Pacific Gas and Electric v. G.W. Thomas Drayage Co
Supreme Court of CA - 1968 (442 P.2d 641)
Facts:
D entered into a contract with P to furnish the labor and equipment necessary to remove and replace a part on a turbine.
D agreed to perform the work at its own risk and expense and to indemnify P against all loss, damage, expense, and liability resulting form injury to property arising out of or in any way connected with the performance of the contract.
During the work, the part fell on the turbine and caused $25k in damage.
P sued D for damage. D offered to prove by admissions of P's agents, by D's conduct under similar contracts entered into with P, and by other proof that the indemnity clause was meant to cover injury to property of third parties and not to P's property.
Procedural History:
Lower court found for P, indemnity clause was clear language, extrinsic evidence excluded.
CA Supreme Court reversed, found for D, extrinsic evidence should be admitted.
Issues:
When should courts allow the admission of extrinsic evidence to explain a written instrument's meaning?
Holding/Rule:
If the court decides after considering the extrinsic evidence, that the language of the contract is fairly susceptible to either one of the two interpretations contended for, extrinsic evidence relevant to prove either of such meanings is admissible.
Reasoning:
The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain an unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.
The intention of the parties as expressed in the contract is the source of contractual rights and duties. A court must ascertain and give effect to this intention by determining what the parties meant by the words they used.
Thus, the exclusion of relevant, extrinsic evidence to explain the meaning of a written instrument could be justified only if it were feasible to determine the meaning the parties gave to the words from the instrument alone.
The meaning of particular words or groups of words varies with the verbal context and surrounding circumstances.
The exclusion of parol evidence regarding such circumstances merely because the words do not appear ambiguous to the reader can easily lead to the attribution to a written instrument of a meaning that was never intended by the parties.
This is particularly applicable when terms in the contract have different meanings because of trade usage.
