Caseflicks

California Supreme Court • 2007

Sterling v. Taylor

152 P.3d 420 | 55 Cal. Rptr. 3d 116 | 40 Cal. 4th 757 | 2007 Cal. Daily Op. Serv. 2227 | 2007 Daily Journal DAR 2798 | 2007 Cal. LEXIS 1898

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Takeaway

In short, this case allows extrinsic evidence to clarify an ambiguous statute-of-frauds memorandum, but not to replace its written price term with a contradictory one.

Background

Donald Sterling and Lawrence Taylor, experienced real-estate investors, discussed Sterling's purchase of three Santa Monica apartment buildings owned by the Santa Monica Collection partnership, of which Taylor was a general partner. At a March 13, 2000 meeting, Sterling drafted a handwritten document titled “Contract for Sale of Real Property.” It identified the three buildings by street address and listed: “approx. 10.468 X gross income,” “estimated income 1.600.000,” and “Price $16,750.00.” The parties agreed that the intended stated price was $16,750,000, not $16,750. Sterling signed as buyer, but the seller-signature line was blank.

On March 15, Sterling sent Taylor a letter confirming the sale of the buildings, discussing deposits and tax benefits, and stating that Sterling had equitable title. Taylor signed the letter under “Agreed, Accepted, & Approved.” The parties disputed whether the March 13 memorandum was attached when Taylor signed the March 15 letter. Taylor later sent formal purchase agreements identifying Santa Monica Collection as seller and setting a total price of $16,750,000. Sterling refused to sign, asserting that the actual rental income was lower than the estimated $1.6 million and that the agreed formula required a reduced price of $14,404,841.

Sterling sued for breach of contract, specific performance, declaratory relief, and related claims. The trial court granted defendants summary judgment, holding that the price term was too uncertain and that the writings did not satisfy the statute of frauds. The Court of Appeal reversed on the contract claims, concluding that extrinsic evidence could clarify the seller, property, and price terms and that a factual dispute existed over whether the parties agreed to a price formula. The California Supreme Court reversed the Court of Appeal and directed affirmance of the trial court's judgment.

Issues

Issue #1

Whether extrinsic evidence may be considered to clarify ambiguous essential terms in a memorandum offered to satisfy the statute of frauds.

Holding

Yes. Extrinsic evidence is admissible to explain or clarify ambiguous terms in a signed memorandum, so long as the memorandum itself includes the essential terms and the evidence establishes them with reasonable certainty.

Reasoning

Civil Code section 1624 requires a signed writing, note, or memorandum for a contract to sell real property, but it does not require a fully integrated written contract. A memorandum performs an evidentiary function: it must identify the agreement's subject matter, show that a contract was made, and state essential terms with reasonable certainty. The statute is distinct from the parol-evidence rule, which governs the effect of an integrated written agreement.

The Court reaffirmed earlier authority permitting courts to read a memorandum in light of the transaction and surrounding circumstances. In Preble, extrinsic evidence identified an imprecisely described parcel; in Brewer, evidence explained cryptic telegrams sufficiently to establish the parties, subject matter, and terms. These cases reflect the rule that a term is certain when it can be made certain.

The Court disapproved contrary statements in California decisions suggesting that a memorandum's sufficiency must be determined from the writing alone, without any resort to parol evidence. A rigid no-extrinsic-evidence rule does not advance the statute's central purpose: preventing fraudulent enforcement of contracts never made, rather than supplying parties with a technical escape from obligations they actually undertook.

Extrinsic evidence has an important limit. It may clarify an essential term that the memorandum contains but expresses imperfectly; it cannot supply an essential term entirely omitted from the memorandum or prove an agreement that contradicts the memorandum's terms. Conflicts in the explanatory evidence ordinarily go to the trier of fact, but whether the evidence establishes the essential terms with reasonable certainty remains a question of law for the court.

Issue #2

Whether the memorandum sufficiently identified the seller and the properties to satisfy the statute of frauds.

Holding

Yes. The seller and properties were identified with sufficient certainty when the writings were considered with the parties' undisputed conduct and surrounding circumstances.

Reasoning

The memorandum referred to “Seller Larry Taylor, & Christina Development,” even though Santa Monica Collection technically owned the buildings. That discrepancy was not fatal because Taylor was authorized to act for Santa Monica Collection, and a contract executed in an agent's name may be enforced against an undisclosed principal. The reference to Taylor therefore sufficiently identified the selling side of the transaction.

The buildings were listed only as 808 Fourth Street, 843 Fourth Street, and 1251 Fourteenth Street, but neither party was genuinely uncertain about what properties were intended. Taylor's later proposed purchase agreements supplied legal descriptions, and Sterling never suggested that the addresses referred to properties outside Santa Monica. Extrinsic evidence may locate property described in abbreviated terms when the evidence makes the intended property reasonably certain.

The parties' practical construction of the memorandum before their disagreement is especially probative. Their conduct showed a common understanding of the seller and the Santa Monica apartment buildings; their dispute arose over price, not identity of the parties or property.

Issue #3

Whether the memorandum and permissible extrinsic evidence established with reasonable certainty Sterling's claimed purchase price of $14,404,841.

Holding

No. Sterling's claimed price was not reflected in, and was inconsistent with, the memorandum's stated price terms; thus the statute of frauds barred enforcement of the alleged agreement.

Reasoning

A memorandum for the sale of real property must identify the buyer, seller, property, and price. Here, the decisive defect was the price term: “approx. 10.468 X gross income,” “estimated income 1.600.000,” and “Price $16,750,000.” Although the language was imperfect, the stated estimated income multiplied by 10.468 produces approximately $16,750,000.

Taylor maintained that $16,750,000 was the agreed price, and Sterling admitted that this was the amount he meant to write as the stated price. By contrast, Sterling sought to apply the 10.468 multiplier to a later-acquired actual-income figure of $1,375,404, yielding a substantially lower price. His claimed figure was not an approximation of $16,750,000 and depended on an income figure absent from the memorandum.

Nothing in the memorandum stated that the price would be based on actual gross income, would change after verification of rental income, or would be left open for later calculation. Sterling's interpretation would use the opening formula while disregarding the writing's express estimated-income and price figures. That is not clarification of an ambiguous written term; it is an effort to enforce a materially different price term through disputed extrinsic testimony.

Because the extrinsic evidence offered by Sterling conflicted with the memorandum rather than explaining it, it could not satisfy the statute of frauds. The insufficiency was resolvable as a matter of law, so the trial court properly entered summary judgment for defendants.

Dissents

Justice Kennard

Reasoning

Justice Kennard agreed that extrinsic evidence may resolve ambiguity in a statute-of-frauds memorandum, but disagreed with the majority's application of that principle. In her view, the price language was reasonably susceptible to two readings: Taylor's reading that $16,750,000 was the fixed price, and Sterling's reading that 10.468 times actual gross income was the agreed formula, with $16,750,000 only an estimate based on estimated income.

Sterling's interpretation did not simply ignore the memorandum's estimated-income and stated-price language. Rather, it gave those terms a role as an estimate produced by applying the stated multiplier to estimated income, while treating actual income as the proper input for the final price. Taylor's view, in turn, gave effect to the stated price but did not fully account for the formula also included in the memorandum.

Because both readings were plausible and the parties offered conflicting extrinsic evidence about their negotiations and understanding, Justice Kennard would have left the factual resolution to the trier of fact. She would have affirmed the Court of Appeal's conclusion that a triable issue existed regarding the agreed price formula. Justice Werdegar joined her opinion.