Berg v. Hudesman
801 P.2d 222, 115 Wash. 2d 657, 1990 Wash. LEXIS 168 (1990)
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Rule of Law:
Extrinsic evidence of the context surrounding the making of a contract is admissible to ascertain the parties' intent and interpret the meaning of the contract's terms, regardless of whether the writing appears to be ambiguous on its face.
Facts:
- In 1959, a landlord and a tenant entered into a 99-year ground lease.
- The tenant constructed a commercial building on the property, which was initially leased to a single store and later converted into a small shopping center with multiple subtenants.
- The ground lease required the tenant to pay rent based on a formula involving "gross rentals" received from subtenants, but the lease did not define the term "gross rentals."
- A dispute arose over the calculation of rent, specifically what payments from subtenants (such as reimbursements for common area maintenance) should be included in "gross rentals."
- For several years after the rent formula changed, the tenant provided the landlord with annual accountings detailing deductions from gross rentals.
- The landlord accepted the tenant's rent payments, which were based on these accountings, for a period of at least four years without objection before filing suit.
Procedural Posture:
- The landlord sued the tenant in a Washington state trial court over the calculation of rent due under a ground lease.
- The landlord moved for partial summary judgment, asking the court to declare the lease's rental provisions clear and unambiguous.
- The trial court granted the landlord's motion for partial summary judgment.
- The trial court refused to consider affidavits submitted by the tenant concerning the circumstances of the lease's creation, finding the lease unambiguous.
- The trial court then granted the landlord's final summary judgment motion and awarded back rent.
- The tenant (appellant) appealed to the Washington Court of Appeals.
- The Court of Appeals affirmed in part and reversed in part, remanding for factual determinations about the original subleases to define 'gross rentals.'
- The landlord (petitioner) sought review by the Supreme Court of Washington.
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Issue:
Is extrinsic evidence of the circumstances surrounding the execution of a written contract admissible to determine the parties' intent, even if the contract's language does not appear ambiguous on its face?
Opinions:
Majority - Brachtenbach, J.
Yes. Extrinsic evidence is admissible to ascertain the parties' intent and interpret a contract, regardless of whether the language appears ambiguous on its face. The court rejects the traditional 'plain meaning rule,' which limits the use of extrinsic evidence to instances where a contract is ambiguous. Instead, it adopts the 'context rule,' recognizing that the meaning of words can rarely be understood without reference to their context. The primary goal of contract interpretation is to ascertain the parties' actual intent, which requires considering evidence of the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations, and their subsequent conduct. This approach aligns with the Restatement (Second) of Contracts and the views of leading commentators, who argue that language is an inherently imperfect instrument. The parol evidence rule does not bar this inquiry because it only prevents the admission of evidence to add to, vary, or contradict an integrated agreement, not to interpret the meaning of the terms within it.
Analysis:
This decision represents a significant doctrinal shift in Washington contract law, officially abandoning the formalistic 'plain meaning rule' in favor of the more flexible 'context rule.' By allowing courts to consider surrounding circumstances even for seemingly unambiguous contracts, the ruling prioritizes the parties' subjective intent over a purely objective, textualist interpretation. This increases the likelihood that contract disputes will require a trial to resolve factual questions about intent, making summary judgment based solely on the 'four corners' of the document more difficult to obtain. The case establishes a precedent that the true meaning of a contract is found not just in its words, but in the entire transaction and relationship between the parties.
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