<strong>COURT ALLOWS EXTRINSIC EVIDENCE TO CLARIFY PURCHASE CONTRACTS</strong>The California Supreme Court has recently ruled that a court may consider evidence other than what is stated within the four corners of a written contract to clarify the parties' agreement. C.A.R. participated in this case by filing an <em>amicus curiae</em> or "friend of the court" brief urging California's high court to reach the decision it did. As C.A.R. pointed out to the Supreme Court, extrinsic evidence must be used to resolve ambiguities commonly found in real estate transactions to prevent parties who have second thoughts from escaping their contractual commitments.<br /><br />This case involved a multimillion dollar sales transaction between two experienced real estate investors. The parties were not represented by real estate agents nor did they use a standard-form contract. Instead, they drafted a handwritten "Contract for Sale" for three buildings which stated the price as "approx. 10.468 x gross income[,] estimated income 1.600.000, <u>Price $16,750.00</u>" (underline in original). That the parties omitted a zero in the $16,750,000 price was not at issue.<br /><br />Before entering into this contract, the buyer was in possession of the buildings' rent rolls. Yet, it was not until many weeks after entering into the contract when the buyer requested a price reduction to $14,404,840, because his review of the rent rolls revealed that the rental income was only $1,375,404 (not $1,600,000). The seller refused to reduce the price, and so the buyer sued for specific performance.<br /><br />In his lawsuit, the buyer testified that "approx." modified the purchase price, not the 10.468 multiplier, and that "gross income" meant the actual gross annual income. The seller, however, argued that the Statute of Frauds, which requires real estate contracts to be in writing, prohibited the court from considering the buyer's testimony or any evidence other than the written contract.<br /><br />The Supreme Court disagreed. It decided that when ambiguous terms in a memorandum are disputed, a court can consider extrinsic evidence to clarify those terms with reasonable certainty. In this particular case, however, the court decided that the buyer's testimony was not enough to establish his interpretation with reasonable certainty. The parties' memorandum contained, even underlined, the intended price of $16,750,000, whereas $14,404,840 was not in writing. Furthermore, that the price would vary based on a later review of the rent rolls was not in writing. Indeed, the court would have given the buyer's interpretation more credence if the rental income was yet to be determined, but in this case, the buyer was already in possession of the rent rolls before entering into the contract.<br /><br />Case: <em>Sterling v. Taylor</em> (2007 WL 610227) decided on March 1, 2007.<br /><br />C.A.R.'s Legal Action Fund Program contributes to favorable decisions for the real estate profession by filing <em>amicus curiae</em> or "friends of the court" briefs in landmark cases. Members seeking C.A.R.'s assistance in an appellate court case may contact Neil Kalin, Assistant General Counsel, at <a title="blocked::mailto:neilk@car.org" href="mailto:neilk@car.org">neilk@car.org</a>.<br />
Archive for March 7th, 2007
<table width="507"><tbody><tr><td class="sectionheader"><span style="FONT-WEIGHT: bold; FONT-SIZE: 13px; MARGIN-BOTTOM: 3px; PADDING-BOTTOM: 3px; COLOR: #cc0000; PADDING-TOP: 3px; FONT-FAMILY: Arial, Helvetica, sans-serif">ISSUE UPDATES </b /></span></td></tr><!– End of story –><!– Itemheader –><tr><td class="itemheader"><span style="FONT-WEIGHT: 900; FONT-SIZE: 14px; MARGIN-BOTTOM: 3px; PADDING-BOTTOM: 3px; COLOR: #003399; PADDING-TOP: 3px; FONT-FAMILY: Arial, Helvetica, sans-serif"><br /><b>Affordable Housing, AMT Relief on the Tax Agenda </b></span></td></tr><!– Story –><tr><td class="blacktext" width="500">The tax-writing House Ways and Means Committee plans to look at ways to use the tax code to promote affordable housing, the Committee says in its annual "Views and Estimates" letter, which outlines its priorities for the year. The Committee also wants to look at ways to reduce the burden of the alternative minimum tax (AMT). By all appearances, Committee Chair Charlie Rangel (D-N.Y.) has no plans to use changes to the mortgage interest deduction to offset reduced tax revenue to the federal government from any changes to AMT, according to trade press coverage of Rangel's remarks at a recent conference. Also not on the table for offsetting AMT relief: the deduction for state and local taxes and rules affecting tax-exempt entities. </td></tr><!– End of story –><!– Itemheader –><tr><td class="itemheader"><span style="FONT-WEIGHT: 900; FONT-SIZE: 14px; MARGIN-BOTTOM: 3px; PADDING-BOTTOM: 3px; COLOR: #003399; PADDING-TOP: 3px; FONT-FAMILY: Arial, Helvetica, sans-serif"><br /><b>Freddie Mac Toughens Subprime Lending Standards </b></span></td></tr><!– Story –><tr><td class="blacktext" width="500">Secondary mortgage market maker Freddie Mac says it will stop buying certain subprime adjustable rate mortgages that it feels could leave borrowers at undue risk. Among the loans its targeting: ARMs with low "teaser" rates that adjust upwards significantly after two or three years. </td></tr><!– End of story –><!– Itemheader –><tr><td class="itemheader"><span style="FONT-WEIGHT: 900; FONT-SIZE: 14px; MARGIN-BOTTOM: 3px; PADDING-BOTTOM: 3px; COLOR: #003399; PADDING-TOP: 3px; FONT-FAMILY: Arial, Helvetica, sans-serif"><br /><b>Eased Brownfields Cleanup Funding Passes House </b></span></td></tr><!– Story –><tr><td class="blacktext" width="500">It's easier for the federal government to award brownfield cleanup grants to state and local governments under a bill that's passed the U.S. House. The bill, H.R. 644, also lets state and local governments use their community development block grant (CDBG) funds for brownfields cleanup. These changes, if enacted, could help open up more contaminated in-fill sites for development. </td></tr><!– End of story –><!– Itemheader –><tr><td class="itemheader"><span style="FONT-WEIGHT: 900; FONT-SIZE: 14px; MARGIN-BOTTOM: 3px; PADDING-BOTTOM: 3px; COLOR: #003399; PADDING-TOP: 3px; FONT-FAMILY: Arial, Helvetica, sans-serif"><br /><b>FTC to Hold Workshop on ID Theft Prevention Measures </b></span></td></tr><!– Story –><tr><td class="blacktext" width="500">The Federal Trade Commission on April 23 and 24 is holding a workshop on authenticating people's identity to ensure they're who they claim to be. NAR is partnering with the FTC on ID theft issues and will attend the workshop, which is in Washington and open to the public. </td></tr></td /></tr /></td /></tr /><!– End of story –><!– Section header –><tr><td class="sectionheader"><span style="FONT-WEIGHT: bold; FONT-SIZE: 13px; MARGIN-BOTTOM: 3px; PADDING-BOTTOM: 3px; COLOR: #cc0000; PADDING-TOP: 3px; FONT-FAMILY: Arial, Helvetica, sans-serif"><br />LEGAL </b /></span></td></tr><!– Itemheader –><tr><td class="itemheader"><span style="FONT-WEIGHT: 900; FONT-SIZE: 14px; MARGIN-BOTTOM: 3px; PADDING-BOTTOM: 3px; COLOR: #003399; PADDING-TOP: 3px; FONT-FAMILY: Arial, Helvetica, sans-serif"><br /><b>Counteroffer Is a Rejection of Earlier Offer </b></span></td></tr><!– Story –><tr><td class="blacktext" width="500">A prospective buyer can't choose to accept a seller's counter offer after the buyer had already countered the seller's counter offer, the District Court of Appeal of Florida, Second District, ruled, reversing the trial court and finding in favor of the seller. To read a summary of the case, <a title="blocked::http://go-to.realtor.org/h/FKA2F/7AGLI/RF/P51VG" href="http://go-to.realtor.org/h/FKA2F/7AGLI/RF/P51VG">click here.</a> </td></tr></tbody></table>
