PG&E v. G.W. Thomas Drayage & Rigging Co.
Citation
69 Cal.2d 33 (Cal. Supreme Court, 1968)
Facts
G.W. Thomas Drayage contracted with PG&E to perform work on a steam turbine and agreed to indemnify PG&E against injury to “third persons.” During the work, Thomas’s employees damaged PG&E’s turbine. A dispute arose over whether the indemnity clause, which referred to “third parties,” covered damage to PG&E’s own property. The trial court excluded extrinsic evidence on the meaning of the clause.
Issue
Whether a court may admit extrinsic evidence to interpret a contract term that appears unambiguous on its face.
Holding
The California Supreme Court held that the trial court erred in excluding extrinsic evidence and reversed, ruling that courts must consider such evidence to determine whether a term is reasonably susceptible to the proffered interpretation.
Rule
Courts should admit extrinsic evidence to explain or interpret contract language even if the writing appears unambiguous on its face, because words derive meaning from their context (California’s liberal parol evidence rule).