A Surprising Twist on the Parol Evidence Rule!

The following is borrowed from Judge Carroll’s recent August 27, 2015 unpublished opinion on a claims objection which can be found here.

In law school, we learned that if a written instrument is valid, complete and unambiguous, extrinsic evidence is not admissible to vary, add to, or contradict the terms of the instrument. This is called the parol evidence rule. The exception to this rule is if there is an allegation of fraud, accident or mistake.

In Wilson Arlington Co. v. Prudential Ins. Co. of Am., the Ninth Circuit explained the policy behind enforcement of the parol evidence rule:

If parties to an agreement could not rely on written words to express their consent to the express terms of that agreement, those words would become little more than sideshows in a circus of self-serving declarations as to what the parties to the agreement really had in mind. The parol evidence rule thus enables parties to rely on written instruments as embodying a complete memorial of their agreement, and to avoid costly and disruptive litigation over the existence of oral and implied terms that may or may not have been contemplated by the parties.

912 F.2d 366, 370 (9th Cir. 1990).

It is surprising to me but even though the 9th Circuit but this is not California law. In California, parol evidence is admissible to construe a facially unambiguous contract if the proffered interpretation is one to which the agreement is “reasonably susceptible.” Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 37 (1968).

In Pacific Gas & Electric, the California Supreme Court discussed the admissibility of extrinsic evidence to explain the meaning of a written instrument, stating:

he 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. . . .

Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms. That possibility is not limited to contracts whose terms have acquired a particular meaning by trade usage, but exists whenever the parties’ understanding of the words used may have differed from the judge’s understanding.

69 Cal.2d at 37-39.

Pacific Gas & Electric requires the court to conditionally consider proffered extrinsic evidence to determine if it would be relevant to prove a meaning to which the language of a facially unambiguous instrument is reasonably susceptible. See George v. Automobile Club of S. Cal., 201 Cal.App.4th 1112, 1122 (2012).