Explanation of Article 101

Explanation of Article 101

This article completes the effects of the contract concerning third parties; it clarifies the provisions of "stipulation for the benefit of a third party," where two parties contract, one being the stipulator who contracts in his name, and the other the promisor, in executing the promisor's obligations for the benefit of the third party, who is the beneficiary, without the beneficiary being a party to the contract concluded between the stipulator and the promisor.

Applications of stipulation for the benefit of a third party include: the cooperative health insurance contract concluded by an employer for the benefit of his workers, the cooperative protection insurance contract concluded by a person for the benefit of certain relatives in the event of his death or total disability, and the contract of work, especially with the state, if the employer stipulates conditions for the benefit of his workers, such as setting a minimum wage or compensations, and the sale of a business if the seller stipulates to the buyer to retain the workers and not reduce their wages, or if the seller stipulates to the buyer to retain part of the price as security for another debt on the seller.

The first paragraph clarified that the stipulation for the benefit of a third party must meet three conditions: The first condition: The stipulator must contract in his name, not in the name of the beneficiary, and the beneficiary should not be a party to the contract, thus distinguishing the stipulation for the benefit of a third party from agency. The second condition: The stipulator must stipulate a direct right for the beneficiary against the promisor. If the beneficiary acquires the right indirectly, such as through accident insurance or liability caused by a person to others, or acquires it through assignment or succession, it is not considered a stipulation for the benefit of a third party. The third condition: The stipulator must have a personal material interest, such as an employer insuring health insurance for the benefit of his workers, or a moral interest, such as a person insuring protection for the benefit of his children, thus distinguishing the stipulation for the benefit of a third party from negotiorum gestio; the gestor has no personal interest in the work he performs for the benefit of the beneficiary.

The second paragraph explained the effect of the stipulation for the benefit of a third party. Besides the relationship that binds the stipulator to the promisor and the relationship that binds the stipulator to the beneficiary being governed by general rules like any other contract, what distinguishes the stipulation for the benefit of a third party is that it grants the beneficiary a direct right against the promisor, even though he is not a party to the contract. Therefore, the beneficiary can demand the promisor fulfill his obligation through a direct claim, and the beneficiary becomes a creditor to the promisor like other creditors. Conversely, this right does not fall under the general guarantee for the stipulator's creditors, and they cannot enforce it.

The right acquired by the beneficiary originates from the stipulation contract and is established from that time, not from the time he wishes to benefit from the stipulation. This results in several rulings, including:

1. The promisor can invoke defenses arising from the contract, such as annulment, nullity, and rescission, against the beneficiary because the source of the obligation is the contract.
2. The contracting parties, the stipulator and the promisor, can define this right according to their agreement; for example, the stipulator may have the sole right to demand the promisor fulfill his obligation to the beneficiary, or they may agree to make the beneficiary's right revocable or irrevocable.

• The validity of the stipulation is not affected by the promisor losing his capacity after the stipulation contract and before the beneficiary declares his wish to benefit from it.
• The creditors of the beneficiary have the right to challenge the non-effectiveness of his refusal of the stipulation if it results in his debts encircling his assets.

The third paragraph clarified that the stipulator may demand the promisor to fulfill what was stipulated for the benefit of the beneficiary and may file a direct claim in his name, even if it is not stipulated in the contract. This is because, in stipulation for the benefit of a third party, the stipulator usually has a personal material or moral interest in this stipulation; this interest entitles him to file the claim and demand himself. Moreover, it is permissible to stipulate that he alone has the right to demand the promisor fulfill what was stipulated for the benefit of the third party; for example, a charitable association may stipulate to those contracting with it to provide training programs for low-income individuals and retain the association's sole right to demand the promisor fulfill what was stipulated for others.

Related To

Article 101

1. A person may enter into a contract in his own name that stipulates obligations for the benefit of a third party if he has a personal interest, whether material or moral, in the performance of such obligations.

2. A stipulation that is in the interest of a third party shall grant said party a direct right to demand the obligor to fulfill the obligations, unless agreed otherwise. The obligor may invoke against the beneficiary any defense arising from the contract.

3. The stipulator may demand the obligor to perform the obligations for the benefit of the beneficiary.