Citation. 664 F.2d 772 (9th Cir. 1981)
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Appellant Nanakuli Paving & Rock Co. entered into a contract to purchase all of its asphalt from Appellee Shell Oil Co. The contract did not expressly provide price protection. However, price protection is widely used in the locality and had been provided by Appellee on two occasions.
Synopsis of Rule of Law.
Despite the parol evidence rule, the UCC allows the admission course of performance, course of dealing, and trade usage evidence.
Facts.
Appellant entered into a supply contract with Appellee. Appellee agreed to supply Appellant with all of its asphalt requirements. Appellant claims that Appellee breached the contract by not offering price protection. Appellant alleges that price protection is used by all suppliers in the trade and that price protection is the “commercially reasonable standard for fair dealing” in the trade. In support of the claim, Appellant presented evidence of trade usage of price protection. In addition, Appellant provided evidence of two prior instances where Appellee provided price protection under the contract.
Issue.
Was extrinsic evidence that price protection should be incorporated into the contract properly admitted?
• Was the evidence of trade usage properly admitted?
• Was the evidence of course of performance properly admitted?
Held.
Yes. The UCC allows the admission of extrinsic evidence of trade usage and course of performance.
• Usage of trade is “any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.” The UCC allows the court to look at trade usage in contract interpretation. The Court interprets the UCC trade usage comments to allow use of practices in the locality that include other trades or vocations if those practices are so common that the parties are aware of them. The Court held that the definition of trade usage used by the trial court was not too broad as to Appellee.
• Course of performance looks at how the parties have already performed under the contract. Appellant presented evidence that Appellee had given price protection in the past. Appellee argues that the two prior instances do not amount to course of performance. However, they were the only two times the issue had come up and when it did arise in the past, Appellee indicated that Appellant was entitled to the price protection. Appellee also argues that the prior two instances were merely a waiver, but the Court held that it was properly determined to be course of performance by the jury.
• Appellant also argues that good faith required the inclusion of price protection. Good faith for merchants is defined by the UCC as “the observance of reasonable commercial standards of fair dealing in the trade.” Appellant presented evidence that the amount of notice given by Appellee prior to increasing price did not conform with reasonable commercial standards of fair dealing. The Court held that the jury had enough evidence to find that the price increase did not conform with the good faith standard and reinstated the jury’s verdict.
Discussion.
In the present case, the Court reinstated the jury verdict incorporating price protection into the contract based on evidence of course of performance and trade usage.
