## Facts

- Landlords Orville L. and Helen L. Berg leased land to tenants David and Linda Hudesman under a 99-year ground lease executed in 1959 and ending in 2058.
- The lease allowed the tenants to remove a residence and construct a commercial building, which was initially leased to Safeway and later operated as a small shopping center with subtenants.
- The lease required payment of a fixed annual base rent and, beginning in the fifteenth year, additional rent calculated through a formula tied to subtenant income.
- The additional rent depended on “gross rentals” received from subtenants minus allowable deductions to reach “net rentals,” which were then used in a division formula between landlord and tenant.
- The landlords sued in 1987 alleging the tenants underpaid rent for several years by miscalculating what counted as “gross rentals” and what expenses could be deducted to compute “net rentals.”

## Issues

1. Whether a court must first find a contract ambiguous on its face before considering extrinsic evidence to interpret its terms and determine the parties’ intent.
2. Whether the trial court properly granted summary judgment by interpreting the lease’s rent provisions solely under a plain-meaning approach without considering surrounding circumstances.

## Decision

- The Washington Supreme Court reversed the trial court, modified the Court of Appeals’ disposition, and remanded for trial.
- The Court held the trial court erred by refusing to consider evidence of the circumstances surrounding formation and performance of the lease when interpreting the rent clause.
- The Court ruled summary judgment was improper because interpretation of the rent provisions required contextual evidence bearing on the parties’ intended meaning.

## Legal Principles

- Washington follows the “context rule”: extrinsic evidence of the surrounding circumstances is admissible to interpret a written contract and ascertain intent even if the language appears unambiguous on its face.
- Extrinsic evidence may be used to explain the meaning the parties attached to the words they used, but it may not be used to vary, contradict, or modify a fully integrated written agreement (parol evidence limitation).
- Determining whether contractual language is ambiguous, and what it means, may require consideration of context rather than an isolated “plain meaning” reading.
- Contract interpretation aims to effectuate the parties’ intent as reflected in the writing, read in light of the circumstances under which it was made and performed.
- When the meaning of key contract terms depends on surrounding circumstances and course of dealing, summary judgment is generally inappropriate.

## Conclusion

The court adopted a contextual approach to contract interpretation, allowing relevant extrinsic evidence without requiring a prior finding of facial ambiguity, and it reversed summary judgment because the lease’s percentage-rent terms could not be definitively interpreted without evaluating the circumstances surrounding the parties’ intended meaning.


Berg v. Hudesman, 115 Wn.2d 657, 801 P.2d 222 (Wash. 1990)