Contracts

Brief

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

Procedural History:

• Lower court ruled for the Plaintiff.
• Appealed.
• Reversed.

Facts:

• 1960 – Defendant entered into a contract with plaintiff to furnish the labor and equipment necessary to remove and replace the upper metal cover of plaintiff’s steam turbine.
• Defendant agreed:
  • To perform the work at its own risk and expense and to indemnify plaintiff against all loss, damage, expense resulting from injury to property, arising out of or in any way connected with the performance of this contract.
• During the work, the cover fell and injured the exposed rotor of the turbine.
• Plaintiff brought this action to recover $25,144.51, the amount spent on repairs.
• Defendant offered to prove by admissions of plaintiffs agents, by defendants conduct under similar contracts and by other proof that in the indemnity clause the parties meant to cover injury to property of third parties only and not to plaintiffs property.
• The court held that the plain language of the agreement also required defendant to indemnify plaintiff for injuries to plaintiff’s property.

Issue:

• Did the court err in refusing admission of defendant’s evidence?

Holding:

• Yes. Reversed

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 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.
• The meaning of a writing can only be found by interpretation in the light of all the circumstances that reveal the sense in which the writer used the words.
• The fact that the terms of an instrument appear clear to a judge does no preclude the possibility that the parties chose the language of the instrument to express different terms.
• “If the court decides after considering the evidence, that the language of the contract in the light of all the circumstances is fairly susceptible of either one of the two interpretations contended for then extrinsic evidence is relevant to prove either of such means is admissible.”
• The present case involves extrinsic evidence offered to show both that the indemnity clause was reasonably susceptible of the meaning contended for by the defendant.