Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.

California Supreme Court

1968

Chapter

15

Title

Contract Interpretation and Construction

Page

544

Topic

Interpretation

Quick Notes

Df - contends.

Book Name

Contracts Cases, Discussions, and Problems.  Blum Bushaw, Second Edition.  ISBN:  978-0-7355-7069-6.

Issue

o         Whether the court should allow extrinsic evidence when the offered evidence would contradict the courts interpretation?  Yes, if the evidence is relevant and admissible to the issue.

Procedure

Trial

o         Trial court said that all property was covered through indemnification

Supreme

o         Since the clause was reasonably susceptible of that indemnification meaning, the offered evidence was also admissible to prove that the clause had that meaning and did not cover injuries to the Pl - property.

o         Judgment Reversed

Facts

Rules

Reason

o         Pl - Pacific Gas & Electric Co.

o         Df - G.W. Thomas Drayage & Rigging Co.

What happened?

o         Df - appeals from a judgment for the Pl in an action for damages for injury to property under an indemnification clause of a contract.

o         The Df - was furnishing the labor and equipment to remove and replace the upper metal cover of a the Pl - steam turbine.

o         Df - agreed to perform work at its own risk and liability resulting from injury to property connected with the performance.

o         Df - agreed to procure not less than 50K.

o         Pl was to be additionally named, and his property was supposed to be covered.

Action

o         The cover fell on and damaged the turbine.

o         Trial court said that all property was covered through indemnification

o         Df - contends the indemnity clause only covered third parties ONLY and NOT to the Pl - property.

o         Court used Plain Language, and refused to admit any extrinsic evidence that would contradict its interpretation.

Test of Admissibility of extrinsic Evidence

o         The test is NOT whether it appears to the court to be plain and unambiguous on it face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.

o         A rule that would limit the determination of the meaning of a written instrument to its four-corners merely because it seems to the court to be clear an unambiguous, would either deny the relevance of the intention of the parties or presuppose a degree or verbal precision and stability out language has not attained.

Words

o         Words do not have absolute meanings.  The meaning of a particular word depends on verbal context, surrounding circumstances, the educational experience of the user, the hearers and readers.

o         The exclusion of the parole evidence and only focusing on the written instrument for a meaning, can easily lead to the attribution that was never intended.

o         These terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose.

Rational Interpretation

o         Requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties.

o         Includes:  circumstances surrounding the agreement, object, nature and subject matter of the writing.

o         So the court can place themselves in that situation at the time of the contracting.

Outcome

o         The court erroneously refused to considered the extrinsic evidence offered to show that the indemnity clause in the contract was not intended to cover injuries to the Pl - property.

o         Since the clause was reasonably susceptible of that indemnification meaning, the offered evidence was also admissible to prove that the clause had that meaning and did not cover injuries to the Pl - property.

o         Judgment Reversed.