Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc.

664 F.2d 772 (9th Cir. 1981)

Facts

Nanakuli (P) contracted with Shell (D) to purchase its requirements of asphalt under two long-term contracts. The contract had specific prices for the asphalt. Between 1969 and 1974, D sold to P at the same price while raising it to others. Afterward the price increased. P sued; an implied condition of the contract was D's duty to protect prices. P maintained that this was a customary practice of the trade and it was assumed to be part of the contract. P also argued that D's past performance of the contract indicated that P's position was correct. D claims that there is no such trade practice and its past performance was a waiver of the prior terms for that time. D argued that the specific price terms controlled. The jury returned a verdict of $220,800 for P on its first claim by failing to price protect P on 7200 tons of asphalt at the time D raised the price for asphalt from $44 to $76. P contends that price-protection, as a usage of the asphaltic paving trade in Hawaii, was incorporated into the 1969 agreement between the parties, as demonstrated by the routine use of price protection by suppliers to that trade, and reinforced by the way in which D actually performed the 1969 contract up until 1974. P had already incorporated that price into bids put out to or contracts awarded by general contractors and government agencies. The court set aside a jury verdict for P and gave judgment n.o.v. to D. P appealed. P argues that all material suppliers to the asphaltic paving trade in Hawaii followed the trade usage of price protection and thus it should be assumed, under the U.C.C., that the parties intended to incorporate price protection into their 1969 agreement. P contends that proof of a usage was incorporated into the contract is reinforced by evidence of the commercial context, which under the U.C.C. should form the background for viewing a particular contract. P contends that the U.C.C. looks to the actual performance of a contract as the best indication of what the parties intended those terms to mean. P also argues that even if custom and usage or prior dealings do not control, that price protection was the commercially reasonable standard for fair dealing in the asphaltic paving trade in Hawaii in 1974. Observance of those standards is part of the good-faith requirement.