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Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Monday, December 8, 2008

Contracts Limerick of the Week: Nanakuli Paving v. Shell Oil

Honolulu I've taught this case for years, and I've always considered it Limerickworthy, but only recently did the proper rhyme scheme occur to me. Giving credit where credit is due, I must acknowledge that my wife, the celebrated poet Catherine Tufariello, suggested the first rhyme word, but only because she never takes my poems seriously. Well, I showed her! The last rhyme word is all mine, and it may be a bit obscure to some, so I have added a link to clarify matters.

Nanakuli Paving and Rock Co. and Shell Oil had developed a symbiotic relationship in which Shell provided asphalt for Nanakuli's paving business, thus giving Shell a partner in Hawaii so that it could compete in the paving business there with its rival, Chevron, which supplied asphalt to Honolulu's leading paving company, H.B. Although the contract between Nanakuli and Shell provided that the price for asphalt would be Shell's posted price at the time of delivery, Nanakuli relied on trade usage evidence to argue that Shell had always granted Nanakuli price protection when rapid changes in petroleum prices would otherwise make Nanakuli's government contracts unprofitable. In fact, there was plenty of evidence that the paving business as it operated in Hawaii would have been commercially impossible without price protection.

Still, the issue was how to reconcile trade usage with a clear price term, as required under the UCC. The Ninth Circuit got creative (in my view) and distinguished permissible "cutting down" of an express term from "negating" it. A negation of the express price term, "Shell's Posted Price at the time of delivery," would have been to permit Nanakuli to set the price. Instead, the court simply "qualified" the express term with an implied term permitting price protection. That is obviously the right result based on commercial reasonableness, but it requires considerable suspension of disbelief.

Nanakuli Paving v. Shell Oil

Was the Ninth Circuit snorting patchouli
Letting parol in to help Nanakuli?
Shell Oil was brought low
As if by a blow
From the bat of a trade-use Gillooly.

[Jeremy Telman]

http://lawprofessors.typepad.com/contractsprof_blog/2008/12/contracts-lim-1.html

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