Horvitz & Levy LLP represented the prevailing petitioners in this Supreme Court case, which involves the intersection of two seemingly contradictory principles of contract interpretation—the admissibility of parol evidence to interpret ambiguous contractual language, and the potential inadmissibility of such evidence where the statute of frauds applies. The Sterling case presented the following issue: “Did writings exchanged between the parties satisfy the statute of frauds and result in an enforceable agreement for the sale of real property?”

The case arose out of a dispute over the effect of a purported buyer’s unsigned handwritten note and his subsequent letter concerning negotiations for the sale of real property valued at between $14 and $17 million. The trial court granted summary judgment on the purported buyer’s claim to enforce the contract, on the ground that the failure of the writings to include a definitive price rendered them unenforceable under the statute of frauds, and that even independent of the statute of frauds, there was no enforceable contract because no objective agreement had ever been reached regarding the price of the properties. The Court of Appeal reversed, holding that notwithstanding the statute of frauds, parol evidence could transform the buyer’s writings into a contract with the seller by providing essential terms not specified in the writings, including the price of the property, the identity of the seller of the property, and a legal description of the property to be sold. (Sterling v. Taylor (2003) 6 Cal.Rtpr.3d 836, 845-853.)

In a 5-2 decision, the Supreme Court agreed with the Court of Appeal’s conclusion that courts can consider extrinsic evidence to interpret memoranda governed by the statute of frauds, holding that “if the writing includes the essential terms of the parties’ agreement, there is no bar to the admission of relevant extrinsic evidence to explain or clarify those terms.” (Slip opn., p. 1.) But the court also clarified that “it is a question of law whether a memorandum, considered in light of the circumstances surrounding its making, complies with the statute of frauds. [Citation.] Accordingly, the issue is generally amendable to resolution by summary judgment.” (Id. at pp. 14-15.) The court then affirmed the trial court’s summary judgment ruling in favor of defendants because the price term was “insufficient to show with reasonable certainty that the parties understood and agreed to the price alleged by the plaintiffs. The price terms stated in the memorandum, considered together with the extrinsic evidence of the contemplated price, leave a degree of doubt that the statute of frauds does not tolerate.” (Id. at p. 19.)

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