Real estate apartment investors Donald Sterling and Lawrence Taylor entered into a handwritten memo agreement for the sale of three large apartment buildings owned by Taylor’s investment partnership.

The very simple contract said the total price was to be “approx. 10.468 X gross income. Estimated income $1,600,000, Price $16,750.000.”

Purchase Bob Bruss reports online.

After several letters and memorandums back and forth, Sterling wanted to lower the sales price to $14,404,841 based on the actual gross rental income and the 10.468 multiplier noted in the original handwritten memo.

But Taylor returned Sterling’s uncashed deposit checks. Later, Sterling sued Taylor for breach of contract and fraud.

Taylor argued there was no sales contract because the alleged contract was not definite enough as to the sales price and it violated the statute of frauds because it was an insufficient writing.

If you were the judge would you rule there was a valid contract and Taylor breached the contract?

The judge said no!

Although extrinsic outside evidence is allowed to determine if a sales memorandum complies with the statute of frauds requirement for a written agreement, the extrinsic evidence is not allowable to change the meaning of the original contract provisions, the judge began.

“Because the memorandum itself must include the essential contractual terms, it is clear that extrinsic evidence cannot supply those required terms,” he continued. “The extrinsic evidence offered by the plaintiffs is at odds with the writing, which states a specific price and does not indicate that the parties contemplated any change based on actual rental income,” the judge emphasized.

The written memorandum did not indicate the sales price was to be based on the actual rental income, rather than the estimated $1,600,000 rental income stated, the judge explained. Because there was not a meeting of the minds necessary to form a valid contract, there could not be any breach of contract or fraud, the judge ruled.

Based on the 2007 California Supreme Court decision in Sterling v. Taylor, 55 Cal.Rptr.3d 116.

(For more information on Bob Bruss publications, visit his
Real Estate Center

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