## Facts

- Several hundred lessee dealers in multiple states leased Shell-branded service stations and operated them as independent businesses.
- Each dealer executed a Lease and a Dealer Agreement with Shell and operated within a regulatory setting that included the Petroleum Marketing Practices Act.
- The Dealer Agreement required dealers to purchase Shell-branded gasoline at Shell’s “dealer prices … in effect” at the time of purchase, i.e., Shell’s dealer tank wagon (DTW) posted price including delivery.
- The DTW provision was an open-price term governed by Texas Business and Commerce Code § 2.305(b), requiring the price-setter to set the price in good faith.
- Dealers alleged Shell set DTW prices so high that it placed them at a competitive disadvantage and was intended to force them out of business.
- Shell contended its DTW prices were commercially reasonable compared to other refiners’ prices in the relevant market and were applied uniformly to similarly situated dealers.
- The trial court granted summary judgment for Shell; the court of appeals reversed based on circumstantial evidence of alleged improper motive; the Texas Supreme Court granted review.

## Issues

1. Under Texas Business and Commerce Code § 2.305(b), does a seller act in “good faith” when it sets a commercially reasonable, nondiscriminatory posted price under an open-price term, despite allegations of improper subjective motive?

## Decision

- The Texas Supreme Court reversed the court of appeals and rendered judgment that the dealers take nothing.
- Shell established good faith as a matter of law under § 2.305(b) because its DTW prices were commercially reasonable in the market and applied without discrimination among similarly situated dealers.
- Alleged improper subjective motives, without evidence of objectively unreasonable or discriminatory pricing, did not create a genuine issue of material fact on good faith.

## Legal Principles

- Under § 2.305(b), a party empowered to set an open contract price must do so in good faith, measured by honesty in fact and reasonable commercial standards of fair dealing in the trade.
- In posted-price open-term contracts, good faith is ordinarily satisfied when the price is within the range of prices charged by other sellers in the relevant market and is applied uniformly to similarly situated buyers.
- Claims centered on the seller’s alleged intent or motive do not defeat good faith when the challenged price is commercially reasonable and nondiscriminatory.
- A buyer may raise a fact issue on lack of good faith with evidence that the price is outside commercially reasonable bounds or that the seller discriminated among similarly situated buyers.

## Conclusion

The court held that § 2.305(b) good faith in open-price gasoline supply contracts is primarily an objective inquiry: a commercially reasonable, nondiscriminatory posted DTW price satisfies the statute as a matter of law, and allegations of improper motive alone do not require a trial.


Shell Oil Co. v. HRN, Inc., 144 S.W.3d 429 (Tex. 2004)