Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. – Case Brief
Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641 (1968).
Facts: G.W. Thomas (D) entered into a contract with Pacific Gas & Electric (P) to replace a metal cover on a steam turbine. Thomas agreed to perform the work at its own risk and expense and to indemnify Pacific against all loss, damage, expense, and liability resulting from injury to property, or any act by Thomas in connection its performance under the contract.
A cover fell and damaged an exposed turbine rotor causing $25,000 in damage. Thomas refused to pay and Pacific sued.
Thomas offered proof in the form of admissions by Pacific’s agents in the course of contract negotiations to show that the indemnification clause applied to third parties only. The trial court found that the contract was to be construed according to its plain meaning and refused to admit any contradictory extrinsic evidence. The court held that the admissions of Pacific’s agents were inadmissible parol evidence. The court held that the indemnity clause covered damage to all property regardless of ownership and entered judgment for Pacific. Thomas appealed.
Issue: What is the test for determining the admissibility of extrinsic evidence to explain the meaning of a written instrument?
Holding and Rule: Extrinsic evidence is admissible to explain the meaning of a written instrument if that evidence is relevant to prove a meaning to which the language is reasonably susceptible.
Extrinsic evidence is not admissible to add to, detract from or vary the terms of a written contract; however the terms must first be determined in order to rule on whether extrinsic evidence is offered for a prohibited purpose. Rational interpretation requires a preliminary consideration of all credible evidence offered to prove the intent of the parties. Such evidence includes the circumstances of the agreement. Extrinsic evidence to prove the contractual intent of the parties should only be excluded when it is feasible to determine the meaning of the words from the instrument alone.
Limiting the interpretation to the four corners of the document would presuppose a degree of verbal precision and stability our language has not obtained. The meaning of a writing can only be interpreted in light of all the circumstances indicating the sense in which the writer used the words chosen. Exclusion of parol evidence because the words appear to an outside reader as clear and unambiguous can easily lead to the attribution of a meaning that was never intended.
In this case the parol evidence was reasonably susceptible to Thomas’s proposed interpretation and the admissions by Pacific’s agents should have been admitted.
Notes: In this case under California contract law, parol evidence is admissible to resolve issues of ambiguity and vagueness but not for inaccuracy or incompleteness. It is used to prove the contract’s meaning, not to contradict the writing.
See the contract law case brief Empro Mfg. Co. v. Ball-Co Mfg., Inc. in which the court held that an objective test is used to determine intent in the context of contract formation.