Lawrence v. Fox
20 N.Y. 268 (1859)
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Rule of Law:
A third party for whose benefit a contract is made may maintain an action against the promisor to enforce the promise, even though the third party was not privy to the contract or its consideration.
Facts:
- Holly was indebted to Lawrence for a sum of money.
- Holly loaned an equivalent sum of money to Fox.
- In exchange for the loan, Fox promised Holly that he would pay the money to Lawrence the following day.
- This promise was intended to satisfy Holly's debt to Lawrence.
- Fox failed to pay the money to Lawrence as promised.
- Lawrence was not a party to the agreement between Holly and Fox, nor was he present when it was made.
Procedural Posture:
- Lawrence sued Fox in a New York trial court to enforce Fox's promise to Holly.
- At trial, the jury found in favor of Lawrence.
- Fox appealed the judgment to a higher court.
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Issue:
Does a third party, for whose benefit a contract was made, have the right to sue to enforce that contract, even if they are not in privity with the contracting parties and did not provide the consideration?
Opinions:
Majority - H. Gray, J.
Yes. A third person may maintain an action upon a promise made to another for their benefit. The court held that the consideration provided by Holly (the loan to Fox) was sufficient to support Fox's promise to pay Lawrence. Relying on precedent such as Schermerhorn v. Vanderheyden and Farley v. Cleaveland, the court reasoned that when a promise is made for the benefit of a third party, the law creates a duty, establishes privity, and implies a promise and obligation on which the action can be founded. The duty for Fox to pay Lawrence was as clear as if Fox had been made a trustee of the funds, and allowing Lawrence to sue is a matter of 'manifest justice'.
Dissenting - Comstock, J.
No. A plaintiff cannot sue on a promise that was not made to them and for which they did not provide consideration. The dissent argued that the general rule requires privity of contract, meaning only the parties who made the agreement can sue on it. The arrangement was exclusively between Holly and Fox, and Holly could have rescinded the instruction at any time. The majority's reliance on precedent was misplaced, as those cases either involved trusts, where the defendant held funds for the plaintiff, or were anomalous cases based on close family relationships that are no longer good law. Fox borrowed the money and it became his own; his obligation was to Holly, the lender, not to Lawrence, a stranger to the transaction.
Analysis:
This landmark case established the third-party beneficiary doctrine in American contract law, creating a significant exception to the traditional common law requirement of privity. By allowing an intended beneficiary to sue on a contract, the decision protects the expectations of the contracting parties and provides a direct remedy for the beneficiary. This ruling has had a profound impact, shaping modern contract law by recognizing that contracts can confer enforceable rights upon individuals who are not direct parties to the agreement.
