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

Supreme Court of California · 1968 · Contracts

Contractsparol evidenceinterpretationextrinsic evidenceparol evidence rulecontract interpretationextrinsic evidencereasonable susceptibility

Facts

Defendant contracted with plaintiff to furnish labor and equipment to remove and replace the upper metal cover of plaintiff's steam turbine. The contract required defendant to perform the work at its own risk and expense and to indemnify plaintiff against all loss, damage, expense, and liability resulting from injury to property arising out of or connected with performance of the contract; it also required defendant to procure insurance covering liability for injury to property. During the work, the cover fell and damaged the turbine's exposed rotor, and plaintiff sought to recover its repair costs under the indemnity clause after dismissing a negligence count. Defendant offered evidence that the parties intended the clause to cover only injury to third-party property, not plaintiff's own property, but the trial court excluded that evidence.

Issue

When a written contract appears plain on its face, may a court nevertheless consider extrinsic evidence to determine whether the language is reasonably susceptible to the meaning urged by a party? More specifically, was defendant entitled to introduce extrinsic evidence that the indemnity clause covered only third-party property damage and not damage to plaintiff's property?

Rule

The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether the writing appears plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language is reasonably susceptible. A court must at least preliminarily consider all credible evidence offered to prove the parties' intention; if, in light of all the circumstances, the language is fairly susceptible of either contended interpretation, extrinsic evidence relevant to prove either meaning is admissible. Extrinsic evidence remains inadmissible to add to, detract from, or vary the terms of the contract once those terms are properly determined.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Sacramento, Sierra Delta Milling hired Rowan Crane Services to move heavy rollers inside its plant. Their written contract required Rowan to "hold Sierra Delta harmless from all loss, damage, cost, and liability arising out of the work." After a roller damaged Sierra Delta's own conveyor, Sierra Delta sued on the clause, and Rowan offered testimony about prior negotiations showing both sides used the clause only for claims by outsiders.

If the trial judge excludes Rowan's evidence solely because the clause appears clear on its face, how should an appellate court rule?

Explanation. The majority rejected a strict facial-ambiguity or four-corners rule. The test is whether the offered extrinsic evidence is relevant to prove a meaning to which the contract language is reasonably susceptible. A court must at least preliminarily consider all credible evidence of intent and surrounding circumstances before deciding admissibility. If the clause could reasonably bear Rowan's third-party-only interpretation, the evidence should be admitted to prove that meaning. (Derived from Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968).)