Most people understand a contract as an agreement between two parties — a straightforward exchange of rights and obligations. South African contract law, however, recognises a more nuanced arrangement: one where a contract concluded between two parties can confer enforceable rights on someone who is not party to the agreement at all. This mechanism is known as a stipulatio alteri, and it plays an important role across several areas of law, from property transactions to insurance and estate planning.
What Is a Stipulatio Alteri?
A stipulatio alteri is a contractual clause or provision that creates a right or benefit in favour of a third party — someone who is not a signatory to the agreement. The term originates from Roman law and translates roughly as “a stipulation for another.”
South African courts have given clear expression to the doctrine. In Loggenberg NO v Maree (286/17) 2018 ZASCA 24, the court described the typical stipulatio alteri as a contract concluded between Party A and Party B for the benefit of a third party, Party C, who by accepting the benefit becomes a party to that contract. The definition captures the essential nature of the arrangement: it is bilateral in its formation but potentially trilateral in its effect.
It is important not to confuse a stipulatio alteri with an adiectus solutionis causa, which refers to a third party authorised to receive performance on behalf of a creditor. Unlike the third party under a stipulatio alteri, an adiectus solutionis causa acquires no independent right to demand performance. These are distinct legal concepts with meaningfully different implications, and conflating them can lead to significant errors in both drafting and litigation.
The Requirements for a Valid Stipulatio Alteri
For a stipulatio alteri to be legally valid and enforceable, two core requirements must be satisfied.
Intention to Create an Enforceable Obligation
The contracting parties must genuinely intend to create an enforceable obligation in favour of the third party. This intention must be evident from the terms of the agreement, whether expressed explicitly or implied by the circumstances. Where this intention is absent, the clause will not give rise to enforceable third-party rights, regardless of how the agreement is worded.
This was demonstrated in Marock v Attacq Limited and Another, where the court found that the sale agreement between the buyer and seller did not reflect the necessary intention to benefit a third-party estate agent. As a result, the agent could not rely on the stipulatio alteri to claim commission and was required to pursue a different legal remedy entirely.
Acceptance by the Third Party
The right conferred by a stipulatio alteri vests in the third party only once that party communicates its acceptance of the benefit to the party who undertook to perform. This acceptance is not a mere formality — it is a substantive legal requirement.
Until acceptance occurs, the original contracting parties retain the right to vary or cancel the third-party benefit, or to release the obligated party from the undertaking altogether. Once the third party accepts, however, the right crystallises and becomes binding. The practical consequence is that a stipulatio alteri creates a conditional right: it exists in the contract from inception, but only becomes enforceable upon acceptance.
Where Stipulatio Alteri Arise in Practice
The stipulatio alteri is encountered across a wide range of commercial and personal transactions. Understanding the contexts in which it typically arises helps parties and their legal advisers identify when the doctrine applies and how to structure agreements accordingly.
Property Transactions and Companies Not Yet Formed
One of the more technically interesting applications of the stipulatio alteri is in property transactions where the intended purchaser is a juristic entity that does not yet exist at the time of contracting. A natural person may conclude an offer to purchase with a seller, stipulating that the property is to be transferred to a company still to be registered.
Courts have recognised this as a valid application of the stipulatio alteri. The yet-to-be-formed company, once incorporated, may accept the benefit and thereby acquire the right to demand transfer of the property. Parties must, however, plan carefully. The timeline for company registration, the manner in which acceptance is to be communicated, and compliance with the Companies Act all require deliberate attention. Inadequate planning in this regard can result in delays, disputes, or an unenforceable arrangement.
Inter-Vivos Trusts
The establishment of inter-vivos trusts frequently involves stipulatio alteri clauses. The trust deed may be structured so as to confer enforceable rights and obligations on beneficiaries who are not parties to the founding agreement. This makes the stipulatio alteri an indispensable tool in trust and estate planning.
Life Insurance
Life insurance policies routinely make use of the stipulatio alteri to give named beneficiaries a direct claim against the insurer upon the death of the life assured. Without this mechanism, a beneficiary would have no contractual standing to demand payment, as they are not party to the insurance contract. The stipulatio alteri resolves this by conferring an enforceable right directly on the beneficiary, operative upon their acceptance of the benefit.
Estate Agent Commission
The use of stipulatio alteri in the context of estate agent commission has generated considerable litigation in South Africa. An estate agent may be named as a beneficiary in a sale agreement between a buyer and seller, with the clause providing that commission will be paid to the agent regardless of their direct involvement in facilitating the sale. All that needs to be established is whether the terms of the stipulation — whether express or implied — are present, and whether the agent accepted the benefit.
The validity of such clauses was confirmed in Jurgens Eiendomsagente v Shara, where the court held that an agent could base a commission claim on a stipulatio alteri contained in a sale agreement, provided the agent had accepted the benefit. It is worth noting that Rule 3.6 of the Property Practitioner Code of Conduct has been interpreted by some as being in tension with such arrangements. However, case law has demonstrated that where the buyer and seller themselves elect to include and intend the clause as binding, the code of conduct may not override the contractual arrangement.
Can a Stipulatio Alteri Impose Obligations — Not Just Rights?
A common misconception is that a stipulatio alteri can only confer benefits on a third party. The position under South African law is more nuanced. A stipulatio alteri can, in appropriate circumstances, impose reciprocal obligations on the third party alongside the benefit it confers.
Where such corresponding obligations exist, the third party’s acceptance of the benefit alone will not be sufficient to bind them. Acceptance of the obligation is also required. This has important drafting implications: where the intention is to both benefit and obligate a third party, the clause must be structured to make clear that acceptance of the one entails acceptance of the other.
The Contractual Status of the Third Party Upon Acceptance
There is no uniform position in South African case law regarding the precise contractual status acquired by a third party upon accepting a stipulatio alteri. Some decisions have held that acceptance causes the third party to become a full party to the original contract, establishing a contractual relationship with all existing parties. Other decisions suggest that acceptance creates a contractual relationship only between the third party and the party who undertook to perform.
The outcome in any particular case depends largely on how the stipulatio alteri was drafted. This underscores the importance of precise and deliberate drafting when including such a clause in any agreement.
Practical Guidance for Parties and Their Advisers
A stipulatio alteri is a legally sound and widely used mechanism for extending contractual benefits — and in some cases, obligations — to third parties. That said, it should not be resorted to where a simpler and more certain arrangement is available.
Make Third Parties Signatories Where Possible
Where it is reasonably practicable to do so, the preferred approach is to include all parties who will derive rights or bear obligations under an agreement as signatories. Doing so eliminates uncertainty about the nature of the contractual relationship, removes the requirement for subsequent acceptance, and provides a cleaner basis for enforcement.
Draft With Precision
The legal consequences of a stipulatio alteri — including whether it imposes obligations, whether it creates a full tripartite relationship, and whether it survives variation by the original parties — depend heavily on how the clause is worded. Vague or ambiguous drafting creates uncertainty that can be exploited in litigation.
Take Legal Advice
Given the technical requirements of a valid stipulatio alteri and the potential for significant commercial consequences if those requirements are not met, parties contemplating the use of such a clause should seek legal advice before concluding the agreement. A legal practitioner can assist with determining whether a stipulatio alteri is the appropriate vehicle for the parties’ objectives and can ensure that the clause is drafted to achieve the intended effect.
The stipulatio alteri remains an essential feature of South African contract law — flexible enough to accommodate complex arrangements involving third parties, yet precise enough in its requirements to demand careful and considered use.
