Friday, October 5, 2012

Nanakuli Paving & Rock Co. v. Shell Oil Co. case brief

Nanakuli Paving & Rock Co. v. Shell Oil Co.
664 F.2d 772
Case Synopsis:
Appellant paving company, in its action for breach of contract, sought review of an order of the United States District Court for the District of Hawaii that entered judgment notwithstanding the verdict in appellee oil company’s favor.

-Nanakuli Paving (P) entered into two long term contracts to purchase its requirements of asphalt from Shell Oil (D).
-The contract was a fully integrated writing and gave the price term as “Shell’s Posted Price at time of delivery.”
-For several years Shell Oil charged the same price for the asphalt despite increasing the cost to other customers.
-D finally increased to cost to P and P sued, claiming that under customary trade practice there was an implied requirement for D to protect prices.
-P pointed to the routine use of price protection by asphalt suppliers.
-D claimed that no such trade practice existed and that the price terms under the contract controlled. -The jury awarded $220,800 to P for D’s failure to price protect.
-The court set aside the verdict and entered judgment notwithstanding the verdict for D and P appealed.

On review, the court determined that the Uniform Commercial Code in Hawaii required the court to look at external circumstances in order to determine the intent of the parties to a contract. The court also held that the unique circumstances of the market on Oahu and in Hawaii in general created a general trade usage of price protection in the sale of asphalt. The court found the trial court did not err in allowing evidence of trade usage to be admitted into the record, and found sufficient evidence supported the jury’s verdict in favor of the appellant. The judgment of the trial court was reversed and the jury verdict was reinstated.

-An agreement means the bargain of the parties in fact as found in the contract language or by implication from other circumstances including course of dealing, trade usage, or course of performance.

  • The Uniform Commercial Code considers actual performance of a contract as the most relevant evidence of how the parties interpreted the terms of that contract.
  • Trade usage is to be used to reach the commercial meaning of the agreement by interpreting the language as meaning what it may fairly be expected to mean to parties involved in the particular transaction in a given locality or in a given vocation or trade.
  • A party is always held to conduct generally observed by members of his chosen trade because the other party is justified in so assuming unless he indicates otherwise. He is held to more general business practices to the extent of his actual knowledge of those practices or to the degree his ignorance of those practices is not excusable: they were so generally practiced he should have been aware of them.
  • In cases of a well established line of usage varying from the general rules of the Uniform Commercial Code where the precise amount of the variation has not been worked out into a single standard, the party relying on the usage is entitled, in any event, to the minimum variation demonstrated. The whole is not to be disregarded because no particular line of detail has been established. In case a dominant pattern of usage has been fairly evidenced, the party relying on the usage is entitled to go to the trier of fact on the question of whether such dominant pattern has been incorporated into the agreement.
  • Course of performance under the Uniform Commercial Code is the action of the parties in carrying out the contract at issue, course of dealing consists of relations between the parties prior to signing that contract.
  • Course of dealings is more important than usages of the trade, being specific usages between the two parties to the contract. Course of dealing controls usage of trade. It is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
  • Course of dealing is restricted, literally, to a sequence of conduct between the parties previous to the agreement. However, the provisions of the Uniform Commercial Code on course of performance make it clear that a sequence of conduct after or under the agreement may have equivalent meaning.
  • Uniform Commercial Code § 2-202 was meant to liberalize the common law parol evidence rule to allow evidence of agreements outside the contract, without a prerequisite finding that the contract was ambiguous and requires that contracts be interpreted in light of the commercial context in which they were written and not by the rules on legal construction.
Judgment notwithstanding the verdict was reversed and jury verdict reinstated because the verdict in favor of the appellant was supported by sufficient evidence of trade usage of price protection.

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