Supreme Court of California - 26 Cal. 4th 261
Plaintiff Donovan saw an advertisement in 1997 in the Costa Mesa Daily Pilot for a used car sale, one element of which was a 1995 Jaguar XJ6 Vanden Plas for $25,995. The same day, Plaintiff looked at Jaguar dealers and found their prices much higher. The following day, Plaintiff went to Defendant’s store and saw what appeared to be the same car as in the ad; after test driving it and discussing its costs and benefits with his wife, Plaintiff tendered the payment required by the ad. The salesperson and his superior then told Plaintiff that the price in the ad was a mistake. Plaintiff demanded to be sold the car, but Defendant refused. All the while, a printing error at the Pilot was to blame, since they had mistakenly substituted the price for a different vehicle without changing the car in question, which ought to have been the same model but a year older.
Plaintiff then sued for breach of contract. The municipal court ruled for Defendant, but the appeals court reversed.
Four factors for rescission:
First, Defendant made a mistake regarding a basic assumption upon which Defendant made the contract (price).
Second, the mistake has a material effect on the contract.
Third, Defendant does not bear the risk of the mistake.
Fourth, price is a basic assumption, and the imbalance here is so severe (32% loss in profit) that it would be unfair to make Defendant perform.
The case involves a dispute between a car dealer and a customer over the sale of a used car advertised at a lower price due to typographical errors in a local newspaper. The court concluded that the advertisement constituted an offer, and a contract was formed between the parties based on the advertisement and the customer's offer to pay the advertised price. However, the dealer's unilateral mistake of fact allows for the contract to be rescinded. The court justified rescission because the dealer made a good faith mistake, did not bear the risk of the mistake, and enforcing the contract with the erroneous price would be unconscionable. The defendant's failure to review a proof sheet for the Daily Pilot advertisement constituted negligence that contributed to the placement of the erroneous advertisement. The court will examine whether the requirements of section 153, subdivision (a), of the Restatement Second of Contracts are met in the present case, and the defendant must prove four elements to obtain rescission. The California Uniform Commercial Code may also affect the case, and both parties have been asked to discuss it.
The dissenting opinion agrees that a contract was formed but disagrees with the majority's decision to grant rescission to the defendant, as it was not requested in the trial court and was not argued for on appeal or review. The grant of rescission is viewed as procedurally irregular. Rescission can be asserted in an answer, cross-complaint, or notice to the nonrescinding party, but prompt notice is required upon discovering the facts that entitle the party to rescind. Delay in giving notice can result in denial of relief if the nonrescinding party has been substantially prejudiced. In this case, the defendant never gave actual notice of rescission, and plaintiff should be allowed to brief the question of prejudice if defense counsel's oral expression of willingness to accept rescission is deemed equivalent to notice.
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