ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
NOTES ON THE JURISPRUDENCE OF QUEBEC
Colin K. Irving*
An eminent English barrister has defined a “stipulation for a third party”
as:
an agreement entered into between two persons, whereby one of them (the promisor)
undertakes an obligation in favour of a third party, for the fulfilment of which the promisor
binds himself towards the other (the stipulator or promisee), such stipulator or promisee
contracting in his own name, and not in the name nor as the agent or trustee of the third party,
provided that it is the intention of the contracting parties (i.e., stipulator and promisor)
that the third party shall acquire an independent right enforceable by him against the promisor,
which right flows directly from the agreement entered into between the promisor and the
stipulator.’
The contract which the author defines, however, is one which is unknown
to the common law, where the rule was stated by Lord Haldane speaking in
the House of Lords in Dunlop Pneumatic Tyre Co. v. Selfridge Co. 2
My Lords, in the law of England certain principles are fundamental. One is that only a person
who is a party to a contract may sue on it.
It is true that the rule of privity of contract in English common law is
applied with certain reservations, notably where one of the parties to a contract
acts as agent for an undisclosed principal, but the general rule as stated by Lord
Haldane still applies.3
The common law rule has been applied in many Canadian cases, of which
the most familiar to Quebec lawyers is probably the case of Vandepitte v. Pre-
ferred Accident Insurance Company4, a British Columbia case which, was eventually
decided in appeal by the Judicial Committee of the Privy Council. An excellent
and illustrative summary of the Vandepitte case was given by Locke, J. of the
Supreme Court of Canada in the case of Northern Assurance Co. Ltd. v. Brown:5
While the decision of the Judicial Committee in Vandepitte v. Preferred Accident Insurance
([19331 A.C. 70) does not affect the question of limitation, the history of that action may
be of some assistance in construing the section under consideration. In British Columbia, where
statutory conditions in the same terms as those adopted in Ontario in 1922 had been made
part of every such insurance contract in the same year by the Automobile Insurance Policy Act
(c. 35), when the Insurance Act of that province was repealed and re-enacted by c. 20 of the
statutes of 1925 it contained as s. 24 a prov ision that where a person incurs liability for injury
or damage to the person or property of another and is insured against such liability and fails
to satisfy a judgment awarding damages against him, the person entitled to the damages
might recover by action against the insurer the amount of the judgment up to the face value
*Of the Bar of Montreal.
‘Gilbert W. F. Dodd, Stipulations for a Third Party (1948), at p. xxii.
2[1915] A.C. 847, at 853.
‘Cheshire and Fifoot, The Law of Contract (5th ed., 1960).
4[1933] A.C. 70.
5[1956] S.C.R. 658, at 665.
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of the policy but subject to the same equities as the insurer would have if the judgment had
been satisfied.
It was upon this section that the cause of action asserted in Vandeplite’s Case was based.
One Berry was insured against liability in respect of the operation of his automobile by a policy
in the form then currently in use in British Columbia which, by its terms, agreed to extend the
indemnity to any person driving the car with his permission. Berry’s daughter was, by his
leave, driving the car when Vandepitte was injured and, when the latter recovered judgment
against her and was unable to realize it, the action was brought against the insuring company.
Gregory J., who tried the case, held the plaintiff entitled to recover ((1929) 42 B.C.R. 255)
and this decision was upheld in the Court of Appeal ((1930) 43 B.C.R. 161). The defendant’s
appeal to this Court was allowed ([1932] S.C.R. 22) and the appeal taken to the Judicial
Committee was dismissed ( [19331 A.C. 70).
The action failed on the ground that Jean Berry, the daughter of the insured named in
the policy, was not insured against the liability within the meaning of s. 24, she having no
enforceable right against the insuring company, there being no privity of contract between
them.
Thus the Vandepitte case saw a perfect application of the common law rule,
stated by Lord Haldane, that
only a person who is a party to a contract may sue on it.6
The law of the Province of Quebec on the same point is set out in Articles
1028 and 1029 of the Civil Code of the Province:
1028. A person cannot, by a contract in his own name, bind any one but himself and his
heirs and legal representatives; but he may contract in his own name that another shall per-
form an obligation, and in this case he is liable in damages if such obligation be not performed
by the person indicated.
1029. A party in like manner may stipulate for the benefit of a third person, when such is
the condition of a contract which he makes for himself, or of a gift which he makes to another;
and. he who makes the stipulation cannot revoke it, if the third person have signified his assent
to, it.
It is immediately apparent that the stipulation for a third party rejected
by the common law is expressly authorized by Article 1029 C.C.
It would in fact be difficult to find a more striking example of the different
approaches taken on’occasion by the civil law and common law systems.
Apart altogether from the directly opposite conclusions to which the two
systems lead, Article 1029, as we shall see, illustrates as well as any other
article in the Code, with the possible exception of Article 1053, the flexibility
and usefulness which a codified statement of general principle can have.
Contracts which contain stipulations of the type provided for by Article
1029 of the Code are familiarly known as “1029 contracts” or “1029 stipula-
tions” and they will be so referred to in the next few pages.
It is important to note at the outset that, as was pointed out by Rinfret, J.
giving the judgment of the Supreme Court of Canada in the leading case of
Halli v. The Canadian Indemnity Co.7:
Article 1029 of the Civil Code is of general application in the law of contracts in Quebec…
Thus, while for reasons which are obvious, a great many of the reported
cases concerning Article 1029 have to do with various types of insurance,
ODunlop v. Selfridge [1915] A.C. 847, at 853.
7[1937] S.C.R. 368, at 377.
No. 4] ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
339
nevertheless, a stipulation for the benefit of a third party may be a condition
of any type of contract.
The classic example of a contract containing a 1029 stipulation is a life
insurance contract with a named beneficiary, and it is in this context that a
great deal of the Quebec jurisprudence has developed. 8 In a life insurance
policy the person whose life is insured, as a condition of the contract he makes
with the insurance company, stipulates for the benefit of a third party, the
named beneficiary, who is not a party to the contract. 9
It may be of interest to note that the 1029 stipulation made by a party to a
contract in favour of a third party can be a stipulation establishing in favour
of the third party, the same rights as the stipulator establishes on his own
behalf.
Thus, in the case of Marmette et al v. Commercial Investment of Quebec Inc. et
al,10 Tremblay, C. J. described a stipulation contained in a particular contract
as follows:
La convention du 11 juin 1955 contient aussi une stipulation au profit de l’intervenant. Cclui-ci
est un tiers, mais cette stipulation cst valide parce qu’elle est la condition d’un contrat que Ic
lre Par fait pour lui-meme (C.C., art. 1029). Elle deviendra irrevocable de la part du pare
ParE, le stpulant, quand le tiers, l’intervenant, aura signifi6 lgalement sa volon& d’en profiter
(C.C., art. 1029). A compter de cette acceptation, C6t6 se trouvera aussi le dbiteur d’une
obligation de payer a l’intervenant la mime somme qu’il est tenu conditionnellement de payer
au pare Par6. Chacun des deux, l’intervenant et le pare Pari, aura Ic droit, si la condition s’ac-
complit, d’exiger P’ex&ution de l’obligation en entier et d’en donner quittance an dibiteur
C&r. Nous serons donc en prsence de deux cr~anciers solidaires (C.C., art. 1100).
It is proposed in this article to consider chiefly the nature of the rights
acquired by the third party and certain of the consequences which result from
a stipulation under Article 1029, but as a preliminary step one or two ancillary
questions with which the courts have been concerned may be considered
summarily.”
The Identification of the Beneficiary
It has already been suggested that a life insurance contract payable to a
named beneficiary is the classic example of the 1029 contract, but the tremendous
growth in recent years of group and other types of insurance makes it important
to establish to what extent the third party must be identified. Where, for
example, insurance against liability arising out of the operation of an auto-
mobile is extended to cover parties other than the owner, the eventual bene-
ficiary, i.e. a third-party driver, is not known or named in the policy at the time
8See for example: Baron v. Lenieux (1908) 17 K.B. 177.
“In discussing Article 1029, the courts and authors have generally used the terms “stipulator”,
“promisor” and “beneficiary” to refer to the three persons involved in a 1029 contract. Thus, in the
life insurance contract just mentioned, the person whose life was insured would be the “‘stipulator”,
the insurance company would be the “promisor”, and the beneficiary would be the “beneficiary”.
10[1962] Q.B. 95, at 98.
“It should be pointed out that no attempt will be made to consider or evaluate the theoretical
arguments expressed by the various authors, except insofar as the courts have relied on them.
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the insurance contract is made. Despite earlier statements tending to the con-
trary view, 12 the validity of such a contract is clearly upheld by the decision
of the Supreme Court of Canada in Halle v. Canadian Indemnity Company.13
Since the Halle case is the leading case on Article 1029 and will be referred to
frequently, the facts presented to the Court should be kept in mind.
In the Halle case the appellant was Joseph Hall. The appellant’s brother,
Rolland HallM, who owned an automobile, was insured against liability to
third persons by The Canadian Indemnity Co. under a policy containing an
omnibus clause which extended liability coverage to anyone driving Rolland
Halles car with the latter’s consent. Insofar as it is material, the clause read
as follows:
r.
.l’assureur s’engage…
i indemniser, en Ia meme mani~re et aux m&mes conditions auxquelles l’assur6 y a droit, d’aprrs
les pr~sentes, toute personne transportie dans l’automobile ou ]a conduisant 1gitimem-en
ainsi que toute personne, soci~t6 ou corporation lgalement responsable de la conduite du dit
automobile, a condition que permission en soit donne par l’assur6, ou si l’assur6 est un parti-
culier, que tellc permission provienne d’un membre adulte de sa maison aur qu’un chauffeur
ou serviteur domestique…
Joseph Halle was involved in an accident while driving his brother’s car,
and an action was taken against him by one of his passengers who had been
injured. The insurance company refused to defend the action on his behalf on
the ground, inter alia, that the omnibus clause was invalid and that Roland
Hall6 had no insurable interest in his brother’s liability. Joseph Halle then
instituted an action in warranty against the insurance company which even-
tually came before the Supreme Court. The argument that Joseph Hall& was
not expressly named in the policy, and consequently was not insured by it,
was rejected by Rinfret, J. who gave the unanimous judgment of the Supreme
Court of Canada: 14
He was not therein mentioned by name; but, according to the law of Quebec, as expressed in
French doctrine and jurisprudence, it is not necessary for its validity that the stipulation for
the benefit of third parties should be made in words definitely ascertaining these persons; it is
sufficient if they are ascertainable on the day when the stipulation takes effect in their favour.
The same reasoning would, it seems clear, apply to all 1029 contracts, and
to all the various forms of insurance against future and uncertain events where
the benefit is stipulated in favour of persons unknown but ascertainable at a
future date. 15
12See for example Fry v. O’Dell (1897) 12 S.C. 263 where Sir L. N. Casault, C.J., giving the judgment
of the Court of Review, said at p. 266:
Mais il faut pour que la stipulation puissc etre accept~e, qu’elle soit une indication de paie-
ment a une personne d~termin~e d’une dette sFpcifie.
13[19373 S.C.R. 368.
‘”[1937] S.C.R. 368, at 373.
15A good illustration of how useful some of the general principles so concisely set out in the Civil
Code can be is afforded by an examination of the Insurance Acts of the common law provinces where,
ir elc .-b~ence of any equivalent to Art. 1029 C.C., extensive legislation has been necessary.
No. 4] ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
341
The beneficiary must however be ascertainable otherwise than by the mere
will of the parties. In Bilodeau v. Conseil des Metiers de la Construction,16 a stipula-
tion was contained in a building contract between Bilodeau and a certain
Fabrique that Bilodeau would employ “des ouvriers des unions catholiquement
syndiqu~s autant que possible.” Certain workmen, members of Catholic syn-
dicates, demanded jobs from Bilodeau. When they were not hired, they trans-
ferred their rights to the Conseil des M~tiers de la Construction, which sued,
claiming that the workmen were entitled to benefit from the 1029 stipulation
made in the building contract. The Court of Appeal held that while the
Fabrique could stipulate for the benefit of third persons, the stipulation as
made was unenforceable since there was no way in which the persons to be
benefitted could ever be ascertained. At p. 429, Mr. Justice Tellier held the
stipulation to be of no effect:
A cause de son indetermination et de son ind~terminabiliti ou, si l’on vent, parce que sa
dtermination depend de la volont6 de ]a d~fenderesse…
Commenting on this case in a later decision of the same Court,’ 7 Mr. Justice
Bond pointed out, however, that Tellier, J. had recognized the validity of a
1029 stipulation where the beneficiary was ascertainable:
the observations of Sir Mathias Teller C.J. (as he has since become) point dearly to the
…
conclusion that where such a contract indicates the persons to be benefitted and they can be
ascertained, that is to say, they are no longer indeterminate, then the clause is to be given its
full effect…s
Thus, while a 1029 stipulation in favour of persons who can never be iden-
tified is of no effect, a stipulation in which the beneficiary will only be ascer-
tained on the day when the stipulation takes effect is valid.
The Effect of Acceptance by the Beneficiary
It would seem on reading Article 1029 that the third party’s rights are
derived exclusively from the contract between the stipulator and the promisor
and the acceptance of the stipulation has only the effect of making the stipula-
tion irrevocable. In the HalI’ case, Joseph Hall had not signified his assent to
the stipulation until after the accident. This was found to be of no importance.
No difficulty lies in the fact that up to the moment of the accident Joseph Hall& had not yet
signified his assent to the stipulation made in his favour by Rolland Hall&. His assent was not
necessary to bind the company. It was sufficient if he manifested his intention to avail himself
of the stipulation as soon as the event happened which made the stipulation effective in his
favour. The notice of the accident given by him to the insurance company was already an
indication to the latter that Joseph Hall& was availing himself of the protection afforded by
the policy. In his action in warranty against the company, he expressly declared that intention.
16(1929) 46 K.B. 422.
17Dufresne Construction Co. Ltd. v. Dion (1934) 57 K.B. 133, at 134.
‘5The rule seems identical in principle to that applied by the courts in contracts where the consi-
deration is undetermined at the time of contracting. If, when the time of execution of the contract
arrives, the consideration can be ascertained otherwise than by the mere will of the parties, the con-
tract is enforceable. Otherwise it is not. A recent and authoritative statement of the rule is to be
found in Lord v. Guimond [1957] S.C.R. 79.
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It will be noticed that, under Article 1029 CC the only effect of the assent of the third person is to make
the stipulation irrevocabe by the person who made it?9
A later passage in the same judgment, however, suggests that the effect of
acceptance goes somewhat further. -0
The obligation so undertaken by the assurance company creates an independent right accruing
to the third persons as soon as they have manifested their intention to avail themselves of it.
The notion that the independent right against the promisor accrues to the
third party as soon as he manifested his intention to accept is somewhat difficult
to reconcile with the proposition that the “only effect of the assent of the
third person is to make the stipulation irrevocable.”
There are two well-defined schools of thought among the French authors
who have written on the subject, one holding that the acceptance by the third
party simply confirms a right already acquired, and the other maintaining that
thelindependent right arises from the acceptance. Both are represented in the
reported cases.
Mr. Justice Carroll, in his notes of judgment in the case of Gagnon v. Gagnon,21
stated his support of the first school. In the course of an interesting discussion
of both theories he says:
Le droit du tiers nait diu contrat intervenu entre lo stipulant ct le promettant et les cffets du
contrat sont los m~mes que si le tiers fur intervenu directement dans le contrat. Le tiers a un
droit direct et personnel qui entre imm~diatement cdans sa succession…
Etant d’opinion que le b6n~ficiaire a un droit acquis au moment de la passation de l’acte ct
que la mahifestation d’en profiter ne cr& pas le droit mais le conserve…
Again in Gignac v. Siscoe Metals Ltd., Mr. Justice Barclay said:
But in all such cases the acceptance dces not complete the contract; it only prevents the revoca-
tion of an already existing contract. The acceptance is confirmatory, not acquisitive s2i
Although Mr. Justice St. Germain concurred with Barclay, J. as to the
disposition of the appeal in the case of Gignac v. Siscoe Metals Ltd., he took a
completely opposite view as to the effect of acceptance under Article 1029.
Mr. Justice St. Germain was of the opinion that:
Le demandcur, qui n’est pas partie au contrat pass6 entre Ic syndic et la compagnie d~endercsse
n’a 6tabli entre lui et la compagnie un lien de droit quo par l’acceptation de la d6lgation
des obligations-de ladite succession assum&s par la compagnie d6fenderesse. Jusqu’I l’accep-
tation de cette dlkgation par le demandeur il n’y avait aucun lien de droit entre lui ot la com-
Pag.ie et c’es cette acceptation qui a cr66, entre lui ot la d6fendercsse, le lien de droit, c’est
a dire le contrat qui ferait la base de la presente action.22
The conclusion reached by Carroll, J. and Barclay, J. is in conformity with
earlier decisions in which it was held that the beneficiary’s heirs could accept
after his death. In Gratton v. Lemay, it was held in part that:
Los h&itiers d’un vendeur en favour duquel il y a plusicurs indications successives de paiemcent
non accepties du vivant du cr~ancier, mais non revoqu~os, peuvont les accepter… 2
9Rinfrect, J., [1937] S.C.R. 368, at p. 377. (Emphasis supplied).
O0at p. 381.
‘(1919) 30 K.B. 503, at p. 508-510.
22(1944) K.B. 192, at 194.
23(1944) K.B. 192, at p. 195.
14 1;1.’1) j! S.C 4QA (Ct of Review).
No. 4] ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
343
and the Superior Court came to the same conclusion in the earlier decision in
Robitaille v. Trudd.25
/
It is clearly implied in these decisions that the right of the third party does
not arise from his acceptance since, if this were so, and the third party were to
die without having accepted, there would be no right in existence transmissible
to the heirs.
In any event, despite some uncertainty as to when the right accrues to the
third party, there can be no doubt since the Halle decision that the right is
created by the original contract, and not by the acceptance.
Nor since the Haiti decision is there any doubt that the institution of an ac-
tion by the third party is a sufficient signification of his assent. In fact no partic-
ular form of assent is required. In the Gagnon28 case, where the contract was in
authentic form, it was argued that the acceptance should be in the same form.
Carroll, J.27 did not agree. He said:
Cette stipulation au profit d’un tiers pent tre faite dans tout acte
titre gratuit on on~reux,
dans nine vente par exempl, er comne de sa nature cette stipulation ne participe pas de la dona-
tion, racceptation pet avoir lie par acte authentique ou sons seing priv. Elle pet maine
avoir lieu verbalement on racitement, pourvu que Ia preve que ron en fait soit conforme
aux principes ordinaires. Ce: point, je crois, ne souffre aucune difcult&. Les autenrs frangais
sont unanirnes en interpr~tant P’art. 1121 du C.N., dont notre article 1029 n’est que la copie.
11 y a tne variante cependant entre lea dex articles: celui du C.N. emploic les expressions “a
d~clar& vonloir en profter,'” randis que notre article &ict
‘a signifi& sa volont6 d’en profiter,”
Mais nos codificareurs ont dclar6 que ces variantes ne changeaient pas l’interpr6tation que
Yon devait donner a l’article correspondant du C.N.
The same opinion is expressed in Fry v. O’Dd 82s:
Tons les coninientateurs du C.N. s’accordent a enseigner que cette acceptation rcsulte d’une
simple manifestation de consentement; elle pent rasulter de faits aussi -bien que de paroles;
elic peut 6rre tacire.
The Right of the Third Party
We have already seen that the third party in a 1029 contract acquires a right
which he can enforce in his own name. The precise nature of this right and the
position of the three interested parties is of vital importance and has far reach-
ing consequences.
Trude129 describes the right as follows:
… Ainsi le droir du tiers lui sera personnel er direct; Pon ne saurait alors pr&upposer quil vient
du patrimoine du stipulant ou de celui du promettant. I& tiers ne ban cie pas du transport
d’un droit acquis prialablement par l’un ou par l’autre. Le tiers acquiert un droit nouveau,
crk6 a son intention par le r6sultat d’un concours des volonrts contractantes. En somme Ic
stipulant et Ic contractant, sans c6der aucun de leurs droits personnels acquis, craent v&ita-
blement tin objet nouveau qui sera le fondemnent du droit offert an tiers.
-(1 8 99 ) 16 S.C. 39.
2′(1919) 30 K.B. 503.
27(1919) 30 K.B. 503, at 506.
28(1897) 12 S.C. 263, at 266.
2 9Traitl de droit civil du Quibic, vol. 7, at p. 399.
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The proposition that the right of the beneficiary is deemed not to come
from the patrimony of either the stipulator or the promisor seems to be fully
established by the jurisprudence, and it is a question of sufficient importance
to warrant a review of the leading cases.
In Baron v. Lemieux 0 the following passage, taken from Defrenois’ Contrat
d’Assurance sur la vie, appears:
Mais nne fois que la stipulation a &6 accept~e par le b~n~ficiairc, elle devicnt irrevocable.
L’assurc ne peutplus disposer du b~n~fice, et Ic montant d’assurance est d~finitivement acquis
au binficiaire. Cette acceptation r&roagit au jour m~me du contrat et, par consequent, Ie
b~n~fice est consid& r comme n’ayant jamais fair partie du patrimoine de l’assur6.
In Gagnon v. Gagnon, Carroll, J. described the third party’s position as
follows:
Lc droit du tiers nait do contrat intervenu nrtre Ie stipulant et le promettant et Is effets du
contrat sont les mEmes que si le tiers fur intervenu directement dans le contrar. Le tiers a un
droit direct et personnel qui entre immdiatement dans sa succession; le droit romain inter-
pr&ait la stipulation pour aurrui ct donnait au tiers cc qu’on appelait une action utile pour faire
valoir sa creance. 31
Even those who hold the view that the third party’s right stems from his
acceptance appear to agree that the acceptance is retroactive to the date of
the contract, and that in consequence the right is deemed to have been directly
acquired by the beneficiary as of the date of the contract. In Borris v. Sun Life
Insurance, Francoeur, J. found that:
s cette acceptation, le b~n~fice ne fait plus partie du patrimoine de I’assur6. Berthe Diotte
[the beneficiary] a seule, dis le jour du contrat, un droit exclusif an montant assur6Y
In the Halle case, Rinfret, J. relying in part on Planiol et Ripert, concluded
that,”s
in civil law a valid stipulation in favour of a third person creates a contract between the third
…
person and the person who has agreed to be bound by the contract. It establishes a vinculum
juris between the latter and the third person.
Speaking particularly of the present case, the policy confers an independent right upon the
third person who is insured under it. Planiol and Ripert say on this subject:
“Cest Ic but ct l’effect essentiel de la stipulation. Pour r6aliser cette acquisition conform&-
ment i l’intention du stipulant qui normalement dolt procurer au tiers Ic b6n~fice s i’exclu-
sion de tous autres, on a 6t& amenE i dire que le tiers a contre Ic promettant un droit direct
ct personnel remontant aux sources do contrat.”
In summary then, the auithorities appear to establish:
a) that the right conferred on the beneficiary is created by the contract
itself, is retroactive upon acceptance to the date of the contract, and
never formed part of the patrimony of either stipulator or promisor;
b) that the beneficiary’s right is exclusive to him.
‘(1908) 17 K.B. 177, at 182.
“s(1919) 30 K.B. 503, at 50S.
[1944] K.B. 537, at p. 548. (Emphasis supplied.)
33r19-, S C R. 168..’t 377.
No. 4] ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
345
An excellent illustration of the scope of the first of the two principles just
summarized is afforded by the recent decision of the Exchequer Court in Massa-
wippi Valley Railway Co. v. M.N.R.,5 4 the circumstances of which may be
summarized as follows:
By written agreement dated December 27, 1871, appellant leased its railway
to the Passumpsic Rivers Railroad Company for a term of 999 years. In consi-
deration of this lease the Pdssumpsic Company agreed to pay $24,000.00 an-
nually to the bondholders of the Massawippi, agreed to pay dividends to the
shareholders at a given rate, and agreed to redeem the outstanding bonds at
maturity. The provision of the contract relating to the payment of bond-
holders provided as follows:”
That the Company of the second part [i.e. in 1871, the Connecticut and Passumpsic Rivers
Railroad Co.] shall and will and they do hereby stipulate, covenant and agree and bind and
oblige themselves in consideration of the foregoing premises to pay to the Holders of the
Bonds now issued by the Company of the first part, the sum of Twenty four thousand Dollars
annually.. . by semi-annual instalments…
The rights of the Passumpsic Company under this lease were transferred
from time to time and in 1946 all rights under it were assigned to the C.P.R.
which thereupon became responsible for the payments therein specified. All
payments were made directly by the C.P.R. to the security holders concerned
and the Massawippi Company, although still a corporate entity, carried on no
business whatever.
In the year 1951, as in previous years, it reported its net income as being
nil, and as in the past no questions were raised by the tax department. In Feb-
ruary of 1954, however, the company was reassessed on alleged income of
$48,000.00 for the year 1951 and was invited to pay taxes of $24,849.50 for
that year under sections 16(1) and 23 of the Income Tax Act.
Before the Tax Appeal Board,3 5 however, the Minister relied solely on sec-
tion 16(1) which provided:
16(1) A payment or transfer of money, rights or things made pursuant to the direction of,
or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or
as a benefit that the taxpayer desired to have conferred on the other person shall be included
in computing the taxpayer’s income to the extent that it would be if the payment or transfer
had been made to him.
The Minister claimed that the sum of $48,000.00, which had been paid by
the C.P.R. to the holders of the securities of the Massawippi Company under
the lease, should be included in the income of the Massawippi Company as
being a payment made to some other person for the benefit of the Massawippi
Company, or as a benefit that the Massawippi Company had desired to have
conferred on the holders of its securities.
34[1961] Ex.C.R. 191.
nThe provisions concerning payment of shareholders and redemption of the bonds were in similar
terms.
n6(195 8-59) 21 Tax A.B.C. 1.
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Appellant’s argument was principally directed to the proposition that the
agreement of 1871 contained a stipulation for a third party and that in conse-
quence the shareholders and bondholders had a direct right against the C.P.R.
for the payment of sums which never formed a part of appellant’s patrimony. 7
For the Minister it was contended that the 1871 agreement contained merely
an indication of payment38 under Article 1174 C.C. and that there was con-
structive receipt by Massawippi of all sums paid to its shareholders by C.P.R.
The case first went before the Tax Appeal Board. Considering the matter
first from a tax law point of view, Mr. Fordham concluded 9 that the agreement
of 1871 had resulted in
.a coplete alienation by the appellant of any right to receive payments from the Canadian
Pacific and the appellant is, and always has been, powerless to effect any change in the arrange-
ment.. . The said alienation divested thc appellant of its beneficial interest in the proceeds of
the lease.
Art. 1029, although quoted, is scarcely referred to in the Board’s judgment,
but it is clear that the contracts were, in Mr. Fordham’s opinion, stipulations
for a third party. In any event the Minister’s contention that the contracts
fell within Art. 1174 was rejected in terms. 40
The third and fourth of these paragraphs contain covenants, later assumed by the Canadian
Pacific to honour the rights of holders of the appellants capital stock. This is not merely an
indication by the appellant, as lessor, of the person or persons to whom payment shall be made.
Instead, these paragraphs contain terms …
that create firm obligations between Canadian
Pacific and the said stockholders in favour of the latter. I do not think that section 1174 has
any application to a transaction of this particular kind or affords assistance to the respondent
in the position taken by him herein.
The appeal was consequently allowed and the assessment set aside.
The appeal by the Minister to the Exchequer Court was dismissed in a
judgment squarely based on the arguments derived from Article 1029. After
noting the virtual identity between 1029 C.C. and 1121 C.N., Mr. Justice
Dumoulin continued:4
Henceforth, [after acceptance by the third party] in the eyes of the law in cospectu lgis
the two sole contracting parties remain the “promettant” (originally the Connecticut and
Passumpsic Rivers Ry, Co.) and, as stated, the accepting “third party”, bondholders and
shareholders.
A most frequent instance of such transactions is to be found in the realm of insurance,
especially life insurance, about which, so far back as 1888, the “Chambre civile de la Cour
de Cassation D.P. 88, part 1, 77, 193, the French tribunal of last resort, wrote that:
“L b~n~ficiaire acquiert contre l’assureur un droit propre et direct, qui ne fait a aucun
moment partie du patrimoine du stipulant. .. Et qui n’est done pas rapportable I sa suc-
cession. (The sentence just preceding is a commentary added by Mr. M.pon, a jurist of
the last century.)’
3rhere was no doubt that the stipulation had been accepted.
‘8 The distinction between indication of payment, the associated concept of delegation of payment
and stipulations for a third party is dealt with infra.
9(1958-59) 21 Tax A.B.C. 1, at p. 9.
101ibd., at p. 9.
41[1961] Ex.C.R. 191 at 197.
No. 4] ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
347
Mr. Justice Dumoulin concluded, after citing Baron v. Lemieux 2 and the
Hall6 case43 that he agreed with the following summary of the situation: 4’
(a)
that the agreements were governed by Article 1029 C.C.;
(b) that the payments by C.P.R. or rights to payments never entered the patrimony of
Respondents;
that there was no payment or transfer of any money or right by Respondents to their
shareholders;
(c)
(d)
Ce)
that Respondents conferred no benefit because the amounts paid or rights thereto were
never part of their patrimony, and were never theirs to confer. (This conclusion, I repeat,
technically results from a fiction of law, particularizing art. 1029);
that consequently neither Section 16-1 nor Section 23 of the Income Tax Act [1948] ap-
plies in the circumstances.
The Right to Enforce the Stipulation
A further consequence of the foregoing rules concerns the right of the
stipulator to enforce performance by the promisor. If, as we have seen, the
contract is deemed, from the moment of acceptance, to involve only the promisor
and the third party to whose exclusive benefit it accrues, what right if any
has the stipulator as a party to see to its enforcement? It seems fairly clear that
he has none.
Article 71 of the Code of Procedure provides that:
No person can bring an action in law unless he has an interest therein. Such interest, except
where it is otherwise provided may be merely eventual.
In a recent case”5 before the Court of Appeal in which the question of the
effect of a stipulation for a third party was involved, Mr. Justice Casey alone
of the five-man bench delivered notes discussing the question, and came to the
conclusion that the stipulator had no right to enforce the stipulation. The
case concerned the sale of an immoveable where the purchaser, in the deed of
sale, undertook to pay a hypothecary debt owing by the vendor. 46 Mr.Justice
Casey found that:47
When a stipulation made, as this one was, has been accepted by the third person, default
by the person who has promised to pay does not give to the one stipulating a direct action to
enforce payment. So far as the third person is concerned, his acceptance of the stipulation gives
him an additional debtor without in any way affecting his recourse against the person first
bound. So far as the original debtor is concerned the claim which he had against his purchaser
for the balance of purchase price becomes vested in the beneficiary of the stipulation. With
this additional debtor the beneficiary may deal as he wishes, but these dealings cannot affect
the rights of the original debtor (the stipulator). In my opinion however, the latter does
not count amongst his rights the action to force the new debtor (promisor) to pay when he
“2(1908) 17 K.B. 177.
4″(1937) S.C.R. 368.
“1[1961] Ex.C.R. 191 at 200.
OLacase v. Poulin [1953] Q.B. 125.
qhis is an extreme simplification of a rather complicated set of facts but sufficient for the purposes
of the principle in question.
“at p. 128-9.
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is unable or unwilling to do so or when the beneficiary is prepared to extend the delay. It
appears to me that the new debtor’s default gives rise to nothing more than an action to re-
cover the damages suffered as the result of the inexecution of the contract.
The Relationship between “Stipulation for a Third Party”
“Delegation of Payment” – and –
“Indication of Payment.”
Articles 1169-1174 of the Civil Code, -which form part of the section on
Novation, refer to three different types of transaction whereby an agreement
between two persons may, to some extent, affect the rights of a third person.
These transactions, which are not defined as such in the Code, are two types of
Delegation –
“perfect” and “imperfect”, and Indication of Payment.
The relevant articles of the Code are the following:
1169. Novation is effected:
(2) When a new debtor is substituted for a former one who is discharged by the creditor.
(3) When by the effect of a new contract, a new creditor is substituted for a former one
toward whom the debtor is discharged.
1172. Novation by the substitution of a new debtor may be effected without the concurrence
of the former one.
1173. The delegation by which a debtor gives his creditor a new debtor who obliges himself
toward the creditor does not effect novation, unless it is evident that the creditor intends to
discharge the debtor Who makes the delegation.
1174. The simple indication by the debtor of a person who is to pay in his place, or the simple
indication by the creditor of a person who is to receive in his place, or the transfer of a debt
with or without the acceptance of the debtor, does not effect novation.
Articles 1169, 1172, and 1173 deal with Delegation. It will be seen that these
articles envisage chiefly the situation in which A, the debtor of C, arranges for
B to undertake to pay C the debt owed by A. If C accepts and discharges A
completely, then there is “perfect” Delegation, and B is C’s only debtor. If,
on the other hand, C is happy to accept B as an additional debtor, but refuses
to discharge A, then there is “imperfect” Delegation, and C now has two
debtors, A and B. C is in a position in either case to force B to pay.
Article 1174 envisages a simple Indication of Payment whereby A, who
owes C money, advises C that B will pay. B does not bind himself to pay C and
C has no right to sue B. However, B may validly pay C and A will be discharged
by C.
These articles appear to be inserted in the Civil Code in order to furnish
examples of certain typical situations which may or may not effect novation,
depending on the facts of the transaction.
However, there have been occasions in our jurisprudence where lines have
been drawn between transactions of delegation, indication of payment, and
stipulations fo- a third party, as if each of these three types of transaction
were easily identified and mutually exclusive. This thinking appears to have
been reflected in the dissenting judgment of Mr. Justice Barclay in the case of
No. 4] ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
349
Rocheleau v. Beiveau et al,4s decided 3-2 by the Court of Appeal in 1935, when
he said, at p. 72:
This constituted, in my opinion, more than a simple indication of payment, and more than a
delegation of payment. It included a stipulation in favour of a third party, which would come
within the terms of Article 1029 C.C….
The same type of reasoning appears in the case of Massawippi Valley R.R.
Ca.49
It is submitted with respect that while the matter is not free from doubt,
the position that delegation, indication of payment, and stipulation for a
third party, are mutually exclusive is not one which should be accepted.
On the contrary, it seems that the courts tend to examine a stipulation to
see if it gives rights to a third party. If so, then the rules of Article 1029 are
applied, even though the court may call the transaction indication of payment
or delegation.
For example, in the same case of Rocheleau v. Beliveau,” the other judges of
the 5-man bench took different views from Barclay, J.
In that case, the Court of Appeal had to consider the following clause in a
deed of sale:
Cette vente cst faie … en consid&ration des prix et somme de $3,000.00 courant que I’achetcur
sous l’hypothaque desdits lots, promet et s’oblige payer de Ia maniare suivante
1. A Delle Louise Rocheleau, on a son ordre… $600.00 payables en trois versements 6gaux,
annuels cc cons6cutifs de $200.00 chacun… “et cc pour acquitter une pareille ct m~me
somme que la venderesse lui doit suivant un billet promissoire de cc montant.”
2. A la venderesse, on a son ordre, la balance de $2,400.00…st
The respondents were the executors of the estate of the vendor who, in
default of payment by the purchaser, had obtained retrocession of the property
by a notarial deed which provided in part:
De plus ladite succession, par ses reprisentants se charge de l’hypothaque de Mle Louise
Rocheleau de Wotton, soit $600.00 ct int&Ets accrus sur ladite somme, le tout sclon les termes
dudit acte de vente que les cessionnaires dclarent bien connaltre ct n’en pas desirer plus amples
dtails.
Mlle Rocheleau in her action sought to enforce payment of the $600.00 by
the executors and relied on the fact that the vendor had assumed the obligations
stipulated in her favour in the deed of sale. She was met with the defence that
the contracts had not invested her with any right of action, and that she could
succeed only on the original note given to her by the vendor. In the Superior
Court the action was dismissed with costs on the ground that appellant had
no right to bring a hypothecary action and that the note itself was prescribed.
The judgment dismissing her action was maintained by a 3-2 decision, Hall and
Barclay, JJ. dissenting.
48(1936) 60 K.B. 60.
41[1961] Ex.C.R. 191.
5060 K.B. 60.
51(1936) 60 K.B. 60, at p. 61.
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Sir Mathias Tellier, C. J. was of the opinion that the clause constituted an
indication of payment which had not been accepted.
I- premier deces actes ne contient en sa faveur rien de plus qu’une indication de paiement.
ComIe Ce nc paralt pas avoir acceptd cette indication de paiement, ni meme avoir manifest
l’intention de I accepter ou d’en profiter, quand c’6tait le temps, je ne vois pas comment un
lien de droit aurair pu se former entre cle et l’acheteur Dion.12
Letourneau, J. agreed that there had been no acceptance prior to revocation,
but he seems without expressly deciding the point to treat the clause as a stipula-
tion pour autrui.51
Of the dissenting judges, Hall, J. took the view that there had been a delega-
tion of payment which had been tacitly accepted by appellant. He said:
Now that the appellant accepted this delegation of payment is, in my opinion, fully established
by the fact that the obligation was kept alive throughout the whole period of 10 years from
1923 to 1933 and both Dion and the Respondents recognised its existence when the property
was retroceded.
Thus, in this case, the influence of Article 1029 seems to have been felt by
all four judges who gave notes.
Barclay, J. found that the plaintiff was entitled to rely on a 1029 stipulation
which she had accepted; Letourneau, J. found that the “stipulation for the
benefit of appellant” had remained without effect because it was not accepted
before revocation; Hall, J. found that the same stipulation had been accepted
by appellant and that “delegation” and novation was therefore complete; and
Sir Matthias Tellier, C. J. called the stipulation an “indication of payment,”
but appears to have applied the rules of Article 1029.
There are many other cases to illustrate the proposition that our courts,
once they have determined that a particular transaction contains a stipulation
governed by Article 1029, do not unduly concern themselves with the niceties
of definition of the underlying agreement.
In Gratton v. Lemay”4, for example, Mr. Justice Martineau found that:
L’indication de paiement dans un acte de vente et comme partie du prix ne constitue point un
contrat de dlgation, mais une stipulation pour autrui.
In Caron v. Page-Tremblay and Sun Life Assurance Company5 5 Greenshields, C. J.
spoke of a life insurance contract with a named beneficiary as constituting:
… a delegation of payment -within the meaning of Art. 1029 CC. Until that delegation is
accepted by the person in whose favour the delegation is made it may be revoked, but once it
is accepted, or once the third person in whose favour it has been made has signified his assent
to it, it becomes irrevocable…
U(1936) 60 K.B. 60, at p. 66.
53(1936) 60 K.B. 60, at p. 67.
The opening line of his brief judgment reads:
“La stipulation au profit de l’appellante que nous pourrions voir dans Ic premier des deux acres
invoquLes en la drclaration … est restl
sans effet puisque revoqu&c avant que la bn~ficiaire
n’eut signifi6 sa volont6 d’accepter..
54(1917) 51 S.C. 493, at 495.
65(1935) 73 S.C. 123, at 126.
No. 4] ARTICLE 1029 C.C.: STIPULATION FOR A THIRD PARTY
351
Again, in the case of Lacasse v. Poulin,5” Casey, J. treated a classic case of
imperfect delegation as being also a stipulation under Article 1029 C.C.:
When a stipulation made, as this one was, has been accepted by the third person, default by
the person who has promised to pay does not give to the one stipulating a direct action to
enforce payment. So far as the third person is concerned, his acceptance of the stipulation
dives him an additional debtor without in any way affecting his recourse against the person
frst bound.
Conclusions
The jurisprudence of the Province of Quebec concerning Article 1029 C.C.
shows:
(a) A person may, in a contract which he makes for himself, stipulate
for the benefit of a third person.
(b) Once the third party has signified his assent to it, such a stipulation
becomes irrevocable.
(c) Signification of acceptance by the third person is not subject to any
particular requirements of form and may even be tacit.
(d) Acceptance may be made at any time before revocation and may even
be made by his legal representatives after the third party’s death.
(e) The right of the third party arises from the contract itself and is deemed
never to have formed a part of the patrimony of either the stipulator
or promisor.
(f) The right of the third party once the stipulation has been accepted
dates from the moment the contract is formed.
(g) That the right of the third party once accepted can be enforced by the
third party by legal action directly against the promisor.
(h) That the stipulator has no right to force the promisor to perform his
obligations towards the third party who has accepted.
(i) Article 1029 C.C. is of general application to all contracts.
“[1953] Q.B. 125, at 128.
