Citation. 415 F. Supp. 429 (S.D. Fla. 1975)
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Plaintiff Eastern Air Lines, Inc. and Defendant Gulf Oil Corporation have contracted for over 30 years for Defendant to supply Plaintiff with fuel. Among other issues presented during litigation, Defendant has claimed that Plaintiff’s practice of “fuel freighting” violates their contract. “Fuel freighting” consists of taking on more or less fuel at certain of Defendant’s stations, regardless of actual operating requirements, depending on the relative prices at Defendant’s stations.
Synopsis of Rule of Law.
“Good faith” between merchants under the U.C.C. means “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.”
Facts.
Plaintiff and Defendant have contracted for years for the purchase and sale of aviation fuel. Under the most recent “requirements” contract, all of Plaintiff’s aviation fuel purchased at one of the cities covered by the contract must be purchased from Defendant. In return, Defendant must make all necessary arrangements to supply Plaintiff’s reasonable good faith needs. Plaintiff has been able to manipulate its requirements through a practice called “fuel freighting.” “Fuel freighting” consists of taking on more or less fuel at certain of Defendant’s stations, regardless of actual operating requirements, depending on the relative prices at Defendant’s stations.
Issue.
Does Plaintiff’s practice of “fuel freighting” constitute a breach of its agreement with Defendant?
Held.
No. “Good faith” between merchants under the U.C.C. means “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” The parties here have been dealing with each other for 30 years. Defendant has never complained of fuel freighting and apparently accepted it as normal procedure. In fact, the Court concluded that fuel freighting is an established industry practice, inherent in the nature of the business. Therefore, Plaintiff has not violated the contract between the parties.
Discussion.
Good faith under the U.C.C. requires that the parties observe reasonable commercial standards in the trade.
