Donovan v. RRL Corp.

Brief Fact Summary.

Defendant advertised the sale of a used car in a local newspaper, which made a typographical error, listing the sale price well below what Defendant intended. Plaintiff sued Defendant after Defendant refused Plaintiff’s attempt to buy the car at the advertised price. The trial court ruled in favor of Defendant. The court of appeals reversed and held that a valid contract had been formed.

Synopsis of Rule of Law.

In order to get out of a contract, a defendant who has made a unilateral mistake of fact must show: 1) the mistake was a fundamental assumption of the agreement; 2) the mistake materially effects the value of the agreement; 3) the defendant did not assume the risk of the mistake; and 4) it would be substantively unconscionable to enforce the contract in light of the mistake.

Facts.

Donovan (Plaintiff) is suing RRL Corp. (Defendant) for breach of contract. Defendant advertised the sale of a used car in a local newspaper. Unfortunately, the newspaper made a typographical error, listing the sale price well below what Defendant intended. Plaintiff attempted to buy the car based on representations in the advertisement but was rejected by Defendant. The municipal court found for Defendant, holding that a contract could not be formed because of the mistake in the advertisement. The court of appeals reversed based on a statute of the Vehicle Code making it illegal for a dealership to refuse to sell a car at the advertised price. Further, the court of appeals held that a valid contract had been formed between the parties. The advertisement was an offer and plaintiff accepted the offer when attempting to purchase the car.

Issue.

Whether one party is required to fulfill a contract when he made a good faith mistake regarding a material fact of the agreement and the contract would result in a substantial loss to that party.

Held.

No. The court of appeals’ ruling is reversed. In order to get out of a contract, a defendant who has made a unilateral mistake of fact must show: 1) the mistake was a fundamental assumption of the agreement; 2) the mistake materially effects the value of the agreement; 3) the defendant did not assume the risk of the mistake; and 4) it would be substantively unconscionable to enforce the contract in light of the mistake.

Discussion.

While a contract had been formed by the parties, it is unenforceable if it fulfills every element of the § 153(a) of the Restatement Second of Contracts; the unconscionability doctrine. Defendant here made a mistake about the advertised price. Price is a fundamental assumption of a contract in addition to materially impacting the value of that contract. Further, it is unreasonable to place the risk upon Defendant. The mistake was made in good faith and consumers cannot realistically expect absolute accuracy in every price listed in advertisements. Imposing such a high standard of accuracy upon automobile dealers would amount to strict liability for even the slightest mistake. In the context of modern transactions, strict liability is an unreasonable standard to put upon businesses. Lastly, due to the loss that would be suffered by Defendant for its minor mistake, it would be unconscionable to enforce this contract. Defendant would lose more than $9,000 while Plaintiff would reap a $12,000 advantage. This amounts to substantive unconscionability because Defendant would be unduly penalized and Plaintiff would be rewarded simply for taking advantage of Defendant’s vulnerability. Accordingly, Defendant is allowed to rescind the contract.