protection was common among material suppliers to the asphaltic paving trade in Hawaii, including Shell’s competitor, Chevron, and aggregate suppliers.
Nanakuli argued that this trade usage of price protection was incorporated into their contract with Shell or constituted a commercially reasonable standard for fair dealing.
Procedural History
- Nanakuli filed a breach of contract action against Shell in Hawaiian State Court in 1976.
- The jury initially awarded damages to Nanakuli, but the district court granted Shell’s motion for judgment notwithstanding the verdict.
- Nanakuli appealed the district court’s decision.
I.R.A.C. Format
Issue
Whether Shell Oil Co. violated its contractual obligations with Nanakuli Paving & Rock Co. by neglecting to offer price protection and appropriate advance notice of a price increase.
Rule of Law
Trade usage can be part of a contract under the U.C.C. if regularly observed, and parties’ conduct can establish their agreement’s terms.
Reasoning and Analysis
The court evaluated the applicability of trade usage and the course of performance in a contract dispute between Nanakuli Paving & Rock Co. and Shell Oil Co. Trade usage, defined as regular practices in a specific trade, was deemed applicable to the asphaltic paving trade in Hawaii, encompassing both parties.
The court considered Shell’s consistent course of performance, noting instances of price protection provided to Nanakuli after the contract’s initiation. This demonstrated the parties’ shared understanding that price protection was part of their agreement, aligning with the express contract term indicating Shell’s posted price at delivery.
The court reasoned that such a term could reasonably coexist with price protection, as it temporarily retains the old price during increases. Importantly, in the context of the asphaltic paving trade’s commercial reasonableness, the court emphasized that Shell was mandated to offer price protection, reinforcing the obligation to act fairly in contractual dealings.
Conclusion
The court held sufficient evidence to support Nanakuli’s claim of breach of contract by Shell. The jury verdict was reinstated, and Nanakuli was awarded damages for Shell’s failure to provide price protection.
Key Takeaways
- Trade usage can be incorporated into a contract if it is regularly observed in the relevant trade or locality.
- Course of performance and commercial context can be considered in interpreting a contract.
- Price protection can be reasonably consistent with an express price term if it does not negate it.
- Good faith requires adherence to commercially reasonable standards for fair dealing.
Relevant FAQs of this case
How does trade usage impact contract terms in the absence of explicit provisions?
Trade usage can supplement or even override written contract terms if it has regular observance, creating an expectation of incorporation.
- For example: In a contract for the sale of goods, if the industry routinely allows a grace period for delivery, it may be implied in the contract through trade usage, even if not explicitly stated.
When does a deviation from trade usages constitute a breach under the U.C.C.?
A deviation from trade usage may constitute a breach if it undermines the reasonable expectations established by the industry practices.
- For example: If it is customary in the market to provide a specific electronic warranty period, a seller deviating from this practice without agreement may be in breach under the U.C.C.
References
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