Contracts

Nanakuli Paving & Rock Co. v. Shell Oil Co. — Study Notes

664 F.2d 772 (9th Cir. 1981)

Study notes for Nanakuli Paving & Rock Co. v. Shell Oil Co.: professor notes, cold call prep, exam angles, and memory aids.

A party can enforce an implied price protection term based on prior conduct and trade usage under the UCC.
Professor Notes

In this case, the court focused on the importance of the implied terms within a contract based on prior dealings and industry standards. Professors will likely emphasize how course of dealing and usage of trade can create enforceable expectations in contracts, even when those terms are not explicitly written down. The court's ruling reflects the need for parties to act in good faith to uphold the established business practices that contribute to the performance of contractual obligations.

Additionally, the case illustrates a fundamental aspect of the Uniform Commercial Code (UCC), specifically regarding good faith in performance and enforcement of contracts. Professors may highlight the intersection of commercial relationships and trust, stressing the importance of maintaining historic pricing norms in long-term business agreements and how they protect against opportunistic behavior in commercial dealings.

Cold Call Prep
  1. 1The implied term of price protection was based on a consistent past practice between Nanakuli and Shell.
  2. 2The court considered industry standards and established dealings as factors in determining the enforceability of the price protection term.
  3. 3Good faith under the UCC requires parties to honor previous arrangements, even if not formally documented.
  4. 4Key evidence supporting Nanakuli's claim stemmed from Shell's prior absorption of price increases.
  5. 5The ruling underscores that conduct may inform contractual obligations, particularly in long-term relationships.
Mnemonic Device

NANAKULI gives: 'No Absorption, No Arbitrary Kicks Increases Leading to Unfair Loss Inference.'

Distinguish From
CaseDistinction
UCC § 2-201 (Statute of Frauds)This case involves implied terms from conduct, while UCC § 2-201 addresses the necessity of a written contract for the sale of goods over $500.
Restatement (Second) of Contracts § 205 (Duty of Good Faith)The duty of good faith here is derived from a specific course of dealing, whereas § 205 provides a general duty applicable to all contracts.
Eastern Airlines, Inc. v. Gulf Oil Corp.In Eastern Airlines, the court focused on explicit terms, while Nanakuli emphasizes implied protection through course of dealings.
Policy Arguments

For the Rule

Supporting the rule encourages businesses to maintain long-standing relationships and investment in trust, minimizing disputes and fostering predictability in contractual obligations.

Against the Rule

Against enforcing implied terms may protect companies from unintended liabilities based on expectations that should not be legally binding without explicit agreement.

Class Discussion Points
  • Discuss the implications of relying on implied terms in contracts and how this affects business relationships.
  • Evaluate the balance between protecting established practices and allowing freedom in contractual negotiations.
  • Explore other cases where course of dealing has impacted contract interpretation.
Exam Angle

On exams, this case may appear in questions dealing with implied terms in contracts, the enforceability of agreements in the context of established dealings, or the application of good faith principles under the UCC.

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