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Eastern Air Lines, Inc. v. Gulf Oil Corporation

    Brief Fact Summary. Eastern Air Lines, Inc. (Eastern) and Gulf Oil Corporation (Gulf) have contracted for over 30 years for Gulf to supply Eastern with fuel. Among other issues presented during litigation, Gulf has claimed that Eastern’s practice of “fuel freighting” violates their contract. “Fuel freighting” consists of taking on more or less fuel at certain Gulf stations, regardless of actual operating requirements, depending on the relative prices at the Gulf 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. Eastern and Gulf have contracted for years for the purchase and sale of aviation fuel. Under the most recent “requirements” contract, all Eastern aviation fuel purchased at one of the cities covered by the contract must be purchased from Gulf. In return, Gulf must make all necessary arrangements to supply Eastern’s reasonable good faith needs. Eastern 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 Gulf stations, regardless of actual operating requirements, depending on the relative prices at the Gulf stations.

    Issue. Does Eastern’s practice of “fuel freighting” constitute a breach of its agreement with Gulf?

    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. Gulf 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, Eastern 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.


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