of another, he for whose benefit it is made may bring an action for its breach,' has been applied to trust cases, not because it was exclusively applicable to those cases, but because it was a principle of law, and as such applicable to those cases.”Id. at 274 (quotations in original). The Court of Appeals opinion in Lawrence v. Fox remains the foundation for modern third-party beneficiary law. Indeed, the court was well ahead of its time in Lawrence v. Fox, and it was not until the twentieth century that many courts accepted the broad propositions advanced in the court’s opinion. If the Court of Appeals is responsible for inventing third-party beneficiary theory in Lawrence v. Fox, the court is also responsible for defining its appropriate limits. In H. R. Moch Co., Inc. v. Rensselaer Water Co., 247 N.Y. 160 (1928), a water company contracted with the city to supply water for a variety of uses, including service at fire hydrants. During a fire, a blaze spread to a warehouse. The warehouse owner notified the water company, but the water company allegedly provided inadequate water pressure to put out the flames. As a result, the warehouse and its contents were destroyed. The warehouse owner brought an action against the water company, seeking damages for the company’s breach of its contract with the city (a contract which allegedly required the company to furnish water pressure sufficient to prevent the spread of the fire). Special Term refused to dismiss the complaint, a divided Appellate Division reversed, and the warehouse owner appealed to the Court of Appeals, relying principally on Lawrence v. Fox. In an opinion by Chief Judge Benjamin N. Cardozo, the Court of Appeals affirmed, holding that the warehouse owner was not entitled to enforce the contract between the city and the water company. The court read Lawrence v. Fox to permit a third party to enforce a contract only when the third party is an intended |
beneficiary of the contract. Why
impose such a limit? The court’s opinion relies squarely on
the intention of the parties to the contract:
"If the plaintiff is to prevail, one who negligently omits to supply sufficient pressure to extinguish a fire started by another, assumes an obligation to pay the ensuing damage, though the whole city is laid low. A promisor will not be deemed to have had in mind the assumption of a risk so overwhelming for any trivial reward."247 N.Y. at 166. At the same time, however, the court’s discussion of the promisor’s "trivial reward" hints at another reason to limit liability to third parties: if third-party beneficiary theory were extended too far, many potentially beneficial contracts would not be made. In modern terminology, the prospect of free riders — third parties who do not pay for the privilege of enforcing contract obligations, but who nevertheless assert the  Chief Judge Benjamin N. Cardozo
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 The Historical Society of the Courts of the State of New York
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