Sterling v. Taylor
40 Cal.4th 757, 152 P.3d 420 (2007)
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Rule of Law:
Extrinsic evidence is admissible to clarify ambiguous essential terms in a memorandum required by the statute of frauds, but the memorandum is only sufficient if the evidence clarifies the term with reasonable certainty and is not used to prove a term that contradicts the writing.
Facts:
- In January 2000, Donald Sterling and Lawrence N. Taylor began discussions for the sale of three apartment buildings owned by a partnership, Santa Monica Collection (SMC), in which Taylor was a general partner.
- On March 13, 2000, Sterling drafted a handwritten memorandum titled 'Contract for Sale of Real Property' which identified the properties by street address.
- The memorandum included an aggregate price term reading 'approx 10.468 X gross income[,] estimated income 1.600.000, Price $16,750.°°.' Both parties later acknowledged the intended price figure was $16,750,000.
- Sterling initialed the memorandum as 'Buyer,' but the 'Seller' line was left blank, and Taylor did not sign it.
- On March 15, 2000, Sterling sent Taylor a letter confirming their 'contract of sale,' which Taylor signed under the notation 'Agreed, Accepted, & Approved.' This letter did not mention a price.
- On April 4, 2000, Taylor sent Sterling formal purchase agreements with a total price of $16,750,000, which Sterling refused to sign.
- Sterling asserted that based on actual rent rolls, the income was lower than estimated, and the price should be recalculated using the 10.468 multiplier to $14,404,841.
- In May 2000, Taylor returned Sterling's uncashed deposit checks after further negotiations failed.
Procedural Posture:
- The trustees of the Sterling Family Trust (plaintiffs) sued Lawrence Taylor and related entities (defendants) in a California trial court for breach of contract.
- Defendants filed a motion for summary judgment, which the trial court granted, ruling that the price term in the memorandum was too uncertain to be enforced and thus violated the statute of frauds.
- Plaintiffs appealed to the California Court of Appeal.
- The Court of Appeal reversed the trial court's judgment on the contract claims, finding a triable issue of material fact as to whether the parties had agreed to a price formula.
- Defendants appealed to the Supreme Court of California.
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Issue:
Does a memorandum for the sale of real property satisfy the statute of frauds where the price term is ambiguous, and one party's interpretation, supported by extrinsic evidence, is inconsistent with a specific price figure also stated in the memorandum?
Opinions:
Majority - Corrigan, J.
No. The memorandum does not satisfy the statute of frauds because the price term sought by the plaintiff, derived from extrinsic evidence, lacks reasonable certainty and is inconsistent with the price figure explicitly stated in the writing. While extrinsic evidence is admissible to clarify ambiguous terms in a memorandum, it cannot be used to prove an agreement whose terms are at odds with the writing. Here, Sterling’s proposed price of approximately $14.4 million is not reflected in the memorandum and contradicts the stated price of $16.75 million. Taylor’s interpretation that the price was fixed at $16,750,000 is consistent with the figures in the memorandum, requiring only the correction of an obvious clerical error. Sterling’s interpretation requires ignoring the explicit price figure entirely and relying on his own disputed testimony about the parties' intent. This creates a degree of doubt that the statute of frauds does not tolerate, as the evidence fails to show with reasonable certainty that the parties agreed to the price alleged by plaintiffs.
Concurring and dissenting - Kennard, J.
The issue should be decided by a trier of fact. The price description in the memorandum is ambiguous and reasonably susceptible to both parties' interpretations, creating a triable issue of material fact that is improper to resolve on summary judgment. Plaintiff’s argument that the price was a formula based on actual income gives meaning to the multiplier and 'approximate' language. Defendant’s argument that the price was a fixed number gives meaning to the explicit price figure. The majority errs by choosing one reasonable interpretation over the other instead of allowing a trier of fact to weigh the conflicting extrinsic evidence and determine the parties' intent.
Analysis:
This case significantly clarifies California law on the statute of frauds by explicitly embracing a more flexible, modern approach. It disapproves a rigid line of cases that barred extrinsic evidence to interpret a memorandum, instead holding that such evidence is admissible to clarify ambiguous terms. However, the decision establishes a crucial limitation on this flexibility: extrinsic evidence cannot contradict a term that is present in the memorandum. This holding balances the need to enforce genuinely made agreements reflected in informal writings with the statute's core purpose of preventing fraud by disallowing parties from using parol evidence to rewrite a contract's essential terms.
