B-140578, OCTOBER 29, 1959, 39 COMP. GEN. 330

B-140578: Oct 29, 1959

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CONTRACTS - CONSTRUCTION - LEASES - RENT BASED ON PIG IRON PRODUCTION UNDER A LEASE AGREEMENT COVERING GOVERNMENT-OWNED STEEL PRODUCING FACILITIES WHICH PROVIDES THAT THE RENT WILL BE BASED ON THE LESSEE'S PIG IRON PRODUCTION. WHERE THE MEANING OR INTENT OF A CONTRACT IS NOT CLEARLY EXPRESSED THE CONTRACT MUST BE CONSTRUED TO CONFORM TO THE INTENT AND CUSTOM AND USAGE. THE ITEMS OF PIG IRON SCRAP AND GRAPHITE ARE NOT FOR INCLUSION IN DETERMINATION OF RENT. 1959: REFERENCE IS MADE TO YOUR LETTER OF AUGUST 20. IF THESE ITEMS ARE INCLUDED. WAS DRAFTED BY THE GOVERNMENT AND IS DATED MAY 4. WHICH ARE LEASED COLLECTIVELY AS THE . RENTAL IS PROVIDED FOR UNDER ARTICLE TWO OF THE LEASE. IT BEING UNDERSTOOD THAT THE PAYMENT OF THIS RENTAL SHALL ENTITLE THE LESSEE TO USE ALL THE FACILITIES (WHICH RIGHT TO USE IS HEREBY GRANTED).

B-140578, OCTOBER 29, 1959, 39 COMP. GEN. 330

CONTRACTS - CONSTRUCTION - LEASES - RENT BASED ON PIG IRON PRODUCTION UNDER A LEASE AGREEMENT COVERING GOVERNMENT-OWNED STEEL PRODUCING FACILITIES WHICH PROVIDES THAT THE RENT WILL BE BASED ON THE LESSEE'S PIG IRON PRODUCTION, TO CONSTRUE THE TERM "PIG IRON" WHEN USED WITH THE WORD "PRODUCTION" AS INCLUDING PIG IRON SCRAP AND GRAPHITE--- A WASTE MATERIAL- -- WOULD BE CONTRARY TO THE INTENT OF THE LESSEE AND THE GENERALLY UNDERSTOOD AND ACCEPTED DEFINITION USED IN THE IRON AND STEEL INDUSTRY WHICH DEFINES THE TERM PIG IRON AS INCLUDING ONLY THE USABLE PRODUCT OF THE BLAST FURNACE; THEREFORE, IN ACCORD WITH THE CONTRACT INTERPRETATION RULE THAT, WHERE THE MEANING OR INTENT OF A CONTRACT IS NOT CLEARLY EXPRESSED THE CONTRACT MUST BE CONSTRUED TO CONFORM TO THE INTENT AND CUSTOM AND USAGE, NOT OTHERWISE INCONSISTENT WITH THE CONTRACT, THE ITEMS OF PIG IRON SCRAP AND GRAPHITE ARE NOT FOR INCLUSION IN DETERMINATION OF RENT.

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, OCTOBER 29, 1959:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 20, 1959, REQUESTING OUR DECISION AS TO WHETHER, UNDER THE TERMS OF A LEASE AGREEMENT COVERING CERTAIN GOVERNMENT-OWNED STEEL PRODUCING FACILITIES TO THE REPUBLIC STEEL CORPORATION, ITEMS OF PIG IRON SCRAP AND GRAPHITE NOT INCLUDED BY THE LESSEE SHOULD BE CONSIDERED IN DETERMINING THE LESSEE'S PIG IRON PRODUCTION FOR THE PURPOSE OF ARRIVING AT THE AMOUNT OF RENT DUE THE GOVERNMENT. IF THESE ITEMS ARE INCLUDED, AN ADMINISTRATIVE AUDIT REPORT NO. G-126, ENCLOSED WITH YOUR LETTER, INDICATES THAT THE LESSEE OWES ADDITIONAL RENTAL OF $144,477.99 ON PIG IRON SCRAP, AND $29,367.19 ON GRAPHITE, FOR THE PERIOD FROM APRIL 1, 1946 THROUGH MARCH 31, 1958. THE LESSEE MAINTAINS, HOWEVER, THAT THE LEASE DOES NOT REQUIRE PAYMENT ON THE GROSS PRODUCTION BUT PERMITS THE DEDUCTIONS WHICH IT HAS USED IN ITS RENTAL COMPUTATIONS.

THE LEASE AGREEMENT, NO. WS-15-S-1015, WAS DRAFTED BY THE GOVERNMENT AND IS DATED MAY 4, 1948. IT COVERS A BLAST FURNACE WITH AUXILIARY FACILITIES INCLUDING A SINTER PLANT LOCATED AT YOUNGSTOWN, OHIO, AND AN ADDITIONAL SINTER PLANT LOCATED AT WARREN, OHIO, WHICH ARE LEASED COLLECTIVELY AS THE , PLANT" FOR THE PERIOD OF 10 YEARS BEGINNING APRIL 1, 1946, AND ENDING MARCH 31, 1956, SUBJECT TO AN OPTION IN THE LESSEE TO PURCHASE AND THE RIGHT TO EXTEND THE LEASE FOR ADDITIONAL 5-YEAR PERIODS NOT TO EXCEED AN AGGREGATE TERM OF 25 YEARS. THE LEASE HAS BEEN EXTENDED FOR AN ADDITIONAL PERIOD OF 5 YEARS ENDING MARCH 31, 1961.

RENTAL IS PROVIDED FOR UNDER ARTICLE TWO OF THE LEASE, IN PERTINENT PART, AS FOLLOWS:

TWO: IN CONSIDERATION OF THE COVENANTS HEREIN CONTAINED AND AS RENTAL FOR THE USE OF THE RESPECTIVE PARTS OR PORTIONS OF THE PLANT, LEASE AGREES TO PAY TO LESSOR THE FOLLOWING:

(A) FOR THE USE OF THE FACILITIES, SIXTEEN AND ONE-HALF CENTS (?165) WITH RESPECT TO EACH NET TON OF PIG IRON PRODUCED BY LESSEE IN LESSEE'S EXISTING YOUNGSTOWN, OHIO BLAST FURNACES (INCLUDING THE FURNACE LEASED HEREUNDER), IT BEING UNDERSTOOD THAT THE PAYMENT OF THIS RENTAL SHALL ENTITLE THE LESSEE TO USE ALL THE FACILITIES (WHICH RIGHT TO USE IS HEREBY GRANTED), WHETHER OR NOT PIG IRON IS PRODUCED IN THE FURNACE; AND

(B) FOR THE USE OF THE FURNACE, SEVENTY-FOUR AND ONE-HALF CENTS (?745) WITH RESPECT TO EACH NET TON OF PIG IRON PRODUCED IN THE FURNACE; * * *

ALSO, UNDER ARTICLE EIGHT, THE LESSEE AGREED "* * * TO KEEP PROPER BOOKS AND RECORDS RELATING TO THE VOLUME OF PRODUCTION UPON WHICH RENTAL HEREUNDER IS BASED AND TO PERMIT LESSOR OR ITS DESIGNATED REPRESENTATIVES TO AUDIT STATEMENTS UPON WHICH RENTAL PAYMENTS ARE MADE AS REFLECTED IN THE BOOKS AND RECORDS REFERRED TO ABOVE.'

AS YOU HAVE INDICATED IN YOUR LETTER, IN AN INTEGRATED STEEL-MAKING PLANT CRUDE IRON ORE IS REDUCED TO A MOLTEN STATE IN THE BLAST FURNACES, IN WHICH CONDITION IT IS REFERRED TO, IN GENERAL, AS MOLTEN PIG IRON. FROM THE BLAST FURNACES THE MOLTEN PIG IRON FLOWS INTO REFRACTORY-LINED TANKS MOUNTED ON WHEELS, OR LADLE-CARS. IT MAY THEN BE TRANSFERRED AND CONVERTED INTO STEEL. GRAPHITE AND OTHER IMPURITIES, INCLUDING SLAG, GATHER IN THE MOLTEN METAL WHICH ORDINARILY ARE REMOVED AS THE IRON IS TAPPED OR POURED. THE SLAG MAY BE DUMPED AND WASTED OR CONVERTED INTO CONCRETE AGGREGATE AND OTHER USES. SINTER IS A LUMPY MATERIAL PREPARED FROM THE FLUE DUST WHICH IS AGGLOMERATED BY HEATING TO A HIGH TEMPERATURE AND CONTAINS VALUABLE AMOUNTS OF COMBINED IRON. MOLTEN IRON WHICH CANNOT BE CONVERTED PROMPTLY INTO STEEL IS CAST INTO PIGS. THIS GENERALLY IS DONE BY THE USE OF A PIG CASTING MACHINE, AN ENDLESS CHAIN OF MOLDS INTO WHICH THE MOLTEN IRON IS POURED, COOLED, AND REMOVED IN THE FORM OF BARS READY FOR STORAGE OR SHIPMENT. SPILLAGE FROM THE PIG CASTING MACHINE, OR SCRAP, USUALLY IS FED BACK INTO THE FURNACES. SEE " IRON AND STEEL," ENCYCLOPAEDIA BRITANNICA (1952), VOL 12, PP. 652-655. CF. YAZOO V. MARX ( COURT OF APPEALS OF LOUISIANA, JUNE 8, 1931), 135 SO. 64, AND THE AUTHORITIES CITED.

DURING THE COURSE OF ADMINISTRATIVE AUDIT EXAMINATIONS APPARENTLY BEGINNING IN 1956, IT WAS DISCLOSED THAT THE LESSEE IN REPORTING ITS PIG IRON PRODUCTION (1) HAD NOT INCLUDED THE SCRAP RESULTING FROM SPILLAGE AT THE PIG CASTING MACHINE, AND (2) HAD DEDUCTED THE ESTIMATED WEIGHT OF GRAPHITE SKIMMED OFF THE TOP OF THE MOLTEN PIG IRON PRODUCED. WITH RESPECT TO (1), THE AUDITORS EXPRESSED THE VIEW THAT THE LESSEE SHOULD BE REQUIRED TO PAY RENT ON ALL THE PIG IRON THAT CAME OUT OF THE BLAST FURNACES ON THE BASIS THAT PIG IRON USED TO MAKE STEEL, PIG IRON CAST INTO PIGS, AND PIG IRON SCRAP WERE ALL ESSENTIALLY THE SAME METAL IN DIFFERENT FORMS; THAT THE PIG IRON SCRAP WAS WITHIN THE GENERAL DEFINITION OF "PIG IRON," THAT IS,"CRUDE IRON PRODUCED IN A BLAST FURNACE.' THE AUDITORS APPLIED THE SAME REASONING TO ITEM (2), EXPRESSING THE VIEW THAT GRAPHITE WAS A PART OF THE MOLTEN PIG IRON PRODUCED AND THEREFORE ANY DEDUCTION THEREFOR SHOULD NOT BE ALLOWED, AND RECOMMENDED THAT ADDITIONAL RENTAL ON ACCOUNT OF THE TWO ITEMS BE CHARGED THE LESSEE.

THE MATTER CONCERNING THE SCRAP WAS REFERRED TO THE CHIEF APPRAISER, PUBLIC BUILDINGS SERVICE, BY THE VALUATION ENGINEER WHO CONCURRED WITH THE VIEWS OF THE AUDITORS STATING IN HIS MEMORANDUM OF AUGUST 21, 1957, HOWEVER, THAT THERE WAS CONSIDERABLE MERIT TO THE CONTENTION PREVIOUSLY ADVANCED IN CONNECTION WITH A SIMILAR SITUATION AT A BLAST FURNACE OPERATED BY REPUBLIC AT GADSDEN, ALABAMA. THE CONTENTION THERE, AS HERE, WAS THAT PIG IRON SCRAP WAS NOT PRODUCTION OF THE BLAST FURNACE, AS THE METAL WAS RECHARGED INTO THE FURNACE AND BECAME PART OF THE SUCCEEDING CAST. IN SUPPORT OF HIS POSITION, THE VALUATION ENGINEER EXPRESSED THE OPINION "THAT THE QUESTION OF RENTAL PAYMENTS FOR THIS SCRAP MUST TURN ON AN INTERPRETATION OF THE LEASE TERMS, AND NOT ON WHAT THE PRIVATE PRACTICE MAY BE AT THIS OR ANY OTHER BLAST FURNACE.' HE REFERRED TO THE DIFFERENCE IN THE TERMS OF THE TWO LEASES; THE GADSDEN LEASE USING THE PHRASE "BASIC OR MERCHANT IRON PRODUCED" AS DISTINGUISHED FROM ,PIG IRON PRODUCED" USED IN THE INSTANT LEASE. THIS HE REGARDED AS ONLY A TECHNICAL DIFFERENCE STATING THAT " "PIG IRON" IS A COMMONLY USED GENERAL TERM APPLIED TO THE IRON PRODUCT OF AN IRON BLAST FURNACE, AND IS EQUALLY APPLICABLE WHETHER THE IRON IS IN THE MOLTEN OR SOLID STATE (PIG OR OTHER SOLID FORMS) OR IS BASIC OR MERCHANT IRON.' IT WAS RECOMMENDED THAT THE DETERMINATION IN THE GADSDEN CASE BE FOLLOWED. FOLLOWING CONSIDERATION AND CONCURRENCE IN THE AUDITOR'S RECOMMENDATION BY YOUR GENERAL COUNSEL'S OFFICE AND FURTHER CORRESPONDENCE AND DISCUSSIONS WITH THE LESSEE, A BILL COVERING THE ADDITIONAL RENT CLAIMED ON ACCOUNT OF THE ITEMS OF SCRAP AND GRAPHITE WAS FORWARDED TO THE LESSEE BY LETTER DATED FEBRUARY 18, 1959, DEMANDING PAYMENT.

THE LESSEE HAS STEADFASTLY MAINTAINED THAT THE METHOD USED IN DETERMINING ITS PIG IRON PRODUCTION FOR THE PURPOSE OF THE RENTAL COMPUTATION IS CORRECT. THE POSITION OF THE LESSEE WAS SET OUT IN SOME DETAIL BY MR. C. L. WHITAKER, ASSISTANT TREASURER, IN HIS LETTER DATED JULY 31, 1956, TO THE AUDIT MANAGER OF YOUR CHICAGO OFFICE. IT IS STATED IN THIS LETTER THAT THE TONNAGES OF PIG IRON PRODUCTION ON WHICH THE RENTAL PAYMENTS HAD BEEN BASED WERE THE TONNAGES DELIVERED FROM THE BLAST FURNACES THROUGH THE OPEN HEARTH AND BESSEMER MIXERS, PLUS THE TONNAGE OF IRON CAST INTO PIGS AT THE PIG MACHINE; THAT THESE TONNAGE FIGURES REPRESENTED REPUBLIC'S OFFICIAL FIGURES OF PIG IRON PRODUCTION. HE EXPRESSED THE BELIEF THIS PRACTICE WOULD BE FOUND TO BE UNIFORM THROUGHOUT THE INDUSTRY. MR. WHITAKER EXPLAINED IN HIS LETTER THAT THE DAILY WEIGHT OF IRON DELIVERED TO THE MIXERS IS ESTIMATED, BASED UPON THE NUMBER OF OPEN TOP LADLES CAST DURING THE PERIOD AND VERIFIED BY TAKING THE WEIGHTS OF IRON DELIVERED TO THE FURNACES PLUS THE IRON SKULLS (PURE IRON) ACCUMULATED IN THE LADLES TRANSFERRING MOLTEN IRON FROM THE MIXER TO THE OPEN HEARTH FURNACES; THAT THE PIG MACHINE PRODUCTION IS WEIGHED AS THE PIGS ARE PRODUCED; THAT PIG MACHINE SCRAP, RUNNER SCRAP, AND SCRAP FROM THE LADLES DELIVERING IRON FROM THE BLAST FURNACE TO THE MIXERS, ARE NOT INCLUDED IN THE PRODUCTION FIGURES AND ARE NOT A PART OF REPUBLIC'S OFFICIAL IRON PRODUCTION, NOR ARE THEY SO CONSIDERED IN THE INDUSTRY. MR. WHITAKER ALSO REFERRED TO THE FACT THIS SAME QUESTION HAD BEEN RAISED IN CONNECTION WITH REPUBLIC'S RENTAL OF A BLAST FURNACE AT GADSDEN, ALABAMA, STATING IT WAS EXPLAINED AT THAT TIME THAT THE SCRAP WAS RECHARGED IN THE BLAST FURNACE ( ITALICS SUPPLIED) BUT THAT FURTHER CONTENTION WAS NOT MADE ON ACCOUNT OF THE SMALL AMOUNT INVOLVED, WHEREAS THE FIGURES HERE INVOLVED ARE CONSIDERABLY GREATER AND THE PRODUCTION OF ALL ITS BLAST FURNACES IN YOUNGSTOWN IS INVOLVED. MR. WHITAKER URGED IN THIS LETTER THAT REPUBLIC'S INTERPRETATION OF THE AGREEMENT WAS IN FULL COMPLIANCE WITH THE CONTRACT AS WRITTEN AND IN ACCORDANCE WITH THE INTERPRETATION OF THE TERM "PIG IRON PRODUCTION" BY THE INDUSTRY.

IN RESPONSE TO THE ADMINISTRATION'S DEMAND LETTER OF FEBRUARY 18, 1959, MR. W. W. HANCOCK, THE LESSEE'S VICE PRESIDENT, REITERATED THE LESSEE'S CONTENTION THAT THE CHARGE WAS NOT IN ORDER, STATING THAT THE "SO-CALLED " PIG IRON SCRAP" AND " GRAPHITE" ARE NOT TECHNICALLY OR ACTUALLY PIG IRON PRODUCED AND WERE NOT AT ANY TIME CONTEMPLATED AS A BASIS FOR RENTAL," MR. HANCOCK ALSO STATED THAT THE " " PIG IRON SCRAP" IS CONTAMINATED IRON AND THE " GRAPHITE"--- SOMETIMES CALLED " ISH"--- IS IN ITSELF A CONTAMINATION.' HE ENCLOSED WITH HIS LETTER A SPECIMEN OF REPORT FOR STATISTICAL PURPOSES TO THE AMERICAN IRON AND STEEL INSTITUTE--- IN THIS CASE A COPY OF REPORT OF PRODUCTION OF THE FURNACES IN THE YOUNGSTOWN DISTRICT IN THE YEAR 1958--- WHICH FIGURES, IT IS STATED, ARE THE SAME AS IN THE REPORTS TO YOUR ADMINISTRATION, AND DO NOT INCLUDE SCRAP OR GRAPHITE. HE ALSO ENCLOSED WITH THIS LETTER A COPY OF " MEMORANDUM TO THE REAL PROPERTY REVIEW BOARD" UPON WHICH THE LEASE AGREEMENT HERE INVOLVED WAS BASED. MR. HANCOCK POINTED OUT THAT CAPACITIES STATED THEREIN ARE THOSE SUPPLIED BY REPUBLIC; THAT THEY REPRESENT THE ACTUAL AND OFFICIAL REPORTED CAPACITIES AND DO NOT INCLUDE THE ITEMS OF SCRAP AND GRAPHITE; AND THAT THESE CAPACITIES WERE USED IN DETERMINING THE FORMULA AND RATES EMBODIED IN THE LEASE AGREEMENT. A STATEMENT OF TONNAGES PRODUCED IN THE GOVERNMENT FURNACE AND IN THE 5 YOUNGSTOWN FURNACES WAS ALSO ENCLOSED WHICH, IT IS STATED, CORRESPONDS WITH REPORTS RENDERED UNDER THE LEASE AGREEMENT AND SUPPORTS THE CAPACITY ATTRIBUTED TO THE GOVERNMENT-OWNED FURNACE. IT IS NOTED IN THIS LETTER THAT THE AVERAGE PRODUCTION OF THE GOVERNMENT OWNED FURNACE THROUGH 1958, WITH THE EXCEPTION OF TWO BAD YEARS, WAS REASONABLY CLOSE TO THE ESTIMATES. MR. HANCOCK STATED FURTHER THAT THE PURPOSE AND FUNCTION OF THE BLAST FURNACE IS TO PRODUCE MERCHANTABLE AND USABLE PIG IRON, AND IN CONCLUSION, THAT "THE ARBITRARY INCLUSION OF OTHER MATERIALS, CUSTOMARILY OMITTED, IS NO MORE WARRANTED THAN TO INCLUDE THE SLAG THAT COMES FROM THE SAME FURNACE.'

IT IS WELL-ESTABLISHED PRINCIPLE OF LAW THAT CONTRACTS SHOULD BE CONSTRUED IN A MANNER WHICH WILL EFFECTUATE THE INTENTION OF THE PARTIES AS GATHERED FROM THE WHOLE CONTRACT, AND THAT GREATER REGARD SHOULD BE ACCORDED THE INTENTION OF THE PARTIES THAN TO ANY PARTICULAR WORDS WHICH THEY MAY HAVE USED. THUS, A GENERAL OR A PARTICULAR MEANING MAY BE IMPUTED TO WORDS AND PHRASES ACCORDING TO THE CIRCUMSTANCES OF THEIR USE AND THE OBJECTS SOUGHT TO BE ACCOMPLISHED. CF, THE AUTHORITIES REVIEWED IN COLE V. INDUSTRIAL FIBRE CO. ( S.C., N.C., MARCH 25, 1931), 157 S.E. 857. AND WHERE A CONTRACT IS SILENT ON THE SUBJECT OF A PREVAILING TRADE CUSTOM OR USAGE, THE CUSTOMARY RIGHTS AND INCIDENTS GENERALLY ATTACHING TO THE CONTRACT BECOME IMPLIEDLY A PART OF IT UNLESS THE CUSTOM OR USAGE IS EXPRESSLY EXCLUDED. LYONS V. UNITED STATES ( MAY 13, 1895), 30 C.1CLS. 352, 360, AND THE AUTHORITIES CITED. IN OTHER WORDS, WHERE THE MEANING AND INTENT ARE NOT CLEARLY EXPRESSED, THE CONTRACT MUST BE CONSTRUED TO CONFORM TO THE INTENTION OF THE PARTIES, AND CUSTOM OR USAGE WHICH IS NOT INCONSISTENT WITH A CONTRACT AND DOES NOT EXPRESSLY OR BY NECESSARY IMPLICATION CONTRADICT IT PROPERLY MAY BE CONSIDERED IN ASCERTAINING THE MEANING INTENDED. SEE ROBINSON V. UNITED STATES ( DEC. 1871), 80 U.S. 363; KRESGE V. SEARS (1ST C.C.A. DEC. 18, 1936), 87 F.2D 135; AND RICKER AND MCKAY V. UNITED STATES ( OCT. 6, 1953), 126 C.1CLS. 460, WHERE THE COURT STATED, AT P. 466, THAT ,ON THE PRINCIPLE THAT IT IS THE INTENTION OF THE PARTIES WHICH IS TO PREVAIL, THE LANGUAGE OF A CONTRACT IS TO BE GIVEN EFFECT ACCORDING TO ITS TRADE MEANING NOTWITHSTANDING THAT ITS MEANING ON A CASUAL READING MAY BE UNAMBIGUOUS.' THAT AMBIGUOUS LANGUAGE GENERALLY IS TO BE CONSTRUED MORE STRONGLY AGAINST THE PARTY WHO DRAFTED IT IS SO UNIVERSALLY RECOGNIZED THAT CITATION TO AUTHORITIES SEEMS UNNECESSARY. THE LEASE AGREEMENT PROVIDED UNDER ARTICLE TWO QUOTED ABOVE THAT THE RENTAL WAS TO BE BASED ON THE "PIG IRON PRODUCED" BY THE BLAST FURNACES. THE INFORMATION AND DATA FURNISHED BY THE LESSEE REASONABLY ESTABLISHES AN INTENTION, CERTAINLY ON ITS PART, THAT THE RENTAL BASE SO STIPULATED HAD REFERENCE TO THE "PIG IRON PRODUCTION" OF THE FURNACES AS GENERALLY UNDERSTOOD AND ACCEPTED IN THE IRON AND STEEL INDUSTRY. THE TRADE MEANING OF THIS PHRASE IS ALMOST UNIVERSALLY RECOGNIZED. EVIDENCED BY THE RESPONSES TO YOUR INQUIRIES RECEIVED FROM THE AMERICAN IRON AND STEEL INSTITUTE AND THE BUSINESS AND DEFENSE SERVICES ADMINISTRATION, DEPARTMENT OF COMMERCE, IT SEEMS AMPLY CLEAR THAT IN THE STEEL INDUSTRY "PIG IRON" IS CONSIDERED TO BE THE USABLE PRODUCT OF THE BLAST FURNACE AND DOES NOT INCLUDE SCRAP AND WASTE AS PIG IRON PRODUCTION. THE ADMINISTRATIVE CONTENTION THAT THE PHRASE "PIG IRON" AS USED IN THE LEASE SHOULD BE GIVEN THE MEANING ACCORDED IT BY IRON MASTERS AND OTHERS IN DESCRIBING THE STEEL-MAKING PROCESS IS IN CONFLICT WITH THE TRADE MEANING OF THIS PHRASE WHEN USED WITH REFERENCE TO PRODUCTION AND MAY NOT BE SUSTAINED UNDER THE APPLICABLE PRINCIPLES STATED ABOVE SINCE, IN THE ABSENCE OF CONVINCING EVIDENCE OF A CONTRARY INTENTION, IT IS THE COMMERCIAL UNDERSTANDING WHICH MUST PREVAIL. CF. WORTHINGTON V. ABBOTT ( JAN. 30, 1888), 124 U.S. 434. FURTHERMORE, THE RECORD AMPLY SUPPORTS THE VIEW THAT, SINCE THE SCRAP IN QUESTION WAS RECHARGED IN THE BLAST FURNACES DURING THE STEEL-MAKING PROCESS, IT WAS ACTUALLY ACCOUNTED FOR IN THE LESSEE'S OFFICIAL PIG IRON PRODUCTION ACCOUNTING RECORDS AND REPORTS; AND ALSO, THAT WHILE GRAPHITE IS A PRODUCT OF THE STEEL-MAKING PROCESS, IT IS NOT A USABLE OR MERCHANTABLE PRODUCT AND, THEREFORE, LOGICALLY SHOULD NOT BE INCLUDED IN DETERMINING THE PIG IRON PRODUCTION OF THE BLAST FURNACES.

WE ARE OF THE OPINION, FROM A CAREFUL CONSIDERATION OF THE ENTIRE MATTER, THAT THE ITEMS OF SCRAP AND GRAPHITE IN QUESTION REASONABLY MAY NOT BE REGARDED AS A PROPER CHARGE AGAINST THE LESSEE WITHIN THE INTENT AND PURPOSE OF THE TERMS OF THE LEASE AGREEMENT, AND THAT NO FURTHER OBJECTION SHOULD BE INTERPOSED TO THE EXCLUSION OF THESE TWO ITEMS IN DETERMINING THE RENTAL DUE.