Government Contracting Database
(See Metric Constructors, Inc. v. NASA (United States Court of Appeals for the Federal Circuit, decided March 3, 1999))
When a contract is susceptible to more than one reasonable interpretation, it contains an ambiguity. See Hills Materials Co. v. Rice, 982 F.2d 514, 516 (Fed. Cir. 1992). To show an ambiguity it is not enough that the parties differ in their respective interpretations of a contract term. See Community Heating & Plumbing Co. v. Kelso, 987 F.2d 1575, 1578 (Fed. Cir. 1993). Rather, both interpretations must fall within a “zone of reasonableness.” See WPC Enters., Inc. v. United States, 323 F.2d 874, 876 (Ct. Cl. 1964). If this court interprets the contract and detects an ambiguity, it next determines whether that ambiguity is patent. See Newsome v. United States, 676 F.2d 647, 649-50 (Ct. Cl. 1982). The doctrine of patent ambiguity is an exception to the general rule of contra proferentem which construes an ambiguity against the drafter, here, NASA. See id.; Sturm v. United States, 421 F.2d 723 (Ct. Cl. 1970). An ambiguity is patent if “so glaring as to raise a duty to inquire[.]” Newsome, 676 F.2d at 650. If an ambiguity is not patent but latent, this court enforces the general rule. See Fort Vancouver Plywood Co. v. United States, 860 F.2d 409, 414 (Fed. Cir. 1988).
This case squarely presents the recurring issue of the role of evidence of trade practice and custom in contract interpretation. The case law identifies two seemingly divergent roles for such evidence. One line of cases holds that this court may consult evidence of trade practice and custom to discern the meaning of an ambiguous contract provision, but not to contradict or override an unambiguous contract provision. In R. B. Wright Construction Co. v. United States, 919 F.2d 1569 (Fed. Cir. 1990), for example, the contract required the contractor to apply three coats of paint to specified surfaces. The contractor applied three coats of paint to previously unpainted surfaces and, in accordance with industry practice, applied only two coats of paint to previously painted surfaces. This court interpreted the contract to unambiguously require three coats of paint on all surfaces, regardless of industry practice: “Neither a contractor’s belief nor contrary customary practice . . . can make an unambiguous contract provision ambiguous, or justify a departure from its terms.” Id. at 1572; see also WRB Corp. v. United States, 183 Ct. Cl. 409 (1968) (finding that a trade practice of using masonite doors on paint-grade cabinets does not overcome an unambiguous contract provision requiring wood doors on paint-grade cabinets); George Hyman Constr. Co. v. United States, 564 F.2d 939, 945 (Ct. Cl. 1977) (“A trade practice cannot prevail over unambiguous provisions of a contract . . . .”).
The second line of cases holds that this court may consult evidence of trade practice and custom to show that “language which appears on its face to be perfectly clear and unambiguous has, in fact, a meaning different from its ordinary meaning.” Gholson, Byars, and Holmes Constr. Co. v. United States, 351 F.2d 987, 999 (Ct. Cl. 1965). In Gholson, this court’s predecessor considered the meaning of a contract term requiring “painting of all previously painted or varnished surfaces.” The contractor contended that a baked enamel surface, although admittedly a “previously painted surface,” was not regarded as such in the industry. The Board declined to consider the evidence of trade practice because the contract language was clear on its face. On appeal, the United States Court of Claims reversed: “[T]he principle is now established in this court (and almost every other court) that in order that the intention of the parties may prevail, the language of a contract is to be given effect according to its trade meaning notwithstanding that in its ordinary meaning it is unambiguous.” Id.; see also W.G. Cornell Co. v. United States, 376 F.2d 299, 311 (Ct. Cl. 1967) (finding legal error where the Board failed to consider trade practice and custom because of its holding that the contract was unambiguous).
These two lines of cases, however, only seem to diverge. In practice, they are both consistent with contract interpretation doctrines and practices. The United States Court of Federal Claims recognized those unifying principles in Western States Construction Co. v. United States, 26 Cl. Ct. 818 (1992). In that case, the trial court considered the meaning of a contract term requiring wrapping of underground “metallic pipe” with protective tape. The contractor introduced evidence showing that, in the industry, “cast iron soil pipe,” although technically “metallic pipe,” was not wrapped with protective tape. The Court of Federal Claims, aptly reconciling the two seemingly conflicting lines of cases of this court and its predecessor, consulted trade practice and custom to determine whether wrapping of cast iron soil pipe was consistent with the contract and thus whether an ambiguity arose at all. See id. at 826. This Western States analysis correctly applies the law of contract interpretation.
This court adheres to the principle that “the language of a contract must be given that meaning that would be derived from the contract by a reasonably intelligent person acquainted with the contemporaneous circumstances.” Hol-Gar Mfg. Corp. v. United States, 351 F.2d 972, 975 (Ct. Cl. 1965). Thus, to interpret disputed contract terms, “the context and intention [of the contracting parties] are more meaningful than the dictionary definition.” Rice v. United States, 428 F.2d 1311, 1314 (Ct. Cl. 1970); see also Western States, 26 Cl. Ct. at 825; Corman v. United States, 26 Cl. Ct. 1011, 1015 (1992). Trade practice and custom illuminate the context for the parties’ contract negotiations and agreements. Before an interpreting court can conclusively declare a contract ambiguous or unambiguous, it must consult the context in which the parties exchanged promises. Excluding evidence of trade practice and custom because the contract terms are “unambiguous” on their face ignores the reality of the context in which the parties contracted. That context may well reveal that the terms of the contract are not, and never were, clear on their face. On the other hand, that context may well reveal that contract terms are, and have consistently been, unambiguous.
Thus, evidence of trade practice and custom plays an important role in contract interpretation. Before arriving at a legal reading of a contract provision, a court must consider the context and intentions of the parties. That context may or may not disclose ambiguities. In any event, evidence of trade practice and custom is part of the initial assessment of contract meaning. It illuminates the contemporaneous circumstances of the time of contracting, giving life to the intentions of the parties. It helps pinpoint the bargain the parties struck and the reasonableness of their subsequent interpretations of that bargain.
This role for evidence of trade usage, however, does not mean that a court should always accept evidence of trade practice and custom in interpreting the terms of a contract. A contracting party cannot, for example, invoke trade practice and custom to create an ambiguity where a contract was not reasonably susceptible of differing interpretations at the time of contracting. Trade practice evidence is not an avenue for a party to avoid its contractual obligations by later invoking a conflicting trade practice. R. B. Wright and similarly decided cases stand for this important proposition of contract interpretation law.
Instead, a court should accept evidence of trade practice only where a party makes a showing that it relied reasonably on a competing interpretation of the words when it entered into the contract. Without such a showing, evidence that some practitioners customarily accomplish tasks differently from the manner called for by the contract will not overcome the clear language of the contract. This requirement helps ensure that the evidence of trade practice and custom truly reflects the intent of the contracting party, and avoids according undue weight to that party’s purely post hoc explanations of its conduct.
The Gholson rule and these principles of contract interpretation find general support in authoritative legal commentaries. The commentaries agree that courts should use evidence of trade practice and custom not only to determine the meaning of an ambiguous provision but to determine whether a contract provision is ambiguous in the first instance. See, e.g., Restatement (Second) of Contracts 220 cmt. d (1981) (“[U]sage relevant to interpretation is treated as part of the context of an agreement in determining whether there is ambiguity or contradiction . . . .”); 3 Arthur L. Corbin, Corbin on Contracts 555 at 232-39 (1960) (“Seldom should the court hold that the written words exclude evidence of the custom, since even what are often called “plain” meanings are shown to be incorrect when all the circumstances of the transaction are known, and usages and customs are a part of those circumstances by which the meaning of words is to be judged.”); 5 Samuel Williston, Williston on Contracts 648 at 6-7 (3d ed. 1961) (“Usage is an ordinary means of proving the local or technical meaning of language, and even language which is normally clear and unambiguous may be shown by usage to bear, under the circumstances of the case, a meaning different from its normal sense.”).
Of course, even when accepted, evidence of trade practice and custom does not trump other canons of contract interpretation but rather cooperates with them. Courts prefer, for example, an interpretation of a contract that gives effect to all its terms and leaves no provision meaningless. See United States v. Johnson Controls, Inc., 713 F.2d 1541, 1555 (Fed. Cir. 1983). Thus, a court should consider whether adopting the interpretation advanced by the party relying on trade practice and custom would deprive the specification at issue of all meaning, or if there is a more limited sense in which the requirement still applies. Where canons of contract interpretation point to different interpretations, resolution of the conflict is necessarily left to the facts of the particular case.
Updated: September 10, 2017