For several weeks, a wealthy, unemployed widow, and a car dealer negotiated unsuccessfully over the purchase price of a new Mark XX Rolls-Royce sedan, which, as the car dealer knew, the widow wanted her son to have as a wedding gift. On April 27, the car dealer sent the widow a signed, dated memo saying, “if we can arrive at the same price within the next week, do we have a deal?” The widow wrote “Yes” and her signature at the bottom of this memo and delivered it back to the car dealer on April 29.
On May 1, the widow wrote the car dealer a signed letter offering to buy “one new Mark XX Rolls-Royce sedan, with all available equipment, for $180,000 cash on delivery not later than June 1.” By coincidence, the car dealer wrote the widow a signed letter on May 1 offering to sell her “one new Mark XX Rolls-Royce sedan, with all available equipment, for $180,000 cash on delivery not later than June 1.” These letters crossed in the mails and were respectively received and read by the widow and the car dealer on May 2.
On May 4, the widow and the car dealer both signed a single document evidencing a contract for the sale by the car dealer to the widow, “as a wedding gift for the widow’s son,” a new Mark XX Rolls-Royce sedan, under the same terms as previously stated in their correspondence. On May 5, the widow handed her son a carbon copy of this document. In reliance on the prospective gift, the son on May 20 sold his nearly new expensive sports car to a dealer at a “bargain” price of $50,000 and immediately informed the widow and the car dealer that he had done so.
On May 25, however, the widow and the car dealer by mutual agreement rescinded in a signed writing “any and all agreements heretofore made between the undersigned parties for the sale-and-purchase of a new Mark XX Rolls-Royce sedan.” Later that day, the car dealer sold for $190,000 cash to another buyer the only new Mark XX Rolls-Royce that it had in stock or could readily obtain elsewhere. On June 1, the son tendered $180,000 in cash to the car dealer and demanded delivery to him “within a reasonable time” of a new Mark XX Rolls-Royce sedan with all available equipment.
The car dealer rejected the tender and denied any obligation.
If the son sues the car dealer for breach of contract, which of the following will the court probably decide?
A. The car dealer wins, because it reasonably and prejudicially relied on its contract of mutual rescission with the widow by selling the only readily available new Mark XX Rolls-Royce sedan to another buyer.
B. The son wins, because his rights as a third-party intended beneficiary became vested by his prejudicial reliance in selling his expensive sports car on May 20.
C. The car dealer wins, because the son, if an intended beneficiary at all of the contract between the widow and the car dealer, was only a donee beneficiary.
D. The son wins, because his rights with respect to the May 4 contract between the widow and the car dealer cannot be cut off by agreement between the original parties.
B. The son is an intended beneficiary of the contract between the widow and the car dealer. The car dealer was specifically told and aware of the son’s detrimental reliance on the agreement with the widow. The son’s detrimental reliance vested his rights as a third-party intended beneficiary. Once the beneficiary’s rights have vested, the car dealer became bound to perform the contract.
Answer choice (The son wins, because his rights...) is incorrect, as the original parties could cut off the son’s rights as to the May 4 contract, but only if done before he detrimentally relied on the agreement and his rights vested as a third-party intended beneficiary.
Answer choice (The car dealer wins, because the son...) is incorrect, as even a donee beneficiary may enforce an agreement under the theory of promissory estoppel where his rights have vested and there has been detrimental reliance.
Answer choice (The car dealer wins, because it reasonably) is incorrect, as the car dealer was aware of the prejudicial reliance on the May 4 agreement by the son and therefore had a duty to perform the agreement to benefit the son as a third-party intended beneficiary.
(this multiple choice question has been scrambled)