DONOVAN v. RRL CORPORATION (1999)

O P I N I O N

A first year law student would not be surprised to be called upon to answer the questions we address here.   Does an advertisement for a specific used car at a designated price constitute an offer that may be accepted by tendering the purchase price?   Does a statute prohibiting an automobile dealer from refusing to sell a vehicle at the advertised price affect the answer?   Finally, does the answer change if the erroneous price inserted in the advertisement was the result of an error?   We believe the answers are respectively “possibly,” “yes,” and “no.”   However, since such cryptic answers would not entitle our hypothetical law student to a passing grade, we must explain these answers below.

FACTS

Plaintiff Brian J. Donovan, intending to shop for a car, noticed an advertisement by Lexus of Westminster (defendant RRL Corporation's fictitious business name) in his Saturday local newspaper, the Daily Pilot.   The advertisement presented a number of used cars for sale, one of which was a 1995 Jaguar XJ6 Vanden Plas, VIN 720603, which was listed for $25,995.

The next day plaintiff and his wife drove to defendant's lot and noticed the automobile described in the advertisement displayed in a prominent location.   With the permission of one of defendant's representatives, the prospective buyers took the car for a test drive.   Plaintiff then told the representative he would take the car for the advertised price.   Immediately, the representative told plaintiff “that's a mistake.”   After an exchange during which plaintiff accused the representative of engaging in bait-and-switch advertising he was referred to the sales manager.

Plaintiff offered to write a check for the full amount of the advertised price.   After making some calculations, the manager told plaintiff he would sell the car for $37,016.   Plaintiff refused to pay this amount and left.   After some correspondence wherein he unsuccessfully attempted to persuade defendant to complete the sale, plaintiff filed suit in municipal court.

During a bench trial, defendant's advertising manager testified that, during the weekend preceding the Saturday on which plaintiff had read the advertisement, the car had been advertised without a price.   On the Tuesday following that weekend, she met with a representative of the Daily Pilot.   At this meeting, the manager instructed the Daily Pilot representative to run the same advertisement again.   On Thursday the manager was instructed to replace the ad with one for a 1994 Jaguar XJ6 at $25,995 and she so informed the Daily Pilot representative that day.   She did not see a proof sheet of the new advertisement before it ran because she did not work on Fridays.

The Daily Pilot's representative confirmed that the advertisement for the 1995 Jaguar had originally run without a price and that defendant's advertising manager had told her to change the advertisement to one for a 1994 Jaguar at $25,995.   The composing room of the newspaper made a typographical error which resulted in the 1995 Jaguar Vanden Plas being advertised at the price intended for the 1994 Jaguar XJ6.

The trial court entered judgment for defendant.   The court based its decision on the following findings and conclusions:  (1) The advertisement, which only required the reader to tender the specified amount of money, was an offer that would result in a contract when the customer tendered the specified sum.  (2) A good faith, unilateral mistake vitiated contractual intent.  (3) Plaintiff was unaware of the mistake.

Plaintiff appealed to the appellate division of the superior court.   That panel reversed the judgment.   It based its decision on the public policy embodied in Vehicle Code section 11713.1, subdivision (e) (all further statutory reference are to this code unless otherwise specified), which makes it unlawful for an automobile dealer to “fail to sell a vehicle to any person at the advertised total price, exclusive of taxes [and certain other fees].”   Citing Germain etc. Co. v. Western Union etc. Co. (1902) 137 Cal. 598, 602, 70 P. 658, the appellate division also noted that defendant bore the risk of a mistaken transmission of its offer since plaintiff was unaware of the mistake.

After issuing its judgment on appeal, the appellate division certified the appeal to this court pursuant to California Rules of Court, rule 63(a).   Pursuant to California Rules of Court, rule 62(a), we ordered the case transferred for hearing and decision.

DISCUSSION

Is an Advertisement an Offer?

California case law deciding whether an advertisement to sell a specific chattel at a designated price constitutes an offer or merely an invitation to make an offer is surprisingly scarce.   The earliest case cited to us by the parties, and we could find none earlier, is Estate of Lynch (1923) 62 Cal.App. 687, 217 P. 807, which involved an advertisement to sell real property “to the highest bidder therefor,” the bids to be in writing.  (Id. at p. 688, 217 P. 807.)   Plaintiff made the highest written bid;  however, subsequently, another person made a higher oral bid and the property was sold to the latter.  (Ibid.) The appellate court was not persuaded that a binding contract had been entered into between plaintiff and the sellers and noted:  “The notice merely amounts to an indication to sell;  and the mere submission of a bid in response thereto cannot be construed as an acceptance of an offer.”  (Id. at p. 689, 217 P. 807.)

California's appellate courts apparently were not again called upon to deal with this issue until 64 years later.  Harris v. Time, Inc. (1987) 191 Cal.App.3d 449, 237 Cal.Rptr. 584 dealt with junk mail, rather than a newspaper or similar advertisement.   A magazine publisher's mailer stated on the outside ‘ “[name of addressee], I'll give you this versatile new calculator watch free just for, opening this envelope before Feb. 15, 1985.” ’  (Id. at p. 453, 237 Cal.Rptr. 584, upper case omitted.)   A recipient opened the envelope only to learn to his chagrin that there was a further condition:  subscribe to the magazine.  (Ibid.) His response was predictably in accordance with The American Way:  He sued the magazine publisher for $15,000,000.  (Ibid.) The

Harris, citing Corbin (1 Corbin, Contracts (1963) § 25, pp. 74-75) and the Restatement (Rest.2d Contracts, § 26, com. b, at p. 76), recognized that “advertisements are not typically treated as offers, but merely as invitations to bargain.”  (Harris v. Time, Inc., supra, 191 Cal.App.3d at p. 455, 237 Cal.Rptr. 584.)   However, the court noted “a fundamental exception to this rule:  an advertisement can constitute an offer, and form the basis of a unilateral contract, if it calls for performance of a specific act without further communication and leaves nothing for further negotiation.   [Citations.]”  (Ibid.) The court concluded that the exception applied;  all that was necessary to accept the offer was the act of opening the envelope.  (Id. at pp. 455-456, 237 Cal.Rptr. 584.)   This principle is also supported by the Restatement:  “It is of course possible to make an offer by an advertisement directed to the general public ․ but there must ordinarily be some language of commitment or some invitation to take action without further communication.”  (Rest.2d Contracts, supra, § 26, com. b, at p. 76.)

The Restatement illustrates the rule and the exception:  “A, a clothing merchant, advertises overcoats of a certain kind for sale at $50.   This is not an offer, but an invitation to the public to come and purchase.   The addition of the words ‘Out they go Saturday;  First Come First Served’ might make the advertisement an offer.”  (Rest.2d Contracts, supra, § 26, com.b, illus.1, at p. 76.)

Brown v. California State Lottery Com. (1991) 232 Cal.App.3d 1335, 284 Cal.Rptr. 108 is the only other California case of which we are aware that addressed the issue;  it does so only obliquely.   A disgruntled Lotto player sued because an agency for the State Lottery Commission had refused to sell him a ticket with numbers designated by him, and which he contended subsequently became the winning numbers.  (Id. at p. 1338, 284 Cal.Rptr. 108.)   He claimed reliance on defendant's offer of “ ‘a ․ “short-cut to millions.” ’ ”  (Id. at p. 1339, 284 Cal.Rptr. 108.)   In a footnote, the court merely notes the general rule that “․ advertisements ordinarily are not offers but merely invitations to bargain.  [Citation.]”  (Id. at p. 1339, fn. 1, 284 Cal.Rptr. 108.) Although defendant and one of the amici derive great comfort from this footnote, we do not find it particularly helpful.   The general rule is clear.   The question is:  Does the exception apply here?

Did the advertisement, which offered a specific car at a designated price, qualify as calling “for performance of a specific act without further communication and [leaving] nothing for further negotiation”?  (Harris v. Time, Inc., supra, 191 Cal.App.3d at p. 455, 237 Cal.Rptr. 584.)   Or to put it in the words of the Restatement, did it contain “some language of commitment or some invitation to take action without further communication”?  (Rest.2d Contracts, supra, § 26, com. b, at p. 76.)

 The advertisement did not merely indicate that a generic lot of 1995 Jaguars were available for sale at $26,000;  rather, it offered a specific, unique automobile for that price.   There was nothing to indicate in the advertisement that the prospective buyer needed to do anything other than tender the purchase price, as there was nothing to indicate that the recipient of the publisher's junk mail had to do anything other than open the envelope to receive the watch.   As to the suggestion that such a ruling would open the dealer to liability, not only to plaintiff, but to all other persons tendering the purchase price, the Restatement provides an answer:  “A publishes an offer of reward to whoever will give him certain information.   There is no indication that A intends to pay more than once.   Any person learning of the offer has power to accept ․ but the giving of the information by one terminates the power of every other person.”  (Rest.2d Contracts, supra, § 29, com. b, illus.1, at p. 84.)   So here, obviously, only one person can accept the offer.   Presumably, plaintiff was the first person to do so.

Defendant and amicus Times Mirror Company (Times) argue that the exception to the general rule only applies to offers for unilateral contracts.   This may be generally true;  the offer in Harris was such an offer.   The court held that the offer could be accepted by the act of opening the envelope.   (Harris v. Time, Inc., supra, 191 Cal.App.3d at pp. 455-456, 237 Cal.Rptr. 584.)   However, the Restatement contains no such limitation and the illustration supporting application of the exception quoted above, “Out they go Saturday,” arguably contemplates an offer for a bilateral contract.   So here, plaintiff's statement after the test drive that he would take the car at the advertised price may be construed as acceptance of a bilateral contract.   On the other, hand the advertisement, on its face, required the performance of a specific act:  the tender of the purchase price, an act which plaintiff performed.   His failure to actually present the purchase price was excused by defendant's refusal.  (Civ.Code, § 1440.)   We do not consider the characterization of the contract as either unilateral or bilateral essential to our decision.

 Amici California Motor Car Dealers (CMCD) and Times argue that the Vehicle Code contemplates that a written agreement of sale or lease will be made between dealer and customer before a vehicle is delivered.   They contend that therefore something more than a mere tender of the purchase price would be required to complete a contract.   Although not expressly establishing such a requirement, they are correct in asserting that the Vehicle Code contemplates such a written contract (see, e.g., section 11713.1, subds. (v) & (x)).  However, this does not, in and of itself, preclude the formation of a binding contract prior to completion of the contemplated writing.   Here also the Restatement provides the answer:  “Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof․”  (Rest.2d Contracts, supra, § 27, at p. 78.)

Amicus CMCD also argues that a number of non-price issues, such as the amount of the down payment, financing, warranties, trade-in allowances, insurance, delivery dates, service contracts, title and registration issues, pollution control certificates, taxes, and statutory notices and warnings are normally negotiated in connection with the purchase of an automobile.   This may be true in general;  it was not true in this case.   If plaintiff had sought to negotiate any such matters, he would have been making a counter offer.   He did not attempt to negotiate any terms;  he merely indicated a willingness to tender the advertised purchase price.   If he was willing to buy the car without financing, without a trade-in, without warranties, there is no principle of law requiring him to do otherwise.

Ultimately, this is a close case and neither case law nor the Restatement provides a clear-cut answer.   However, as we discuss immediately below, the requirement imposed by section 11713.1, subdivision (e) tips the scale in favor of our construing the advertisement as an offer which could be, and was, accepted by an attempted tender of the purchase price.

The Effect of Section 11713.1, subdivision (e)

 Section 11713.1, subdivision (e) makes it unlawful for an automobile dealer to “[f]ail to sell a vehicle to any person at the advertised total price, exclusive of taxes [and certain other specified fees].”   Since the trial court determined that the erroneous information in the advertisement “was made in good faith,” defendant argues that this section should not be construed so as to apply to what it characterizes as “an innocent dealer.”   In making this argument, defendant relies on Penal Code section 20, which absolves a person from criminal liability in the absence of intent or criminal negligence, and, so the argument goes, since defendant did not intend to advertise the car at the lower price, there cannot be a violation of the statute.

This argument confuses the nature of the intent required for a violation of section 11713.1, subdivision (e) with that required for a violation of subdivision (b) of the same section.   Subdivision (b) prohibits a dealer from “advertis[ing] the total price of a vehicle without including all costs to the purchaser at time of sale, except taxes [and certain other fees].”   Based on the trial court findings, defendant's argument relating to the absence of intent supports a conclusion that defendant did not violate subdivision (b).   There was no intent on defendant's part to advertise the sales price falsely.   However, subdivisions (b) and (e) impose distinct duties on automobile dealers.   Subdivision (b) relates to false advertising.   Defendant did not intentionally engage in false advertising.   Subdivision (e) relates to a failure to sell at the advertised price.   Defendant did intentionally fail to sell at the advertised price.   We agree with the appellate division that the policy expressed in subdivision (e) compels us to conclude that the advertisement must be interpreted as an offer to sell at the designated price.

In Ford Dealers Assn. v. Department of Motor Vehicles (1982) 32 Cal.3d 347, 185 Cal.Rptr. 453, 650 P.2d 328, our Supreme Court characterized section 11713.1 as a “remedial statute, designed to protect the public.”   (Id. at p. 356, 185 Cal.Rptr. 453, 650 P.2d 328.)   The court noted that the statute was not only designed to protect the public from the “unscrupulous dealer” but also from the “irresponsible” one.  (Ibid.) Here, the reason defendant did not avoid the error in the advertisement was that its advertising manager did not review the proof sheets prior to publication.   It would not serve the obvious purpose of the statute were we to enunciate a rule that would absolve dealers from the consequences of erroneous advertisements as long as they made sure they did not carefully check them before publication.

Amicus Times, relying on Smith v. California (1959) 361 U.S. 147, 80 S.Ct. 215, 4 L.Ed.2d 205, argues that a holding which would impose “strict liability” on advertising would violate the First Amendment.  Smith held that booksellers could not be criminally liable for possessing obscene literature absent evidence they knew the contents of the books leading to conviction.   (Id. at pp. 154-155, 80 S.Ct. 215.)   As we noted, the contractual liability of the automobile dealer based on our conclusion that the provisions of section 11713.1, subdivision (e) should be considered in determining that the advertisement constituted an offer, does not impose a “strict liability.”   Were our decision based upon a violation of subdivision (b) (false advertising), Times' argument might be apt.   However, our decision is predicated on an intentional, knowing violation of a statute that imposes a different duty:  to sell at the advertised price.   We would have to accept an implied suggestion that defendant did not know it refused to sell at the advertised price before we would need to consider the implications of the Smith case.   Times' First Amendment argument stretches credibility.

Did the Mistake Vitiate the Offer?

 The trial court concluded “that the doctrine of unilateral mistake of fact, which I believe exists in the case, applies and vitiates or negates contractual intent.”   We must, of course, accept the trial court's finding that there was a “good faith” mistake that caused the error in the advertisement.   In finding that plaintiff was unaware of the mistake, the court properly characterized it as “unilateral.”   However, we disagree with the trial court's conclusion that a unilateral mistake vitiates an offer.

Amici rely on M.F. Kemper Const. Co. v. City of L.A. (1951) 37 Cal.2d 696, 235 P.2d 7, for the proposition that a unilateral mistake may entitle a party to rescind the contract.   In that case, the city purported to accept an offer for a construction contract after it had knowledge that the bidder had made a clerical error which resulted in its bid being nearly one-third less than intended.  (Id. at p. 700, 235 P.2d 7.)   However, a “unilateral misinterpretation of contractual terms, without knowledge by the other party at the time of contract, does not constitute a mistake under either Civil Code section 1577 [mistake of fact] or 1578 [mistake of law].”  (Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1422, 49 Cal.Rptr.2d 191, citing 1 Witkin, Summary of Cal. Law (9th ed.1987) Contracts, § 379, pp. 345-346.)   As noted in Hedging Concepts, to hold otherwise, “would conflict with the objective theory of enforceable contracts.”  (Hedging Concepts, Inc. v. First Alliance Mortgage Co., supra, 41 Cal.App.4th at p. 1421, 49 Cal.Rptr.2d 191.)

Defendant and amici argue that the error resulted solely from the negligence of the newspaper and that, since the newspaper is not defendant's agent, Germain etc. Co. v. Western Union etc. Co., supra, 137 Cal. 598, 70 P. 658, upon which the appellate division relied in its decision, should not be applied.  Germain held that the sender of a telegram bore the risk of mistaken transmission.  (Id. at pp. 601-602, 70 P. 658.)   We need not decide whether the case applies since the argument is based on the assumption that it was solely the negligence of the newspaper and not of defendant which caused the mistake.

The trial court found that the error was made “in good faith.”   This does not equate with a finding that defendant was without fault.   The trial court was not asked to make a finding on the issue of whether defendant was negligent.   We are, however, permitted to make appropriate findings.   Code of Civil Procedure section 909 provides:  “In all cases ․ where trial by jury has been waived, the reviewing court may make factual determinations ․ in addition to those made by the trial court.   The factual determinations may be based on the evidence adduced before the trial court either with or without the taking of evidence by the reviewing court.”

We need not take additional evidence to conclude that defendant's negligence contributed to the placement of the erroneous advertisement.   The evidence is uncontradicted that defendant had an opportunity to review a proof sheet of the advertisement and chose not to review it:  “Q. Did you [defendant's advertising manager] expect to see a proof sheet again as to that change?  [¶] A. No, there was no time.  [¶] Q. Why not?  [¶] A. Because I am not in there on Friday, and it goes to press on Friday.”

Because of the duties imposed by section 11713, subdivisions (a), (b), (c), (d), and (k) and by section 11713.1, subdivisions (a), (b), (c), (e), (h), (i), (j), (l ), (o), (r), and (s), all pertaining to advertisements placed by automobile dealers, such a dealer has a heavy responsibility to insure that advertisements are error-free.   Under the authority granted to us by Code of Civil Procedure section 909, we find that the failure to check the proof sheet constituted negligence.   The record would not support any contrary finding.   Therefore, we need not consider whether or not defendant must be charged with the concurrent negligence of the newspaper.

DISPOSITION

The judgment is reversed.   The case is remanded to the trial court to determine plaintiff's damages.   Plaintiff shall recover his costs on appeal.

RYLAARSDAM, J.

SILLS, P.J., and CROSBY, J., concur.