A contract on a property while under contract...

I have in investor buddy who had an interesting situation go down in the last day or two and asked me about it and I couldn’t give him an answer. The scenario:

Buddy had a property under contract that expired on the 3/23/08. Called the sellers on 3/25/08 to schedule a closing date. Sellers stated that someone else came along and offered them more money on 3/17/08 and they signed a new purchase agreement with that other buyer. So buyer #2 got a signed purchase agreement on the property while it was still under contract with buyer #1. Buyer #1’s contract has since expired but he wants to close on the property and the sellers want to sell to buyer #1 because they made a mistake by entering into a contract with buyer #2. His/My/Our question is: the contract dated 3/17/08 by buyer #2, does the seller have to honor that since it was made while they were still under contract with the buyer #1 contract that expired 3/23/08? Thoughts?

Buyer #2 has a case against the seller. What is the damage to buyer #2 if the seller goes with Buyer #1? Your friend or the seller can pay buyer #2 to go away or just wait for their contract to expire and then enter into a new one.