## Facts

- Nanakuli Paving & Rock Co., a major Hawaii paving contractor, bought all of its asphalt requirements from Shell Oil from 1963–1974 under long-term supply contracts, including a 1969 contract.
- The 1969 contract set the price as Shell’s “posted price at the time of delivery.”
- Nanakuli typically bid and performed fixed-price public and construction projects that did not allow asphalt price-escalation clauses, making sudden asphalt price increases materially harmful.
- In the Hawaii asphaltic paving trade, suppliers commonly provided “price protection,” meaning they held the old price for asphalt needed to complete work already bid or awarded when a posted price increase occurred.
- In 1970 and 1971, Shell raised prices but nonetheless provided Nanakuli price protection for a period after each increase.
- In January 1974, Shell increased its posted price from $44 to $76 per ton, gave only one day’s notice, and provided no price protection on approximately 7,200 tons.
- Nanakuli sued for breach, alleging that trade usage and the parties’ course of performance made price protection part of the contract and, alternatively, that Shell’s conduct breached the UCC duty of good faith.
- A jury found for Nanakuli and awarded $220,800; the district court entered judgment notwithstanding the verdict for Shell; Nanakuli appealed.

## Issues

1. Whether UCC principles permit trade usage and course of performance to explain, supplement, or qualify a written price term.
2. Whether the relevant trade usage should be defined broadly (asphaltic paving industry in Hawaii) or narrowly (asphalt suppliers only).
3. Whether Shell’s prior price protection in 1970 and 1971 could be treated as a course of performance under UCC § 2-208 rather than isolated waivers.
4. Whether a price-protection obligation can be construed as consistent with a “posted price at the time of delivery” clause.
5. Whether Shell’s one-day notice and refusal to protect existing commitments could support a finding of lack of good faith under the UCC.

## Decision

- The Ninth Circuit vacated the JNOV and reinstated the jury’s verdict for Nanakuli.
- The court held there was sufficient evidence for reasonable jurors to find a Hawaii trade usage of price protection applicable to Shell’s dealings with a paving contractor.
- The court held the jury could treat Shell’s prior grants of price protection as course of performance relevant to the contract’s meaning.
- The court held the jury could reasonably reconcile price protection with the posted-price term as a qualification governing how a price increase would apply to already-committed tonnage.
- The court concluded the evidence did not compel a single result contrary to the jury’s findings, so the verdict had to stand.

## Legal Principles

- Under the UCC, trade usage, course of dealing, and course of performance may explain or supplement a written agreement and are part of interpreting the parties’ bargain.
- A trade usage may bind a party that is in the trade or that knew or should have known of the practice.
- Repeated performance accepted or acquiesced in without objection can establish course of performance and inform the meaning of express terms. (UCC § 2-208.)
- Express terms and trade usage should be construed as consistent when a reasonable construction permits; a usage may qualify how an express term operates without negating it.
- A merchant’s obligations include good faith measured by reasonable commercial standards of fair dealing, including in open-price settings and price-change practices.

## Conclusion

The court reinstated a jury verdict finding that Shell breached its asphalt supply contract by failing to provide trade-usage-based price protection after a major posted-price increase, holding that UCC trade usage and course of performance evidence could qualify the operation of an express posted-price term.


Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772 (9th Cir. 1981)