## Facts

- The parties negotiated the sale of three Santa Monica apartment buildings owned by a partnership controlled by Taylor; Sterling and related entities were experienced real-estate investors.
- Sterling prepared a handwritten memorandum identifying the properties and stating: “approx. 10.468 X gross income[,] estimated income 1,600,000, Price $16,750.00,” which both sides agreed was a clerical error intended to read $16,750,000.
- Sterling initialed the memorandum; Taylor did not sign it.
- Sterling later sent a typed letter about the transaction; both parties signed the letter, but it did not include any price term.
- After reviewing rent rolls, Sterling asserted actual income was lower than the $1.6 million estimate and claimed the multiplier implied a lower price (about $14.4 million) based on actual income.
- Taylor sent formal purchase agreements at a fixed aggregate price of $16,750,000; Sterling refused to sign, and the transaction failed.
- Sterling sued for breach of contract and related claims, alleging an enforceable agreement to sell at a price determined by the multiplier applied to actual rents; Taylor raised the statute of frauds.

## Issues

1. Whether extrinsic evidence may be considered to explain or clarify terms in a writing offered to satisfy the statute of frauds for a real-property sale.
2. Whether the handwritten memorandum and signed letter established the essential price term with reasonable certainty, such that the alleged formula-based price could be enforced.

## Decision

- The California Supreme Court reversed the Court of Appeal and reinstated summary judgment for defendants.
- The court held extrinsic evidence may be used to explain or clarify terms contained in a statute-of-frauds memorandum, and disapproved contrary statements in prior cases.
- The court held the writings did not state, with reasonable certainty, the essential price term Sterling sought to enforce (a variable price based on actual income).
- Because Sterling’s theory depended on using extrinsic evidence to contradict or replace the writing’s apparent fixed-price term, the statute of frauds barred enforcement.

## Legal Principles

- Contracts for the sale of real property are unenforceable unless there is a writing subscribed by the party to be charged that states the essential terms with reasonable certainty.
- Extrinsic evidence is admissible to explain or clarify ambiguous terms that appear in the writing, but it cannot supply an essential term missing from the writing or establish a term that contradicts the writing.
- Price is an essential term in a land-sale contract; it must be stated as a definite amount or as a definite method or formula for determining the amount with reasonable certainty.
- A writing that uses approximate multipliers and estimated inputs, without clearly memorializing the asserted variable pricing method, is insufficient where the proponent seeks enforcement of a materially different price than the writing suggests.

## Conclusion

The court held that while extrinsic evidence may clarify a statute-of-frauds memorandum, the writings here did not memorialize with reasonable certainty an agreement to determine price by applying a multiplier to actual income; therefore, the statute of frauds barred Sterling’s contract claims and summary judgment for Taylor was required.


Sterling v. Taylor, 40 Cal. 4th 757 (Cal. 2007)