Contracts II, Pages 731–737

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

Supreme Court of California, 1968

Facts:

Defendant contracted to furnish the labor and equipment 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, and liability resulting from . . . injury to property, arising out of or in any way connected with the performance of this contract." Defendant also agreed to get at least $50,000 insurance to cover injury to property, with plaintiff a named insured and with a cross-liability clause extending the coverage to plaintiff's property.

During the work, the cover fell and damaged the rotor of the turbine. Plaintiff sued for $25,144.51 to repair the turbine.

Procedural History:

Lower court entered a judgment for plaintiff for damages to property under the contract's indemnity clause's plain language.

Issue:

Did the indemnity clause cover damage to plaintiff's property?

Reasoning:

The indemnity clause uses language classically only used to indemnify third-parties, but the plain language was found to include plaintiff as well. This is based on a primitive belief that words have inherent meaning. Evidence must be used to determine the meaning of the words that the parties intended. Limiting interpretation to what the court knows words to mean would deny the parties' intentions. Although extrinsic evidence cannot be used to change the terms of a contract, it must be used beforehand to determine what the parties meant by their words in the first place.

Rule:

Extrinsic evidence must be used to show what the parties meant by their words. The words' meanings anywhere else do not matter.

Holding:

This indemnity clause usually only covers third-parties, which is what is shown that these parties meant, so plaintiff's property would not be covered. Reversed.

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