11.5.4.2 Notes - Note on The Restatement of Contracts and the Problem of Rescission | Joe Srednicki | November 01, 2012

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11.5.4.2 Notes - Note on The Restatement of Contracts and the Problem of Rescission

Original Creator: Kessler, Gilmore & Kronman Current Version: Joe Srednicki
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NOTE

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1. Does the Restatement Second's treatment of the rescission problem seem to you, on the whole, an improvement over the approach adopted in §§142 and 143 of the Restatement First? Does it seem to you to be, in all situations, sound policy to provide that promisor and promisee can no longer modify or rescind their agreement once the beneficiary has materially changed his position in reliance thereon? By the same token, are there cases in which it is appropriate that the beneficiary's rights vest even though he has neither given his' assent to nor relied on the contract (which, let us assume, is silent on this issue)?

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2. A legislative approach to the problem of rescission and modification, different from (and considerably simpler than) that of either Restatement, is illustrated by §1559 of the California Civil Code: "A contract made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." Section 1559 was originally enacted in 1872.

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3. In McCulloch v. Canadian Pacific Ry., 53 F. Supp. 534, (D. Minn., 1943), Nordbye, J. commented:

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While it must be recognized that [§142 of the] Restatement assumes to lay down the broad rule that a third party donee beneficiary contract cannot be rescinded without the donee's consent, this rule is not followed by the majority of the courts. 2 Williston on Contracts, Sec. 396; 13 C.J. 602; 17 C.J.S., Contracts, §390; note 53, A.L.R. 178. The only condition laid down by the majority of the courts with reference to the rescission of a donee beneficiary contract is that there must be an absence of reliance on the contract by the third party beneficiary. . . .

The main arguments advanced in favor of the rule (set out in §142] are that a beneficiary in a life insurance policy cannot be changed without the consent of the existing beneficiary, and that, where there is a gift, it cannot be revoked without the donee's consent. But it will be seen that neither of these situations is analogous to the donee's rights under a third party beneficiary contract. First, it may be observed that insurance law is peculiar to itself. There has grown up in that field principles of law which are not applicable elsewhere. Public policy and the relationship between the parties largely have influenced the rule with reference to the change of beneficiaries in a life insurance contract. Therein, because of the peculiarity of the law, a beneficiary has a vested interest in absence of the right to change beneficiaries. Nor is the rule regarding revocation of gifts helpful or persuasive in determining the rule as to rescission of a third party beneficiary contract. Where the gift is executed, the donee accepts the gift from the donor and usually possession then rests in the donee. There is the element of delivery and the element of reliance by the donee on that which was done.

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53 F. Supp. at 539.

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Annotated Text Information

June 30, 2014

11.5.4.2 Notes - Note on The Restatement of Contracts and the Problem of Rescission

11.5.4.2 Notes - Note on The Restatement of Contracts and the Problem of Rescission

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Joe Srednicki

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