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

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Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 350 F.2d 445 (C.A. D.C. 1965), is a contract case involving the admissibility of extrinsic evidence to prove a contract’s meaning.

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Contents

Summary of Case Facts

Pacific Gas & Electric (“PG&E”) contracted with G.W. Thomas Drayage & Rigging (“Thomas”) to have Thomas replace a metal cover on one of PG&E’s steam turbines. Through the negotiation and drafting process, Thomas agreed to perform all the work at its own risk, and agreed to indemnify PG&E against any and all loss, damage, expense, liability as a result of damage to property or any act conducted by Thomas in performance of the contract. During the course of the work, a cover fell and damaged a turbine rotor resulting in $25,000 worth of damage. Thomas refused to pay and Pacific filed suit for indemnity under the contract. Thomas argued, and provided proof, that through the course of its negotiations PG&E’s agents understood the indemnity was only to apply to third parties. The trial court found the contract to be sufficient evidence and refused to allow the introduction of any extrinsic evidence to prove any further meaning. As such it found for PG&E. Thomas appealed.

Issue

Under what circumstances may extrinsic evidence be admitted to explain the meaning of a contract?

Holding and Law

The court held that, “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 court opined that to limit contract interpretation to only the four corners of the document in every situation would, “presuppose a degree of verbal precision and stability our language has not attained… 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.”

In this case, the court found that the extrinsic evidence offered to prove that the indemnity clause only protected third parties was relevant and admissible on that contended issue.

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