Schauer v. Mandarin Gems of California, Inc.
2005 Daily Journal DAR 472, 125 Cal. App. 4th 949, 23 Cal. Rptr. 3d 233 (2005)
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Rule of Law:
A person for whom a contract is expressly made, such as the intended recipient of an engagement ring, has standing to sue for breach of contract as a third-party beneficiary when the seller knew the purchase was for that person's benefit.
Facts:
- Sarah Jane Schauer and her then-fiancé, Darin Erstad, shopped together for an engagement ring at Mandarin Gems of California, Inc.
- A salesperson at Mandarin Gems represented that a specific ring featured a 3.01 carat diamond with a clarity grading of 'SI1'.
- Relying on this representation, Erstad purchased the ring for Schauer for $43,121.55 on August 15, 1999.
- The following month, Mandarin Gems provided Erstad with a written appraisal for insurance purposes which also stated the diamond had an SI1 clarity rating.
- Schauer and Erstad later married and divorced; the divorce judgment awarded Schauer her personal property, which included the engagement ring.
- On June 3, 2002, Schauer had the ring appraised and learned its actual clarity grade was 'SI2,' a lower quality, making it worth approximately $23,000 less than the purchase price.
Procedural Posture:
- Sarah Jane Schauer (plaintiff) sued Mandarin Gems of California, Inc. (defendant) in a California trial court.
- Schauer filed a second amended complaint alleging various causes of action, including breach of contract.
- The trial court sustained defendant's demurrer to the second amended complaint without leave to amend, effectively dismissing the entire case.
- A judgment of dismissal was entered in favor of the defendant.
- Schauer (appellant) appealed the judgment of dismissal to the California Court of Appeal, with Mandarin Gems as the appellee.
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Issue:
Does the intended recipient of an engagement ring, who was not the purchaser, have standing as a third-party beneficiary to sue the seller for breach of express warranty regarding the ring's quality?
Opinions:
Majority - Ikola, J.
Yes. The intended recipient of an engagement ring has standing as a third-party beneficiary to sue the seller for breach of contract. A contract made expressly for the benefit of a third person may be enforced by that person. The term 'expressly' does not require the contract to name the third party, but rather that the promisor (the jeweler) must have understood that the promisee (the purchaser) intended to benefit the third party. Here, Schauer and Erstad shopped together, and Erstad bought the ring for the 'sole and stated purpose' of giving it to Schauer. The jeweler must have understood that the contract was for her benefit, making her a third-party beneficiary with standing to sue for breach of express warranty. However, this status does not grant her the rights of the original purchaser to rescind the contract or sue for fraud, as those rights were not assigned to her in the divorce decree.
Analysis:
This decision clarifies the application of the third-party beneficiary doctrine to consumer gift transactions. It establishes that the recipient of a significant gift, such as an engagement ring, can directly sue the seller for breach of warranty if the seller was aware the item was being purchased for that specific person. This extends contract enforcement rights beyond the immediate purchaser, providing a remedy for donees who are the true intended beneficiaries and are ultimately harmed by a seller's breach. The ruling carefully distinguishes the right to enforce a contract (which a beneficiary has) from the right to rescind it or sue for torts like fraud (which remain with the original purchaser unless expressly assigned).
