Copeland v. Beard
115 So. 389, 217 Ala. 216, 1928 Ala. LEXIS 440 (1928)
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Rule of Law:
The original parties to a contract intended to benefit a third-party creditor may rescind or modify the promisor's obligation at any time before the creditor beneficiary has manifested assent to the promise or materially changed position in reliance on it.
Facts:
- A debtor sold real and personal property to an original purchaser.
- As part of the consideration, the original purchaser promised the debtor that they would assume and pay specified debts owed by the debtor to a third-party creditor.
- On the same day, the original purchaser resold the property to a subpurchaser.
- As part of this second transaction, the subpurchaser promised to assume and pay the same debts of the original debtor.
- Following this second sale, the original debtor released the original purchaser from their promise to pay the debts.
- The creditor had not assented to or acted upon the original purchaser's promise before the original purchaser was released by the debtor.
Procedural Posture:
- The creditor filed an action of assumpsit against the original purchaser in a trial court.
- The case was appealed to the Alabama Court of Appeals, which ruled in favor of the creditor.
- The original purchaser, as petitioner, sought and was granted a writ of certiorari from the Supreme Court of Alabama to review the decision of the Court of Appeals.
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Issue:
Can a third-party creditor beneficiary maintain an action against an original promisor after the promisor was released from the obligation by the promisee, if the creditor had not yet assented to the promise before the release?
Opinions:
Majority - Bouldin, J.
No. A third-party creditor beneficiary cannot maintain an action against the original promisor after the promise has been rescinded or released by the original contracting parties, provided the creditor has not yet assented to the promise. The court reasons that a creditor's right is purely derivative, meaning it depends entirely on the promisee's (the debtor's) right to enforce the promise. Once the promisee releases the promisor, the promisee no longer has a right of action, and consequently, the creditor's derivative right is extinguished. The court rejected the lower court's distinction between a rescission and a release via novation, holding that as long as the creditor's rights have not vested through assent, the original parties are free to modify their agreement. The creditor's right to sue only becomes fixed when the creditor assents to the promise while it is still in force.
Analysis:
This case solidifies the principle that a third-party beneficiary's rights are not indefeasible from the moment the contract is made. It establishes that in Alabama, the rights of a creditor beneficiary do not vest until they manifest assent to the promise made for their benefit. This decision places the onus on the creditor to act affirmatively to accept the benefit of the promise if they wish to make it irrevocable. By characterizing the creditor's right as 'purely derivative,' the court confirms that the original parties retain full control to modify or rescind their agreement, and any defenses the promisor has against the promisee are also valid against the beneficiary until vesting occurs.
