Ermolieff v. R.K.O. Radio Pictures, Inc

In Ermolieff v. R.K.O. Radio Pictures, Inc. (1942) 19 Cal.2d 543, the parties were producers and distributors in the motion picture industry. The plaintiff had reserved distribution rights in all countries not listed in an exhibit attached to the contract. The exhibit listed the United Kingdom as an area for which plaintiff had assigned his distribution rights. A dispute arose over the question whether Ireland, or the "Free Irish State," was included within the global term "United Kingdom." The plaintiff argued the plain language of the contract made clear Ireland was excluded because it was not a part of the United Kingdom. The studio countered including Ireland within the term "United Kingdom" was the custom and practice in the motion picture industry and such usage was part of the contract. Both parties sought declaratory relief. At the close of the plaintiff's case the trial court ruled the evidence of trade usage incompetent, struck the defendant's evidence, and entered judgment in favor of the plaintiff. The Supreme Court reversed. "The correct rule with reference to the admissibility of evidence as to trade usage under the circumstances here presented is that while words in a contract are ordinarily to be construed according to their plain, ordinary, popular or legal meaning, as the case may be, yet if in reference to the subject matter of the contract, particular expressions have by trade usage acquired a different meaning, and both parties are engaged in that trade, the parties to the contract are deemed to have used them according to their different and peculiar sense as shown by such trade usage. Parol evidence is admissible to establish the trade usage, and that is true even though the words are in their ordinary or legal meaning entirely unambiguous, inasmuch as by reason of the usage the words are used by the parties in a different sense. The basis of this rule is that to accomplish a purpose of paramount importance in interpretation of documents, namely, to ascertain the true intent of the parties, it may well be said that the usage evidence does not alter the contract of the parties, but on the contrary gives the effect to the words there used as intended by the parties. The usage becomes a part of the contract in aid of its correct interpretation."