Interpretation

Case: Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968;
CA)

Procedural History: Trial court did not allow the extrinsic evidence, and ruled
in favor of P.

Facts: Pacific entered into a K with Drayage, where Drayage would furnish the
labor and equipment to remove and replace the upper metal cover of the plaintiff’s
steam turbine. During the work the cover fell and injured the exposed rotor of
the turbine. The cost of repair was $25,144.51. Drayage agreed to perform the
work at its own risk and expense AND to indemnify Pacific against all loss, damage
resulting from injury to property arising out of or connected with the
performance.
Plaintiff’s Argument: The language of the contract plainly included a third
party indemnity provision and through the cross liability clause extended coverage
to the P’s property.
Defendant’s Argument: P’s agents, and D’s conduct under similar contracts
entered into with P prove that the indemnity clause was meant to cover injury to
property of third parties only, and not P’s property.

Issue: Whether extrinsic evidence may be used to explain the meaning of the
written instrument’s language? Yes.

Holding: Reversed.

Reasoning: Offered extrinsic evidence is relevant to prove a meaning to which

the language is reasonably susceptible. Limiting the determination of the meaning
of a written instrument to its four corners b/c it seems to the court to be clear
and unambiguous, would either deny the relevance of the intentions of the parties
or presuppose a degree of verbal precision and stability our language has not
attained. Exclusion of parol evidence b/c 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. Rational interpretation requires at least a preliminary
consideration of all credible evidence offered to prove the intention of the
parties. Refusing to consider evidence offered to show that the indemnity clause
in the contract was not intended to cover injuries to plaintiff’s property was
erroneous. The evidence was admissible to prove that the clause was reasonably
susceptible of the meaning contended by the df and did not cover pl’s property.

RULE: If a court decides, after considering extrinsic evidence, that the language
of a contract, in the light of the circumstances, is fairly susceptible of either
one of the two interpretations contended for, then extrinsic evidence relevant to
prove either of such meanings is admissible.

Notes
• Trial judge says the agreement was integrated, on its face, it covers losses to
Pacific's property.
• Judge Traynor - he thinks that everything written is ambiguous, that language
doesn’t have the precision that a judge can look at it and figure out what it
means
○ He says: when a court interprets a K on this basis, it determines the
meaning of the evidence in accordance with the extrinsic evidence of the judge's
own linguistic education and experience.
□ So we're already admitting extrinsic evidence!
○ Then he goes further: the exclusion of evidence that might contradict the
linguistic background of the judge reflects a judicial belief in the possibility
of a perfect verbal expression.
○ 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 and
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.
○ He wants to say: let's bring in outside evidence, and see if the language
in the K, in light of the outside evidence, means something else than what is
apparent.
• So even though jury may not hear the extrinsic evidence, the judge HAS to hear
it to see if it is relevant. b/c you can never determine the actual meaning just
from the words.