The promisor may assert against the beneficiary all defences which the promisor could assert against the promisee.
Under Article 5.2.1 the content of the beneficiary’s right may be made subject to any conditions or limitations devised by the parties. The promisor and promisee may devise a contract in which the position of the beneficiary is significantly different from that of the promisee. The parties’ autonomy is in principle unlimited but they may well not provide expressly for all possibilities. The normal default rule will therefore be as stated in this Article.
1. A takes out a policy of life insurance with insurance company B in favour of C. The contract provides for the payment of premiums for 25 years but after 5 years A stops paying premiums. The position of C will be modelled on that of A if the policy had been in A’s favour. Such policies do not usually deny all return on the premiums paid. If, however, the policy had been liable to be set aside by the insurance company, for instance because A had not made material disclosure, then B would normally be entitled to raise this defence against C.
2. Company A takes out a policy of fidelity insurance with insurance company B to cover dishonest employees. The insurance policy provides that B will indemnify in full customers who are defrauded by employees of A and that it will indemnify A only if A has not been negligent in the selection or supervision of the employees. Clearly in such a contract B will have defences against A which it cannot raise against the customers.