Third party rights

will demonstrate). Such avoidance measures are a natural development of the desire of stipulators to achieve their wish that another be entitled to enforce a right in its favour. Where a consistent expression of the will manifests itself in a society, human ingenuity usually manages to find a way around juristic apathy or opposition.

To argue, as will be argued here, that the right of a third party under a contract to enforce a benefit in its favour is promissory in nature might mean one of two things. It might mean that such a benefit ‘derives from’ a promise. That is true in the sense that any right of a third party under a contract can only arise because the contracting parties themselves have undertaken promises to each other, one of which is the source of the third party’s entitlement. It might, however, additionally mean something more, which is where the controversy over the nature of third party rights arises. It might mean that the third party is itself a promisee, having been promised by one (or perhaps both) of the contracting parties that it will receive the stated benefit. In this second sense, the third party’s right would not simply arise out of promise (the contractual promise) but would itself have the nature of a promise. Such a promise might either be enforceable directly by the third party even though it was not made directly to it, or else it might be seen as the assignee of the contracting party to whom the promise was made, two conceptually distinct analyses.

The possible characterisation of a third party right as not simply arising out of promise but as itself being promissory in nature is controversial. Some would dispute that third parties are in reality the recipients of any promise, and so dismiss the promissory characterisation of third party rights.2 Others would argue that, while it might be possible to adopt such a promissory characterisation, other characterisations of third party rights are preferable. The arguments for the different positions are considered below.

The possible characterisation of a third party’s right as promissory was introduced in Chapter 1,3 where it was noted that two distinct situations might arise: (i) a case where A promises to B that he will confer some performance upon C, and (ii) a case where A states in front of B (without appearing to promise B anything) that he is promising to confer some performance upon C. It was argued in Chapter 1 that the second case is one

2Thus, in his article ‘Contracts for the Benefit of Third Parties’, Smith specifically rejects the idea that a third party can be conceived of as having been the recipient of a promise in its favour and thus, unsurprisingly, defends the traditional pre-1999 English law position that a third party has no right to make any claim under the contract.

3See pp. 23–5.

of a valid promise to C (but not B), C simply being absent at the time the promise is made. That, however, is not really a case of a third party right as commonly conceived, for the simple reason that C, though absent, is the promisee, and not a third party, B simply being in effect a witness to the promise (B may, for instance, be a notary). It is the former case which raises the possible promissory characterisation of a third party right, but the question to be answered is: has A in fact, in his promise to B, also undertaken a promise to C? Only if he has, can it be said that the right of the third party is promissory in nature; if not, then any enforceable right which the third party has must have some other character. The argument that A has made a promise to C may be put in one of a number of ways, depending on the facts of the case:

(1)The promise of A to B that he will perform in C’s favour might make it plain that he is also concurrently making a promise to C. Thus, A may state to B ‘I promise to you [or I agree with you] that I undertake to pay C £100’. That sort of statement can be said to amount to a promise to, or contractual agreement with, B which also contains a promise to C. This sort of wording may be unusual, but it is not inconceivable. On such a view, the promise to C would be constituted at the time that the promise is uttered to B, even if C were absent. The result is that A has made two promises, one to B and one to C. If A’s statement to B is contained within a contract, then evidently the promise to B is contractual in nature; on the other hand, if the intention of A is that he will immediately be bound to C, his promise to C is in the nature of a unilateral promise.

(2)The promise of A to B that he will perform in C’s favour may not be express but may rather be implied from A’s words of commitment to B or even from the whole context of the agreement between A and B (so that it may reasonably be concluded that A intended the commitment in C’s favour). Thus, a statement of A to B that ‘I promise to pay C £100’ may be interpreted as manifesting an intention on A’s part not only to commit himself to B but also to commit himself to performance in favour of C, even though the promissory language used is only, on the face of it, directed at B. Again, under this argument, it can be maintained that the promise to C comes into existence at the time A utters the relevant commitment to B. Some may baulk at interpreting A’s promise to B as also incorporating a promise to C, and take the view that this is not a reasonable interpretation of such language: why should a promise to B, which simply happens to

mention C, be treated also as a promise to C? But once the theoretical objection to the idea that a promise can be made to an absent party is overcome,4 then the possibility arises of circumstances where A may wish to express a binding commitment in favour of C to another party (in the case of third party rights in contract, to a contracting party). There is no reason relating to the nature of a promise why A’s contract with B should not be allowed to contain a promise to C. Naturally, everything must depend upon a construction of the intention of the parties concerned as disclosed in the language used by them, and it is not argued that every statement in which A undertakes to B that something will be done for C should be interpreted as a promise to C,5 but even non-promissory conceptions of third party rights are based on the belief that A can in an agreement with B effect a binding commitment to C: if non-promissory conceptions of third party rights are capable of bearing such an obligatory intention on A’s part, why not promissory ones?

(3)Some may still object that, in either of the above scenarios, the promise in favour of an absent C remains, at the time it is uttered, an essentially private arrangement between A and B (unless B is a public official such as, as suggested above, a notary), and that such a private arrangement should not be capable of giving rise to rights in another’s favour. If that private characteristic of the behaviour of A and B were thought to be true, a promissory view might still be taken of C’s right by insisting in both circumstances (1) and (2) that a promise in favour of C would not come into existence until the right conceived in C’s favour was intimated to it. Jurisdictions with a promissory view of third party rights differ on whether such a requirement is insisted upon: Scots law, for instance, insists upon intimation to the third party before the promise in its favour is held to have been constituted; by contrast, French law holds that the third party’s right exists immediately the promise is made to the stipulator.

Whether the commitment to C is stated in terms which narrate an express promise to C as promisee, or whether such a promise to C can be inferred from A’s promise to B to benefit C, such a commitment seems

4A promise in favour of an absent party was, at an early stage, not seen as problematic in Scotland. See Stair, I.x.5: ‘So a promise, though gratuitous, made in favour of a third party, that party, albeit not present, nor accepting, was found to have right thereby’ (Stair cites, in support, Achinmoutie v. Hay, Mor. 12126).

5And indeed, perhaps in the majority of cases this will not be the intention of A.

has agreed with the insured party that it will confer the benefit upon the spouse after the insured’s death. Either at that moment, or, depending on the view taken, in communicating with the spouse in the terms in which it has, it has made a promise to pay the spouse. If the promise in favour of the third party is seen as arising at the very moment that the contract between A and B is made, then either the view can be taken that the third party is being permitted to enforce a promise made to the stipulator qua promisee, or, given that promises can be made to absent parties, that the third party is enforcing a promise made to her qua promisee (a promise contained within the promise made to the stipulator). If the view is taken that the promise arises when the third party is informed of the right in her favour, then it seems more certain that the third party is herself the promisee, a promise having been communicated to her which is additional to any promise given to the stipulator. In addition (and one of the systems under examination holds as much), it might be said that the stipulator has also made certain promises to the third party, at least an implied promise to assist the third party in any way necessary to enable her to advance her claim.

A unilateral promissory analysis of the third party’s rights under an insurance policy seems apposite because it can be said that the insurance company has voluntarily undertaken a commitment to the spouse to pay her the proceeds of the insurance policy in due course. Such a commitment expresses a willingness to be subject to the duty to pay in accordance with the terms agreed with the stipulator. By contrast, such a promise imposes no duties on the third party.7 Only a mutual promise by the spouse to undertake duties could do so. No such mutual promise has been forthcoming, and none seems necessary to enable the stipulator’s intentions to be fulfilled. The spouse can of course reject the benefit in her favour if she wishes, and if she does so the right is considered to be annulled. A valid promise having been constituted, it cannot unilaterally be revoked by the debtor (the insurance company) or by the stipulator, or by the contracting parties together, unless a power to do so has been retained within the contract to permit this. All of this flows from promissory principles, although specific legal systems may amend the position in certain ways. The promissory conception has the merit of capturing the unilateral and gratuitous

7Some jurisdictions have taken the view that a third party can come under certain duties. The French courts, for instance, have decided that, after confirmation of the right in favour of the third party, the third party can come under certain obligations: see Cass civ 1st, 8 December 1987, Bull civ I, no. 343, at 246.

nature of the benefit conferred upon the third party and the means by which such conferral is achieved. It emphasises that the right comes into existence as a result of the will of the parties, and not merely by virtue of any reliance created or benefit conferred. It also enables undertakings to be made in favour of third parties who are not yet in existence, whether natural or juristic persons, as such parties need not accept the promise for it to become binding. Thus, to continue the insurance policy example, the stipulator might validly stipulate for the proceeds to go to his as yet unborn child. Similarly, in South African law, the stipulatio alteri is often used as a vehicle for making pre-incorporation undertakings in favour of companies which have not yet been set up. Non-promissory analyses of third party rights do not capture the essence of the nature of the third party right, are deficient in certain regards (as the description of alternative conceptions following will indicate), and lack the flexibility and utility of the promissory analysis.8

The promissory conception of third party rights has been adopted by some jurisdictions. However, the promissory route is not the only conceivable analysis of an enforceable third party right, and other conceptions have been advanced for the third party’s right:

(1)The full contracting party analysis: it is possible, especially if an acceptance by the third party is insisted upon, to conceive of the third party as itself becoming a party to the contract between A and B, or to a new contract with the debtor (B), though an insistence upon the presence of such an acceptance does not necessarily entail that C has the status of a contracting party. Such a contractual solution does not strictly create a third party right, however, but confers upon the third party the status of a full contracting party. This contractual conception is unusual in modern legal systems, though it is the position of Dutch law.9 Clearly, it is an analysis which cannot describe third party rights in those systems in which no acceptance is required by the third party.

(2)The assignment view: the third party can be conceived as an assignee/ cedent, to whom is assigned a benefit originally promised to the

8Proponents of a sui generis view of third party rights would argue that that conception also possesses the benefits which a promissory conception has. However, if that is so, it is only achieved through the creation of an entirely separate, compartmentalised category for third party rights, something which unnecessarily complicates the taxonomy of obligations law.

9BW Art. 6:254(1). The result is a tripartite contract, governed by the Code’s rules on ­multiparty contracts, in particular Art. 6:279.

assignor. This evidently provides a solution to the third party rights question in circumstances where a classic stipulatio alteri is not permitted,­ though it is a quite different conception of the parties’ relationships, and presupposes an intention of a party to contract for its own benefit initially, and only a subsequent intention to transfer the benefit to a third party. The institution of assignment is treated separately at the end of this chapter.

(3)The agency view: the third party can be seen as a principal, for whom the stipulator has been acting as agent. This analysis does not seem, however, to describe very well the intentions of most stipulators, who would not see themselves as acting as an agent in the conduct of another’s affairs.

(4)The negotiorum gestio view: the relationship can be seen as one where the stipulator has been managing the affairs of the third party without authorisation, the acceptance by the third party of the benefit in its favour being conceived of as ratification of such unauthorised management. This analysis does not seem apt to describe many third party rights, however, given that, until the contracting parties agree, the third party has no right, and thus no affairs which can be considered as being ‘managed’.

(5)The sui generis view: the status and the nature of the rights of the third party may be seen as sui generis. While such a view is perfectly possible, it is not preferable to categorise rights within the field of obligations law as sui generis unless none of the existing characterisations is apt to describe such rights. Thus, if a promissory analysis of third party rights is possible, it is preferable to adopt such an analysis.

As a supplement to the above possible conceptions, the idea that a third party right may also be donative in substance has been recognised in a number of legal systems. If, for instance, a stipulator wishes a right conferred upon a third party purely as a gift to the third party, such a conferral can be described as donative in nature; on the other hand, the stipulator may wish the right conferred upon the third party in order to settle some debt of the stipulator’s, such circumstances clearly being indicative of the conferral of a third party right upon a party who stands in the position of a creditor in relation to the stipulator. While a donative characterisation of some third party rights is thus possible, few systems appear to have insisted that in such cases of donation the requirements applicable to donations should prevail where differing from those generally governing