## Facts

- Sarah Jane Schauer and her then-fiancé, Darin Erstad, shopped jointly for an engagement ring and selected one at Mandarin Gems of California, Inc., doing business as Black, Starr & Frost.
- A Mandarin Gems salesperson represented that the ring’s diamond was 3.01 carats with “SI1” clarity.
- Erstad purchased the ring for $43,121.55, allegedly for the stated purpose of giving it to Schauer as an engagement gift.
- Mandarin Gems later provided Erstad a written appraisal for insurance purposes stating, among other specifications, “SI1” clarity and an average replacement value of $45,500; it was signed by a graduate gemologist.
- After Schauer and Erstad divorced, Schauer retained possession of the ring as her personal property under the dissolution judgment.
- Schauer obtained a post-divorce evaluation from an independent laboratory that graded the diamond as “SI2,” a lower clarity grade, and she alleged other jewelers (including one at Mandarin Gems) confirmed the lower grade.
- Schauer alleged the ring was worth substantially less than what Erstad paid due to the asserted misstatement of clarity and value.
- Schauer sued Mandarin Gems asserting breach of contract, rescission, claims under the Consumers Legal Remedies Act (CLRA), and actual and constructive fraud.
- The trial court sustained Mandarin Gems’ general demurrer without leave to amend and dismissed the action, concluding Schauer lacked standing because she was not the purchaser and was not a third-party beneficiary.

## Issues

1. Whether Schauer, as the intended recipient of the engagement ring, had standing as a third-party beneficiary to enforce the sales contract between Erstad and Mandarin Gems.
2. Whether Schauer sufficiently pleaded a breach-of-contract claim based on breach of express warranty arising from the written appraisal’s specific representations.
3. Whether Schauer sufficiently pleaded rescission, CLRA, and fraud (actual or constructive) claims, and, if not, whether amendment could cure the defects.

## Decision

- The Court of Appeal reversed the dismissal in part and remanded.
- The court held Schauer had standing as an intended third-party beneficiary of the sales contract because the purchase was allegedly made for the stated purpose of giving the ring to her and she received it.
- The court held Schauer adequately pleaded a breach-of-contract claim based on breach of express warranty, relying on the appraisal’s specific, objective representation of “SI1” clarity and Schauer’s allegation that the diamond was actually “SI2.”
- The court affirmed the demurrer without leave to amend as to all other causes of action, concluding those pleadings were defective and not curable by amendment.
- On remand, Mandarin Gems was required to answer the contract claim limited to the express-warranty theory.

## Legal Principles

- A nonparty may enforce a contract as a third-party beneficiary when the contract is made expressly for that person’s benefit; allegations that goods were purchased for the stated purpose of gifting them to the plaintiff can support intended-beneficiary standing at the pleading stage.
- On demurrer, well-pleaded factual allegations are taken as true, and standing may be established from pleaded facts showing intended benefit and receipt of the contracted-for performance.
- Specific, written representations of an item’s objective characteristics in a professional appraisal (e.g., gemstone clarity grading) may constitute an express warranty actionable as a breach of contract, as distinct from nonactionable sales talk.
- Where pleaded defects in noncontract claims are not reasonably curable, a court may sustain a demurrer without leave to amend as to those claims while permitting a properly pleaded contract/warranty claim to proceed.

## Conclusion

The court allowed the ring’s recipient to proceed as an intended third-party beneficiary on a breach-of-contract claim premised on an express warranty in a written appraisal, while terminating rescission, CLRA, and fraud theories because their pleading defects could not be cured by amendment.


Schauer v. Mandarin Gems of Cal., Inc., 23 Cal. Rptr. 3d 233 (Cal. Ct. App. 2005)