Post by Greg Klass
Judge Traynor’s opinion in Pacific Gas & Electric v. Thomas Drayage & Rigging is a bête noire of textualist judges and contracts scholars. Judge Kozinski’s assessment is typical:
Pacific Gas casts a long shadow of uncertainty over all transactions negotiated and executed under the law of California. As this case illustrates, even when the transaction is very sizeable, even if it involves only sophisticated parties, even if it was negotiated with the aid of counsel, even if it results in contract language that is devoid of ambiguity, costly and protracted litigation cannot be avoided if one party has a strong enough motive for challenging the contract.
Trident Center v. Connecticut Gen. Life Ins. Co., 847 F.2d 564, 569 (9th Cir. 1988).
The objection is that permitting extrinsic evidence significantly increases the probability that a court will find ambiguity. The facts in Pacific Gas appear to illustrate the worry. Whereas the scope of the indemnification clause at issue was clear, covering “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,” the defendant wanted to introduce extrinsic evidence that in fact the parties meant it to cover only third-party losses. Permitting that evidence in created ambiguity where none existed before.