Nanakuli Paving and Rock Co. v. Shell Oil Co.

Facts

Nanakuli, the second largest asphaltic paving contractor in Hawaii, bought all its asphalt from Shell from 1963 to 1974 under two long-term supply contracts. The later contract was signed in 1969. Its written price term was Shell's posted price at time of delivery, F.O.B. Honolulu. Shell and Nanakuli had a close relationship on Oahu, and Shell's asphalt business there grew with Nanakuli's. The largest paving contracts were let by government agencies, and none of them allowed escalation clauses, so Nanakuli had to bid fixed prices. Suppliers of asphalt and aggregate on Oahu routinely practiced price protection: after an increase, they held the old price for work already committed, for a period of time or a set tonnage. Shell price protected Nanakuli after its price increases in 1970 and 1971. By 1973 Shell's asphalt management had changed completely. In 1974 Shell raised its price from $44 to $76 by a letter written December 31 and received January 4. Nanakuli asked for price protection on 7200 tons it had already committed in bids. Shell's new managers did not fully understand the 1969 agreement and knew nothing of Shell's past pricing practices toward Nanakuli, and they refused. Nanakuli said the refusal breached the 1969 contract.

Issues

1. Did the judge abuse his discretion in defining the relevant trade, for purposes of trade usage, as the asphaltic paving trade in Hawaii rather than the purchase and sale of asphalt alone?
2. Could a jury treat Shell's two earlier acts of price protection as a course of performance of the 1969 contract, rather than as mere waivers of its price term?
3. Could a jury find that price protection was reasonably consistent with the express price term of Shell's posted price at time of delivery?
4. Could a jury find that good faith required Shell to give advance notice of its 1974 price increase and to price protect work Nanakuli had already bid?

Holding

Under these particular facts, a reasonable jury could find that price protection was a usage incorporated into the 1969 agreement and was reasonably consistent with the posted-price term. A jury could also find that Shell breached its good-faith duty. The judgment n.o.v. was error.