This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The promisor and the promisee may rescind the contract without the consent of the third person at any time before he has assented to it or acted on it.1 If the promisor agrees to pay something to a third person, to whom the promisee is not indebted, such third person can not enforce this promise after the promisor has settled all his liability by a payment to the promisee.2 It can be rescinded so as to bar the rights of the third.person only "before it is brought to his knowledge and he has assented to it and acted on it."3 Until the beneficiary has accepted the contract, he is not a necessary party to a suit by the promisee for rescission.4
After the third person has accepted this offer, it seems that the promisor and promisee can not rescind.5 In some jurisdictions the actual assent of the beneficiary seems to be nnnecessary in case the original parties to the contract have attempted to rescind it.6 A and C were B's children. A and B entered into a contract by which B agreed that he would convey certain realty to A, in consideration of A's agreement to support B for life, and that B would also convey certain other realty to C. Subsequently B conveyed all of his realty to A upon condition that A would pay a certain sum of money to C within a certain length of time after the date of the deed. It was held that C could enforce the original contract and that he could compel A to convey to C the tract of land which B had originally agreed to convey to C.7 If B conveys realty to A under a contract by which A agrees with B to pay certain sums of money to B, C and D, and to give a mortgage to secure the payment of such sums, B's act in satisfying such mortgage of record does not prevent C and D from enforcing such contract, although such payments to C and D were intended as gifts to then by B. If B has made a subscription to pay for opening a street, and subsequently gives to A an option upon his realty under a contract by which A assumes the amount of such subscription, B can not release A from such subscription unless the entire contract between A and B is rescinded and is a substitute for the contract by which B gave such option to A. A and B entered into a contract for the exchange of realty, which contained a provision to the effect that A should pay a certain sum to C, a broker, as his commission, and that B should pay a certain sum to the same broker as the balance of his commission. It was held that C could enforce such contract against A and B. although the exchange was never in fact carried out and although neither party attempted to enforce the contract of exchange against the other.10 Where A, a grantee, assumed and agreed to pay a mortgage from his grantor, B, to C, and C has notified A that he holds him liable, and C has brought suit against A, but summons has not yet been served, A can not avoid liability by taking a release from B.11 B conveyed certain realty to his son. A, under a contract by which A agreed to support B for life and to pay certain specified amounts to X and T. A gave to B a mortgage upon such realty to secure his performance of such contract. Subsequently, by agreement between A and B, A reconveyed such realty to B. in consideration of a payment of a sum of money by B and of a rescission of the original contract. It was held that X, who knew of such rescission and who knew that B had mortgaged such realty to obtain the money with which to pay A. and who made no objection thereto, was estopped to make any claim under the original contract; but that Y, who did not know of such facts, was not estopped from enforcing such contract or from foreclosing the mortgage given by A to B.12
26Fulmer v. Wightman, 87 Wis. 573, 68 N. W. 1106.
27Gunn v. McAlpine, 125 Minn. 343, 147 N. W. 111.
28Gunn v. McAlpine, 125 Minn. 343. 147 N. W. 111.
1 Commercial National Bank v. Kirk-wood, 172 111. .163, 50 N. E. 219; Davis v. Calloway, 30 Ind. 112, 95 Am. Dec. 671; Trimble v. Strother, 25 O. S. 378; Brewer v. Maurer, 38 O. S. 543, 43 Am. Hep. 436.
2Townsend v. Rackham, 143 N. Y. 516, 38 N. E. 731.
3Gifford v. Corrigan, 117 N. Y. 257, 265, 15 Am. St. Rep. 508, 6 L. R. A. 610, 22 N. E. 756.
4Watson v. Feibel (La.), 71 So. 585.
5 Illinois. Bay v. Williams, 112 111. 91, 54 Am. Rep. 209.
Iowa. Gilbert v. Sanderson, 56 Ia. 349, 41 Am. Rep. 103, 2 N. W. 293.
Minnesota. Gold v. Ogden, 61 Minn. 88. 63 X. W. 266.
New York. Gifford v. Corrigan, 117 N. Y. 257, 15 Am. St. Rep. 508, 6. L. R. A. 610, 22 N. E. 756.
New Jersey. Laing v. Byrne, 34 N. J. Eq. 52.
Wisconsin. Fanning v. Murphy, 126 Wis. 538, 110 Am. St. Rep. 946, 4 L. R. A. (X.S.) 666, 105 N. W. 1056; Micek v. Wamka, 165 Wis. 97, 161 N. W. 367.
Contra, that the promisor and promisee can rescind without reference to any rights of third parties. Biddel, v. Brizzolara, 64 Cal. 354, 30 Pac. 609.
6 Fanning v. Murphy, 126 Wis. 538, 110 Am. St. Rep. 946, 4 L. R. A. (N.S.) 066, 105 N. W. 1056; Wetutzke v. Wetutzke, 158 Wis. 305, 148 N. W. 1088. "We adhere to the doctrine that where one person, for a consideration moving to him from another, promises to pay to a third person a sum of money, the law immediately operates upon the acts of the parties, establishing the essential of privity between the promisor and the third person requisite to binding contractual relations between them, resulting in the immediate establishment of a new relation of debtor and creditor, regardless of the relations of the third person to the immediate promisee in the transaction; that the liability is as binding between the promisor and the third person as it would be if the consideration for the promise moved from the latter to the former and such promisor made the promise directly to such third person, regardless of whether the latter has any knowledge of the transaction at the time of its occurrence; that the liability being once created by the acts of the immediate parties to the transaction and the operation of the law thereon, neither one nor both of such parties can thereafter change the situation as regards the third person without his consent. It is plainly illogical to hold that immediately upon the completion of the transaction' between the immediate parties thereto, the law operates upon their acts and creates the element of privity between the promisor and the third person, and at the same time to hold that such third person's status as regards the promise may be changed thereafter without his consent. The idea that privity between the promisor and the third person is necessary to render the transaction between the original parties thereto beyond the reach of either of them to revoke it, or both acting together to rescind it, springs from the supposed necessity of contractual relations between the promisor and the third person, binding upon the promisor at law. The moment such essential is established, it seems clear that such third person's right accrues and becomes absolute." Tweeddale v. Tweeddale, 116 Wis. 617, 96 Am. St. Rep. 1003. 61 L. R. A. 500, 93 N. W. 440.
7 Sedgwick v. Blanchard, 164 Wis. 421, 160 N. W. 267.