Contracts II, Pages 662–675

Sterling v. Taylor

Supreme Court of California, March 1, 2007

Facts:

Defendant and plaintiff discussed the sale of three apartment buildings owned by defendant's partnership. Plaintiff signed a memorandum as "Buyer," but defendant did not. Plaintiff followed this meeting with a letter confirming the sale, which defendant did sign, as well as the original memorandum. These papers only referred to the properties by their street addresses, not their full addresses. The original memorandum also had a typo in the approximate price.

A couple weeks later defendant mailed formal purchase agreements to plaintiff, which plaintiff then refused to sign, claiming that the rental income he had previously been told was incorrect. Plaintiff tried to contact defendant to sell for a lower price reflecting this change, but defendant returned plaintiff's letters and not his calls.

Plaintiff then sued for breach of contract, with the memorandum and following letter as the "purchase agreement."

Procedural History:

  • Trial court granted summary judgment because the price term was too uncertain to be enforced and the writing did not comply with the statute of frauds.

  • Court of Appeal reversed, holding that defendant's name on the writings satisfied the statute of frauds and that the addresses and price could be determined with extrinsic evidence.

Judgment:

Reversed.

Issues:

  • Is extrinsic evidence admissible to to establish that a writing satisfies the statute of frauds?

  • Does a memorandum have to include all essential contract terms?

Plaintiff's Argument:

The memorandum showed calculations deriving the price as a multiple of the rent. This carries over its effect to the reduced price with the same multiple based on the correct rent figures.

Defendant's Arguments:

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoCaseMine LogoPage 664, II.

    Court of Appeal improperly considered extrinsic evidence to establish essential contract terms. . . . [T]he statute of frauds requires a memorandum that, standing alone, supplies all material elements of the contract.

  • The memorandum does not adequately specify the seller, property, or price.

Rule:

LexisNexis IconWestLaw LogoGoogle Scholar LogoCaseMine LogoPage 665, Bottom

A memorandum satisfies the statute of frauds if it identifies the subject of the parties' agreement, shows that they made a contract, and states the essential contract terms with reasonable certainty.

Reasoning:

  • LexisNexis IconWestLaw LogoGoogle Scholar LogoCaseMine LogoPage 667, Top

    Because the memorandum itself must include the essential contractual terms, it is clear that extrinsic evidence cannot supply those required terms. It can, however, be used to explain essential terms that were understood by the parties but would otherwise be unintelligible to others. . . . [A] memorandum can satisfy the statute of frauds, even if its terms are too uncertain to be enforceable when considered by themselves.

  • The seller and properties were sufficiently identified, as evidenced by the parties themselves having no uncertainty about those terms before their dispute, but the price was not. The memorandum did not specify plaintiff's price, only the multiple used to approximate it. That is insufficient to establish the price with enough reasonable certainty.

Holding:

LexisNexis IconWestLaw LogoGoogle Scholar LogoCaseMine LogoPage 670, Top

We hold that if a memorandum includes the essential terms of the parties' agreement, but the meaning of those terms is unclear, the memorandum is sufficient under the statute of frauds if extrinsic evidence clarifies the terms with reasonable certainty and the evidence as a whole demonstrates that the parties intended to be bound.

Concurring & Dissenting Opinion:

Kennard: While extrinsic evidence is admissible to resolve an ambiguity in a memorandum, the actual resolving should be done by the trier of fact, not this court. Either rendering of the meaning of approximate would give a definite price. Defendant's view of voiding the contract should not be followed in either scenario. The judgment of the Court of Appeal should be affirmed.