Nanakuli Paving and Rock Co PDF

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Nanakuli Paving and Rock Co. v. Shell Oil Co. COURT AND DATE: United States Court of Appeals for the Ninth Circuit (1981) PROCEDURAL HISTORY:

ISSUE: Can courts admit evidence of customary trade usage and course of performance for parties to demonstrate implied contract terms? TRIGGER FACTS: Nanakuli Paving & Rock Co. (plaintiff) entered a contract with Shell Oil Co. (defendant) to supply asphalt to Nanakuli. The contract set the price as the price posted by Shell at the time of delivery. For several years Shell maintained the initial price for Nanakuli. Shell later increased the price in a letter giving Nanakuli one-day notice of the change. Nanakuli brought a breach of contract suit, claiming that the contract contained an implied price-protection requirement, which was a customary trade practice in the Hawaiian asphalt industry. Shell countered that no such customary trade practice existed and that the contract terms controlled the price. Nanakuli argued that even if price protection was not a term of the contract, Shell did not exercise good faith by giving only a one-day notice of the price increase. The jury ruled in favor of Nanakuli. The jury found that Shell breached the contract by failing to offer price protection. The jury also found that Shell did not exercise good faith due to its failure to provide advance notice of the new price. Shell filed a motion notwithstanding the verdict, and the district court set aside the verdict. Nanakuli appealed

PLAINTIFF’S MAIN ARGUMENTS: DEFENDANT’S MAIN ARGUMENTS:

RULE (the law): Courts can admit evidence of customary trade usage and course of performance for parties to demonstrate implied contract terms.

HOLDING + REASONING: Yes. Courts can admit evidence of customary trade usage and course of performance for parties to demonstrate implied contract terms. Courts can imply trade usage and course of performance into contracts if there is (1) evidence that it is consistent with the terms of the contract and (2) the purported trade usage is so prevalent that the parties would have intended to incorporate them. In this case, a reasonable jury could have found that that price protection was reasonably consistent with the express term of Shell’s posted price at delivery. Regarding the second requirement, Hawaii adopted the U.C.C., which calls for a liberal interpretation of commercial trade usages. The court should take into account Hawaii’s unique commercial practices in the asphalt market. In the market, price protection occurs when prices increase, and only for work performed prior to those increases. Hence Hawaiian businesses routinely practice price protection. Shell should have known that it was necessary to utilize price protection to operate within the market. Moreover, Shell’s past performance of maintaining

Parol Evidence Nanakuli’s initial price indicated that it was aware of the practice of price protection and that Nanakuli expected this as part of performance. Additionally, U.C.C. § 2-103(1)(b) notes that good faith requires the parties to observe reasonable standards of fair dealing. The jury reasonably found that Shell's failure to give sufficient advance notice and price protect Nanakuli after the imposition of the new price did not conform to good faith dealings in Hawaii. The trial court’s judgment is reversed, and the jury's verdict is reinstated....