Brinderson-Newberg Joint Venture v. Pacific Erectors, Inc.
971 F.2d 272 (1992)
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Rule of Law:
Under California law, parol evidence is inadmissible to interpret or establish fraud concerning an integrated written contract if the evidence advances an interpretation to which the contract's language is not reasonably susceptible or directly contradicts the contract's unambiguous terms.
Facts:
- Brinderson-Newberg Joint Venture (Brinderson), a general contractor, was awarded a U.S. Navy contract to construct a power plant.
- Brinderson entered into negotiations with subcontractor Pacific Erectors (Pacific) for certain erection work, including a large pollution control system known as the Flue Gas System (FGS).
- During negotiations, Brinderson drafted a contract requiring Pacific to 'erect complete' the FGS.
- At a final meeting before signing, Pacific requested that the 'erect complete' language be changed to limit its work to merely picking and setting the FGS components, but Brinderson refused to make the change.
- Pacific alleged that Brinderson orally assured them the existing contract language would be interpreted as only requiring picks and sets for the FGS components.
- Pacific then signed the fully integrated contract, which contained the original 'erect complete' language.
- A year into performance, a dispute arose when Brinderson demanded Pacific fully erect the FGS components, and Pacific refused, claiming it was only obligated to pick and set them.
Procedural Posture:
- Brinderson sued Pacific for breach of contract and its bonding company, Hartford, on the performance bond in the U.S. District Court.
- Pacific filed a counterclaim against Brinderson for fraud.
- The district court permitted the jury to hear parol evidence regarding Brinderson's alleged oral promises made during negotiations.
- The jury found against Brinderson on its contract claim and in favor of Pacific on its fraud claim.
- Brinderson moved for a directed verdict and for judgment notwithstanding the verdict (JNOV), both of which the district court denied.
- Brinderson, as the appellant, appealed the district court's denial of its motions to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Under California law, is parol evidence of an alleged prior oral promise admissible to support an interpretation of an integrated written contract when the contract's language is not reasonably susceptible to that interpretation, or to prove promissory fraud when the alleged promise directly contradicts the contract's plain terms?
Opinions:
Majority - Wiggins, Circuit Judge
No, parol evidence of an alleged prior oral promise is inadmissible in this context. For contract interpretation, such extrinsic evidence is only admissible if the language of the integrated instrument is 'reasonably susceptible' of the proffered meaning. Here, the court found as a matter of law that the contract's requirement to 'erect complete' the FGS is unambiguous and not reasonably susceptible to Pacific's interpretation that it meant only to 'pick and set' the components. The court rejected Pacific's interpretation because it was implausible, rendered other specific contract provisions meaningless, violated rules of contract construction favoring specific over general terms, and was based on a boilerplate provision rather than specifically negotiated typewritten terms. For the fraud claim, California law (under the Pendergrass rule) does not permit the introduction of parol evidence of a fraudulent promise that directly contradicts the explicit terms of a fully integrated written agreement, as doing so would undermine the purpose of the parol evidence rule.
Analysis:
This decision strongly affirms the integrity and finality of written, integrated contracts under California's parol evidence rule. It clarifies that the 'reasonably susceptible' standard for admitting extrinsic evidence is not a loophole for introducing interpretations that are implausible or contradict the contract's plain language. By extending this reasoning to bar promissory fraud claims that contradict the written agreement, the court prevents parties from using tort law to circumvent the parol evidence rule and escape the terms of a contract they knowingly signed. The case serves as a critical reminder for contracting parties to ensure that all promises and understandings are explicitly included in the final written document.
