What is a stipulatio alteri?

The judge in the above case states that it is an agreement “concluded between A and B for the benefit of a third party C, who by accepting the benefit becomes a party to that contract…”

Acceptance is required

A stipulatio alteri is a legally enforceable clause but it’s important to note that for it to be applicable, the third party must accept the rights and benefits of the agreement.

Companies not yet formed

The case law mentioned above has been recognised as enforceable in relation to a company not yet formed. In this instance, a purchaser can enter into an Offer to Purchase agreement with a seller with the stipulation that the property is to be transferred to a juristic entity, e.g. a company yet to be formed.

The third party in this example obtains a legal right to demand performance in accordance with the obligation created.

Careful consideration must be given to the outcome envisioned by all parties. For example, if a company is to be formed for the transfer of a specific property, all parties must be aware of the time required to register the company in order for it to be able to receive the rights under the Offer to Purchase. Additionally, how the company is entitled to accept the benefit must be clearly set out and formalised in accordance with the Companies Act.

It’s advisable to discuss the above with a legal practitioner and request assistance on how the stipulatio alteri can be used and the necessary clauses drafted to meet the parties’ expectations. If this isn’t done correctly, it can lead to delays or uncertainty regarding the benefits or obligations that are to be created.

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Written by Wessel de Kock

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