Donovan v. RRL Corp.

• Decision Date: 30 July 2001
• Docket Number: No. S082570.,S082570.
• Court: California Supreme Court
• Parties: Brain J. DONOVAN, Plaintiff and Appellant, v. RRL CORPORATION, Defendant and Respondent.

109 Cal.Rptr.2d 807

26 Cal.4th 261

27 P.3d 702

Brain J. DONOVAN, Plaintiff and Appellant, v. RRL CORPORATION, Defendant and Respondent.

No. S082570.

Supreme Court of California.

July 30, 2001.

As Modified on Denial of Rehearing September 12, 2001.

Brian J. Donovan, in pro. per., for Plaintiff and Appellant.

Donald Seth, Sonoma; Law Offices of S. Chandler Visher, S. Chandler Visher, Marie Noel Appel; The Harris Law Firm, Aurora Dawn Harris, Orange; Law Office of William E. Kennedy and William E. Kennedy, for National Association of Consumer Advocates as Amicus Curiae on behalf of Plaintiff and Appellant.

James G. Lewis, Los Angeles, for Defendant and Respondent.

Manning, Leaver, Bruder & Berberich and Halbert B. Rasmussen, Los Angeles, for California Motor Car Dealers Association as Amicus Curiae on behalf of Defendant and Respondent.

Baker & Hostetler, Glen A. Smith and Megan E. Gray, for The Times Mirror Company and the California Newspaper Publishers Association as Amici Curiae on behalf of Defendant and Respondent.

GEORGE, C.J.

Defendant RRL Corporation is an automobile dealer doing business under the name Lexus of Westminster. Because of typographical and proofreading errors made by a local newspaper, defendant's advertisement listed a price for a used automobile that was significantly less than the intended sales price. Plaintiff Brian J. Donovan read the advertisement and, after examining the vehicle, attempted to purchase it by tendering the advertised price. Defendant refused to sell the automobile to plaintiff at that price, and plaintiff brought this action against defendant for breach of contract. The municipal court entered judgment for defendant on the ground that the mistake in the advertisement precluded the existence of a contract. The appellate department of the superior court and the Court of Appeal reversed, relying in part upon Vehicle Code section 11713.1, subdivision (e), which makes it unlawful for an automobile dealer not to sell a motor vehicle at the advertised price while the vehicle remains unsold and before the advertisement expires.

We conclude that a contract satisfying the statute of frauds arose from defendant's advertisement and plaintiffs tender of the advertised price, but that defendant's unilateral mistake of fact provides a basis for rescinding the contract. Although Vehicle Code section 11713.1, subdivision (e), justifies a reasonable expectation on the part of consumers that an automobile dealer intends that such an advertisement constitute an offer, and that the offer can be accepted by paying the advertised price, this statute does not supplant governing common law principles authorizing rescission of a contract on the ground of mistake. As we shall explain, rescission is warranted here because the evidence establishes that defendant's unilateral mistake of fact was made in good faith, defendant did not bear the risk of the mistake, and enforcement of the contract with the erroneous price would be unconscionable. Accordingly, we shall reverse the judgment of the Court of Appeal.

I

While reading the April 26, 1997, edition of the Costa Mesa Daily Pilot, a local newspaper, plaintiff noticed a full-page advertisement placed by defendant. The advertisement promoted a "PRE-OWNED COUP-A-RAMA SALE!/2-DAY PREOWNED SALES EVENT" and listed, along with 15 other used automobiles, a 1995 Jaguar XJ6 Vanden Plas. The advertisement described the color of this automobile as sapphire blue, included a vehicle identification number, and stated a price of $25,995. The name Lexus of Westminster was displayed prominently in three separate locations in the advertisement, which included defendant's address along with a small map showing the location of the dealership. The following statements appeared in small print at the bottom of the advertisement: "All cars plus tax, lie, doc, smog & bank fees. On approved credit. Ad expires 4/27/97[.]"

Also on April 26, 1997, plaintiff visited a Jaguar dealership that offered other 1995 Jaguars for sale at $8,000 to $10,000 more than the price specified in defendant's advertisement. The following day, plaintiff and his spouse drove to Lexus of Westminster and observed a blue Jaguar displayed on an elevated ramp. After verifying that the identification number on the sticker was the same as that listed in defendant's April 26 Daily Pilot advertisement, they asked a salesperson whether they could test drive the Jaguar. Plaintiff mentioned that he had seen the advertisement and that the price "looked really good." The salesperson responded that, as a Lexus dealer, defendant might offer better prices for a Jaguar automobile than would a Jaguar dealer. At that point, however, neither plaintiff nor the salesperson mentioned the specific advertised price.

After the test drive, plaintiff and his spouse discussed several negative characteristics of the automobile, including high mileage, an apparent rust problem, and worn tires. In addition, it was not as clean as the other Jaguars they had inspected. Despite these problems, they believed that the advertised price was a very good price and decided to purchase the vehicle. Plaintiff told the salesperson, "Okay. We will take it at your price, $26,000." When the salesperson did not respond, plaintiff showed him the advertisement. The salesperson immediately stated, "That's a mistake."

After plaintiff asked to speak with an individual in charge, defendant's sales manager also told plaintiff that the price listed in the advertisement was a mistake. The sales manager apologized and offered to pay for plaintiffs fuel, time, and effort expended in traveling to the dealership to examine the automobile. Plaintiff declined this offer and expressed his belief that there had been no mistake. Plaintiff stated that he could write a check for the full purchase price as advertised. The sales manager responded that he would not sell the vehicle at the advertised price. Plaintiff then requested the sales price. After performing some calculations, and based upon defendant's $35,000 investment in the automobile, the sales manager stated that he would sell it to plaintiff for $37,016. Plaintiff responded, "No, I want to buy it at your advertised price, and I will write you a check right now." The sales manager again stated that he would not sell the vehicle at the advertised price, and plaintiff and his spouse left the dealership.

Plaintiff subsequently filed this action against defendant for breach of contract, fraud, and negligence. In addition to testimony consistent with the facts set forth above, the following evidence was presented to the municipal court, which acted as the trier of fact.

Defendant's advertising manager compiles information for placement in advertisements in several local newspapers, including the Costa Mesa Daily Pilot. Defendant's advertisement published in the Saturday, April 19, 1997, edition of the Daily Pilot listed a 1995 Jaguar XJ6 Vanden Plas but did not specify a price for that automobile; instead, the word "Save" appeared in the space where a price ordinarily would have appeared. The following Thursday afternoon, defendant's sales manager instructed the advertising manager to delete the 1995 Jaguar from all advertisements and to substitute a 1994 Jaguar XJ6 with a price of $25,995. The advertising manager conveyed the new information to a representative of the Daily Pilot that same afternoon.

Because of typographical and proofreading errors made by employees of the Daily Pilot, however, the newspaper did not replace the description of the 1995 Jaguar with the description of the 1994 Jaguar, but did replace the word "Save" with the price of $25,995. Thus, the Saturday, April 26, edition of the Daily Pilot erroneously advertised the 1995 Jaguar XJ6 Vanden Plas at a price of $25,995. The Daily Pilot acknowledged its error in a letter of retraction sent to defendant on April 28. No employee of defendant reviewed a proof sheet of the revised Daily Pilot advertisement before it was published, and defendant was unaware of the mistake until plaintiff attempted to purchase the automobile.

Except for the 1995 Jaguar XJ6 Vanden Plas, defendant intended to sell each vehicle appearing in the April 26, 1997, Daily Pilot advertisement at the advertised price. Defendant's advertisements in the April 26 editions of several other newspapers correctly listed the 1994 Jaguar XJ6 with a price of $25,995. In May 1997, defendant's advertisements in several newspapers listed the 1995 Jaguar XJ6 Vanden Plas for sale at $37,995. Defendant subsequently sold the automobile for $38,399.

The municipal court entered judgment for defendant. During the trial, the court ruled that plaintiff had not stated a cause of action for negligence, and it precluded plaintiff from presenting evidence in support of such a claim. After the close of evidence and presentation of argument, the municipal court concluded as a matter of law that a newspaper advertisement for an automobile generally constitutes a valid contractual offer that a customer may accept by tendering payment of the advertised price. The court also determined that such an advertisement satisfies the requirements of the statute of frauds when the dealer's name appears in the advertisement. Nevertheless, the municipal court held that in the present case there was no valid offer because defendant's unilateral mistake of fact vitiated or negated contractual intent. The court made factual findings that defendant's mistake regarding the advertisement was made in good faith and was not intended to deceive the public. The municipal court also found that plaintiff was unaware of the mistake before it was disclosed to him by defendant's representatives.

Plaintiff appealed from the judgment to the appellate department of the superior court (Cal. Rules of Court, rule 121), limiting his contentions to the breach of contract claim. The appellate department reversed the...