Olson v. Etheridge - 177 Ill. 2d 396, 226 Ill. Dec. 780, 686 N.E.2d 563 (1997)

Rule:

In the absence of language in a contract making the rights of a third-party beneficiary irrevocable, the parties to the contract retain power to discharge or modify the duty by subsequent agreement, without the third-party beneficiary's assent, at any time until the third-party beneficiary, without notice of the discharge or modification, materially changes position in justifiable reliance on the promise, brings suit on the promise or manifests assent to the promise at the request of the promisor or promisee.

Facts:

Defendant delegee assumed the obligation of a note maker to pay the beneficiaries. The delegee later discharged his obligation to the maker under a modification to the agreement. The maker defaulted on the note and the beneficiaries sued the delegee and were granted summary judgment. The lower appellate court affirmed, applying the existing rule that the beneficiaries' rights had vested upon execution of the assumption agreement, and the agreement could not be changed without their consent. Defendant sought reversal of the decision. 

Issue:

Did the beneficiaries’ rights vest upon the execution of the assumption agreement, and therefore, could no longer be changed without the beneficiaries’ consent? 

Answer:

No.

Conclusion:

The court overruled its existing rule that the beneficiaries' rights vested upon execution of an assumption agreement. The court held that in the absence of language in a contract making the rights of a third-party beneficiary irrevocable, the parties to the contract retained power to discharge or modify the duty by subsequent agreement, without the third-party beneficiary's assent. The power remained at any time until the third-party beneficiary, without notice of discharge or modification, materially changed position in justifiable reliance on the promise, brought an action on the promise, or manifested assent to the promise at the request of the promisor or promisee.