1. The principle of privity of contract and contracts in favour of third parties in the OHADAC systems

The contract in favour of a third party essentially implies granting a third party a right arising from a contractual relationship between the promisee (the party which has a direct interest in that right) and the promisor (the party which is obliged to the third party or beneficiary). The legal relationship between the promisee and the promisor is called the “cover relationship”. The relationship between the promisor and the third beneficiary is called the “value relationship”.

The practical utility in international trade of these agreements in favour of a third beneficiary lies in the fact that it is an instrument of contractual simplification and legal economy. In this sense, agreements in favour of third persons are best suited to interlinked contracts or contracts where there is a plurality of participants (chain of contracts, subcontracts or holdings).

Example 1: Insurance company A signs an insurance contract with shipping company B in order to cover it and its subcontractors for certain maritime routes. If a company C assumes, as subcontractor, one of these lines, it would automatically be a beneficiary of the insurance contract between A and B.

In other cases, the contract in favour of a third party may work as a financing instrument, allowing the promisee, which is an obligor of the third party and at the same time an obligee of the promisor, to reach an agreement with the promisor to assume its debt to the third party. Thus, the promisee can pay off its debt to the third party and set-off its right against the promisor through only one transaction.

Example 2: Company A acquires from distributor B a batch of goods, stipulating in the contract that the payment shall be made to manufacturing company C (which is, in turn, a obligee of B). With this contract dealer B has obtained financing to pay its debt to C.

Finally, it is also relatively common in practice to sign contracts in favour of third parties with a clear purpose of guarantee a debt that the third party may have against the promisee obligor [e.g. commercial credit insurances covering the risk of loss resulting from the insolvency of customers so that, for example, the insured (promisee) concludes a factoring contract and designates the factoring company as beneficiary of compensations].

The civil law principle of contract relativity and the common law doctrine of privity of contract start from the same point: firstly, they assume that a third party may not acquire rights or bring actions under a contract in which it is not a party; secondly, they make it impossible to impose obligations on a person which has not agreed. However, overcoming these limits to the subjective scope of contracts has developed differently in different legal systems, which has traditionally implied an important element of divergence within European law between civil law systems (and even some common law system) and English law. While civil law systems allow contracts in favour of third parties in their firmly established legislations, English law maintained its reluctance until very recent times [specifically until the Contracts (Rights of Third Parties) Act 1999], when it admitted for the first time an explicit exception to the privity principle, allowing third parties to invoke rights established in contracts where they are not parties. A general acceptance of contracts in favour of third parties has been supported by its inclusion in different texts on contract law harmonisation (Article 5.2.1 UP; Article 6:109 PECL; Articles II-9:301 to 9:303 DCFR).

This trend of general admission of contracts in favour of third parties is also confirmed in the civil codes of OHADAC countries, which regulate this figure as an exception to the principle of contractual relativity. In some cases, as in the Venezuelan Civil Code, this is qualified by the condition that there is a “personal, material or moral interest in the performance of the obligation” (Article 1.164). Otherwise, as in Haitian Civil Code, there is no general regulation of the contract in favour of a third party, but there are specific provisions which suggest this possibility, such as those in lease contracts in Article 1.737. There is no specific regulation on contracts with clauses in favour of third parties in the Commonwealth Caribbean, which remains reluctant to justify exceptions to privity doctrine, under the direct influence of English common law. However, this legislative silence should not be interpreted rigidly, but rather in the context of the development of English contract law itself. In this sense, everything suggests the recognition of contracts in favour of a third party also under these laws.

2. Identification of contracts in favour of a third party

The first difficulty in contracts in favour of a third party is determining when a contract enables a third party to enforce the obligation stipulated in its favour. In all cases where there is a clearly expressed wish to do so by the contracting parties, no specific problems arise. Difficulties arise when such an event has not occurred. One wonders if liability insurance, manufacturer warranties on product quality, contracts between a travel agency and an air carrier for the transport of their customers or child maintenance agreements include provisions in favour of a third party.

The characterisation of these cases depends on the criteria used in each legal system. Two major models can be distinguished in this area: the first one starts only from the will of the parties and the other also introduces objective parameters for identification of stipulations in favour of third parties.

Under the first model, the intention of the parties is the only criterion from which an actual stipulation for a third party can be inferred. This is the approach in the Contracts Act (Rights of Third Parties) 1999. In drafts developed by the Law Commission, dual intention tests finally envisaged in Section 1 (1) and (2) of the Contracts Act (Rights of Third Parties) of 1999 were already established, determining the available actions for third parties: the first, when a right has been expressly granted by the contract; the second, where the contract confers a right to enforce (rebuttable presumption) unless, according to the proper construction of the contract, it is interpreted that the parties were unwilling to grant this right to a third party. Thus, the determining factor for identifying a contract in favour of a third party is not that a benefit to the third party is derived from the contract, but that there is an expressed willingness to grant the third party a right to claim the performance granted (right to sue), which can only be inferred, in one way or another, from the will of the parties. Similarly, Article 6:253 of the Dutch and Suriname Civil Code contains an express allocation rule of law, indicating that the third party can claim a performance if the contract contains a stipulation in its favour.

Under the second model, in addition to the express will of the parties, the allocation of the right to the third party may be inferred from objectives signs, such as the “circumstances of the contract”, the “purpose” of the contract or the usages. This is the model followed in French law, although it cannot be directly inferred from the wording of its provisions. In practice, a set of standard contracts involving provisions for third parties (for example, contracts involving obligations of advice or security or surveillance, carrier obligations regarding the safety of passengers or obligations of the professional seller to a non-expert buyer) are identified . However, the Proposals for reform of the French law on obligations of 2013 (Article 114) seems to opt only for the will of the parties as a source of the right of the third party.

In the OHADAC territories, most civil codes base the effectiveness of stipulations in favour of third parties on the will of the parties, therefore enabling third parties to sue for its performance (Article 1.506 of the Colombian Civil Code; Article 316 of the Cuban Civil Code; Article 1.549 of the Honduran Civil Code; Article 1.869 of the Mexican Civil Code; Article 1.108 of the Panamanian Civil Code; Article 1.164 of the Venezuelan Civil Code). Article 741 of the Honduran Commercial Code establishes the presumption, with the possibility of agreement to the contrary, that any provision in a contract gives the third party the right to require of the promisor the performance of that obligation. A different approach is seen in Articles 1.122 of the French and Dominican Civil Code and Article 1.531 of the Guatemalan Civil Code, which establish a presumption of validity of the contract between the parties “unless otherwise stated or resulting from the nature of the contract” or “when this is derived from the purpose established in the contract”. Article 963 of the Saint Lucian Civil Code states in the same sense. These provisions extend therefore the chances of identifying a contract in favour of a third party on the basis of objective circumstances of the contract, even if the will of the contracting parties in this regard is not clearly determined.

The rule laid down in the OHADAC Principles follows the first of the models analysed for the identification and characterisation of a contract as a contract in favour of a third party, based on the will of the parties. This criterion is the most respectful with contract interpretation rules inspired by English law, but it also prevents inevitable legal divergences derived from the second model, insofar as characterisation of the contract requires here the analysis of the nature or the purpose of the contract. Agreement of the parties as the exclusive source of the right of the third party also excludes the application of these rules to cases in which a third party may have a direct action against a contracting party based on a legal obligation, which often deserve a characterisation as non-contractual obligations. For example, claims that victims can make on the basis of a direct action against insurers of those responsible for damage are not considered as contractual obligations in favour of third parties.

This Article also includes a specific reference to the fact that the right of a third party implies an action against the promisor. Therefore, it is presumed that any contract which contains a provision in favour of a third party entails, unless otherwise agreed by the parties, the granting of an action for the third party to claim against the promisor. This provision, expressly included in the Mexican and Venezuelan civil codes as mentioned, is interesting insofar as the rule itself clarifies what is the distinctive regime of such contracts in contrast with the general rule of privity. The recognition of this rule may be particularly significant and relevant in the sphere of Commonwealth Caribbean. In fact, due respect to freedom of contract and subjection to the strict rules of interpretation in common law systems lead to the recommendation of this express statement in the contract to avoid any doubt about the real scope of the formulation of the right in favour of the third party.

The second paragraph of the article recalls the restrictive nature of the advantage conferred by the contract on which it is based, and its wording is the same as in Article 5.2.1 UP. It is obvious that the rights of the third party depend absolutely on the agreement between the contracting parties. Therefore, the agreement of the parties depends on the recognition of the third party's right as well as the possibility and scope of actions recognised thereto, all the while establishing conditions and limitations to the acquisition and exercise of that right.

3. Regime of post mortem contracts in favour of third parties

A contract including stipulations in favour of a third party causes a variety of relationships between the different parties involved, some of which (the cover relationship and the relationship between the promisor and the beneficiary) are directly based on the contract, while the relationship between the promisee and the beneficiary, being the cause of the contract itself, is actually alien to the main contract. However, this autonomy of the contract regarding the underlying relationship is not confirmed in all cases and it is not recognised to the same extent in all legal systems. The clearest example is the bank deposits including an appointment of beneficiary in case of death of the depositor holder.

In the field of the OHADAC Principles, a specific provision on post mortem contracts in favour of a third party is not envisaged, particularly due to clear differences between civil law and common law systems and even among civil law systems themselves. Such a provision is not found in other international texts on contract law harmonisation, either (UP, PECL and DCFR). The absence of regulation of this issue does not really imply a gap or a legal vacuum on an essential aspect of contracts in favour of third parties. Succession law must be taken into consideration in relation with the “value” relationship between the promisee and the third party and therefore its legal regime is not required in contracts in favour of a third party. From an abstract perspective, the contract in favour of a third party remains in force and fully effective, while the attribution of the right (which constitutes the value relationship) could subsequently be challenged or avoided by the promisee.

For the sake of legal economy, in these cases the inclusion in the contract of specific clauses allowing compliance with the mandatory rules of the value relationship is recommended, either through specific rules of revocation of the stipulation or through incorporation into the contract of a specific regime of exceptions enforceable by the promisor against the claim of the third party beneficiary in order to enforce the obligation. These two aspects will be discussed in the relevant sections of these Principles.