Flower City Painting Contractors v. Gumina Construction Co.

United States Court of Appeals for the Second Circuit · 1979 · Contracts

ContractsMutual assentAmbiguityTrade usagemutual assentmeeting of the mindslatent ambiguitytrade usage

Facts

Gumina, the prime contractor on a federally funded housing project, awarded a painting subcontract to Flower, a newly formed minority-owned painting contractor, as part of its affirmative action obligations. The subcontract incorporated Flower's Schedule A, which priced the job by apartment "units," and also incorporated project specifications that described additional painting work, creating ambiguity about whether the subcontract covered only unit interiors or all project painting. About a year later, Flower asserted that exterior and common-area painting was outside the subcontract and demanded extra payment, while Gumina insisted that all such work was already included and cancelled the subcontract. The district court accepted Gumina's interpretation, but the court of appeals focused instead on whether the parties had ever agreed to the same scope of work.

Issue

When a subcontract's scope is materially ambiguous, and each party reasonably attaches a different meaning to it, is there an enforceable contract if neither party knew or had reason to know of the other's understanding? More specifically, could trade usage supply the meaning against a novice subcontractor who lacked knowledge and reason to know of that usage?

Rule

If a party's manifestations are uncertain or ambiguous, and that party has no reason to know they may bear a different meaning to the other party, those manifestations create a contract only if the other party attaches the same meaning to them. Trade usage may help interpret an ambiguous contract only against a party who knows or has reason to know of the usage's existence and nature.

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In Denver, Summit Crest Builders signed a subcontract with Elena Ruiz, a first-time flooring contractor, for work on a 60-unit housing complex. The subcontract attached a schedule pricing "studio units" and "one-bedroom units" by per-unit amounts, but it also incorporated project specifications describing flooring for lobbies, stairwells, and the leasing office. When work was about to begin, Elena insisted the contract covered apartment interiors only, while Summit Crest insisted it covered all flooring on the complex.

If both interpretations are reasonable and neither side knew or had reason to know of the other's meaning when they signed, what is the strongest conclusion?

Explanation. The majority rule is that if a material term is ambiguous, each party reasonably gives it a different meaning, and neither party knows or has reason to know of the other's understanding, there is no mutual assent and thus no contract. The issue is not bad faith, nor is there an automatic preference for the broader reading or the incorporated specifications. The ambiguity concerns the scope of the promised performance, which is material.