11.5.1.1 The Problem of Defenses, Modifications, and Rescission Introduction | Joe Srednicki | November 01, 2012

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11.5.1.1 The Problem of Defenses, Modifications, and Rescission Introduction

Original Creator: Kessler, Gilmore & Kronman Current Version: Joe Srednicki
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In the preceding sections we have considered principally the question whether the plaintiff is within one of the recognized classes of third party beneficiaries or whether he is, in Restatement terminology, merely an incidental beneficiary not entitled to sue on the A-B contract. The great bulk of third party beneficiary litigation has focused on this question of identification or categorization. Neither in the cases nor in the learned commentary has there been much discussion of the status of the plaintiff, once it has been conceded that he is entitled to sue as a contract beneficiary.

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In Lawrence v. Fox, supra p. 1333, Fox promised Holly to pay Holly's debt to Lawrence. The consideration for Fox's promise was a loan made by Holly to Fox, which, under the Holly-Fox agreement, was to be discharged by Fox's payment to Lawrence. Assume that, in Lawrence's action against Fox, Fox pleads:

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1. Failure of consideration between Holly and Lawrence — that is, Holly, the original debtor, had a defense which would have been good against Lawrence if Lawrence had sued Holly.

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2. Failure of consideration between Holly and Fox — that is, Holly had not made the loan to Fox which was the consideration for Fox's promise to pay Lawrence.

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3. Rescission of the Holly-Fox agreement — that is, Holly and Fox agreed that Fox should repay the money loaned directly to Holly and that he should not pay Lawrence (or that Fox should pay some other creditor of Holly instead of Lawrence).

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It is a matter of interest that the opinions delivered in Lawrence v. Fox did in fact discuss two of the three hypothetical pleas which we have attributed to Fox. For the ensuing hundred years there was little or no discussion in the cases of either the freedom of promisor and promisee to modify or rescind their contract without the beneficiary's consent or of the availability to the promisor, when he is sued by the beneficiary, of defenses based on (a) the transaction between promisee and beneficiary or (b) the transaction between promisor and promisee. It is true that cases holding that the beneficiary could not sue at all, because he was not in privity of contract with the promisee, may have masked decisions based on the availability of defenses. (See, e.g., National Bank v. Grand Lodge, 98 U.S. 123 (1878), digested in the Note following Lawrence v. Fox, supra p. 1333, which could be analyzed as a case involving failure of consideration between promisor and promisee.)

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It is a fair guess that the focus of beneficiary litigation will presently shift to questions of the type just discussed. There will, no doubt, continue to be fringe cases of the traditional type, as illustrated by the Isbrandtsen case, supra p. 1380. But the third party beneficiary doctrine is recognized almost everywhere in this country and there is today fairly widespread agreement on the classes of beneficiaries who are within the doctrine. That being so, it may be anticipated that in the future the courts will be less concerned with the metaphysics of privity and purpose and more concerned with the by no means simple problem of the effectiveness of defenses, modifications and rescissions against the beneficiary.

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In this section we turn therefore to the bits and pieces of law that are available in cases and Restatement.

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June 30, 2014

11.5.1.1 The Problem of Defenses, Modifications, and Rescission Introduction

11.5.1.1 The Problem of Defenses, Modifications, and Rescission Introduction

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Joe Srednicki

Contract Technical Writer

Independent contractor

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