Nanakuli Paving & Rock Co. v. Shell Oil Co.
Citation: United States Court of Appeals, Ninth Circuit, 664 F.2d 772 (1981)
Facts
Nanakuli, an asphalt paving contractor in Hawaii, had a long-term supply contract with Shell Oil. The written contract set the price for asphalt at Shell’s “posted price at time of delivery.” Shell had twice in the past protected Nanakuli from price increases by holding the price at the previously quoted level for jobs Nanakuli had already bid. Shell then raised prices without advance warning, increasing Nanakuli’s costs on already-bid jobs. Nanakuli sued, arguing that the established course of dealing and trade usage in the Hawaii paving industry created an obligation for Shell to price-protect.
Issue
Whether course of dealing between the parties and trade usage in the relevant industry could supplement or qualify an otherwise unambiguous price term in a written contract governed by the UCC.
Holding
The Ninth Circuit held for Nanakuli, finding that course of dealing and trade usage established a consistent practice of price protection that qualified the written price term. Shell’s unilateral price increases without protection breached the implied obligation of good faith.
Rule
Under the UCC, course of dealing and trade usage are incorporated into a contract and can supplement or qualify express written terms. A party’s consistent prior conduct and industry custom may create obligations beyond the written agreement, and departure from that practice may constitute a breach of good faith.
Significance
A key UCC case demonstrating how Articles 1 and 2 allow extrinsic evidence (course of dealing, course of performance, trade usage) to inform the meaning and obligations of a written contract. It challenges students to grapple with how contextual norms interact with the parol evidence rule and the plain meaning of contract language.