Car Dealer Not Bound by Ad Error, Court Rules

SAN FRANCISCO —  Car dealers may refuse to sell vehicles at an advertised price if an honest mistake was made in the advertisement, the California Supreme Court decided Monday.

In a 4-2 decision, the state high court overturned a Court of Appeal ruling that said an Orange County dealer should have sold a two-year-old Jaguar for $25,995--more than 30% less than its actual price--because of a newspaper’s error in proofreading the dealer’s advertisement.

“No consumer reasonably can expect 100% accuracy in each and every price appearing in countless automobile advertisements listing numerous vehicles for sale,” Chief Justice Ronald M. George wrote for the majority.

Even though the car buyer in the case lost, lawyers said the decision contained strong language that will protect consumers in cases in which there is no proof of an honest mistake.

The high court ruled that an advertised price is a legal offer, and if it is accepted, a contract is formed.

“This language will effectively bind all merchants,” said James G. Lewis, who represented Lexus of Westminster, the defendant, in the case.

Such contracts can be rescinded when misleading advertisements have resulted from honest mistakes.

As a result, the ruling protects advertisers as long as they can show the mistake was made by someone else, Lewis said. If advertisers make mistakes inadvertently--through a typographical error, for example--they still can prevail if selling at the advertised price would produce an unconscionable result, he said.

Monday’s decision stemmed from a lawsuit filed by Newport Beach lawyer Brian J. Donovan, 56, who tried to buy the 1995 Jaguar after seeing it advertised in the Daily Pilot, a newspaper in Costa Mesa now owned by Tribune Co., which also owns the Los Angeles Times.

After test-driving the car, Donovan and his wife told a salesman they wanted it. “We will take it at your price, $26,000,” Donovan told the salesperson.

After the salesperson failed to respond, Donovan produced the ad. “That is a mistake,” the salesperson said.

The sales manager apologized and offered to reimburse Donovan for his gas, time and effort in getting to the lot but refused to sell the car for less than $37,016.

Donovan bought a 1995 Jaguar from another dealer two weeks later for about $39,000 and sued Lexus of Westminster to recover the difference, plus interest. He accused the car dealership of breach of contract, fraud and negligence.

The majority agreed with Donovan that a car dealer’s advertised price constitutes a legal offer, rather than a mere invitation to negotiate, and that Donovan’s acceptance created a contract.

But the court said such a contract can be rescinded if it was based on an honest mistake that produces an “unconscionable” result.

In the case of the Jaguar, the unconscionable result was $12,000 the dealership would have lost if it sold the car at the advertised price.

The car dealer’s “fault consisted of failing to review a proof sheet . . . and/or the actual advertisement” and relying instead on the newspaper’s advertising staff, George wrote in Donovan vs. RRL Corporation, S082570. Although such a lapse might constitute negligence, it does not amount to unfair dealing, he added.

Justices Kathryn Mickle Werdegar and Marvin R. Baxter dissented on the grounds the ruling was “procedurally irregular.”

The car dealership failed to argue that a contract existed and could be rescinded because of a mistake, Werdegar wrote in the dissent. To rule for the dealership on those grounds was unfair because Donovan did not have a chance to argue the point, she wrote in an opinion joined by Baxter.

Donovan complained that he had “won the war but lost the battle” because the court agreed with him that he had a contract with dealership.

“The Supreme Court says . . . yes indeed this ad is an offer and if you say ‘I accept and here is your money,’ that is a contract, and they have to sell it to you,” Donovan said. “Unfortunately the court has given them a lot of escape hatches.”

He said he would have liked to have had a chance to argue that the contract should not have been rescinded. “I have been robbed,” he said.

Aurora Dawn Harris, a board member of the National Assn. of Consumer Advocates, said the ruling will actually help many consumers because dealers deliberately run misleading advertisements to get consumers onto the lot and then persuade them to buy or lease a more expensive vehicle.

“We can turn this one around” to the advantage of car buyers, Harris said.

She said the decision puts teeth in a state law passed in the 1970s that requires auto dealers to sell their vehicles at the advertised price.

Consumers sometimes fly from Northern California to Los Angeles to buy cars after relatives have told them of advertisements, she said. Once on the lot, the buyers are told they cannot have the car at the listed price unless they pay in cash or agree to expensive financing, she said.

“I feel bad for Mr. Donovan,” Harris said. “On the other hand, I am excited about all the good stuff in here.”

Harris said she still would have preferred that the court had held car dealers to advertised prices and allowed them to recover compensation for mistakes from the newspapers that made them.

But Lewis, the dealer’s lawyer, said newspapers generally limit their liability for mistakes in advertisements to the cost of the ad.

Times Mirror Co., which owned the Daily Pilot and the Los Angeles Times when the 1997 car ad ran, and the California Newspaper Assn. argued on behalf of auto dealers. Times Mirror is now owned by Tribune Co.

Megan E. Gray, who represented Times Mirror, said newspapers joined the case “to show our support for our advertising customers.”

“I think it is important to us to make sure that . . . there is not a pot of gold at the end of every time there is an error, an honest error, in an advertisement,” Gray said.

She predicted that the decision will be increasingly important in the “Internet context” because typographical errors on Web sites often produce inaccurate advertisements.