Artex Development Co., Inc v Wellington Insurance Co., Inc
GR No. L-29508, 27 June 1973
Teehankee, J.:
FACTS:
The defendant, Wellington Insurance Co., Inc. insured for P24,346,509.00 the buildings, stocks and machinery of plaintiff Artex Development Co., Inc., against loss or damage by fire or lighting upon payment by plaintiff of the corresponding premiums. On August 2, 1963, said properties were insured for an additional sum of P883,034.00. On May 12, 1963 defendant insured plaintiff against business interruption (use and occupancy) for P5,200,000.00. On September 22, 1963, the buildings, stocks and machineries of plaintiff's spinning department were burned. The notice of the loss and damage was given the defendant, and the loss was referred to the H. H. Bayne Adjustment Co. and the Allied Adjustment Co. As per report of the adjusters, the total property loss of the plaintiff was the sum of P10,106,554.40 and the total business interruption loss was P3,000,000.00; that defendant has paid to the plaintiff the sum of P6,481,870.07 of the property loss suffered by plaintiff and P1,864,134.08 on its business interruption loss, leaving a balance of P3,624,683.43 and P1,748,460.00, respectively. The lower court ordered defendant-insurer to pay plaintiff-insured the balance of the insured's property loss of P3,624,683.43 and its ascertained business interruption loss of P1,748,460.00 with interest and 15% attorney's fees. Defendant-appellant contends that the lower court should have ruled instead "that plaintiff-appellee's cause of action (as insured) should have been directed against the reinsurers and not against defendant-appellant.
ISSUE:
Whether or not the third party may sue for the enforcement of the contract.
HELD:
No. Defendant’s contention is manifestly untenable since there is no privity of contract between the insured and the reinsurers. Plaintiff-appellee as insured can only move for enforcement of its insurance contract with its insurer, the defendant appellant. Unless there is a specific grant in, or assignment of, the reinsurance contract in favor of the insured or a manifest intention of the contracting parties to the reinsurance contract to grant such benefit or favor to the insured, the insured, not being privy to the reinsurance contract, has no cause of action against the reinsurer. A third party not privy to a contract that contains no stipulations pour autrui in its favor may not sue for enforcement of the contract. Article 1311 of our Civil Code expresses the universal rule that "Contracts take effect only between the parties, their assigns and heirs" and provides for the exception of stipulations pour autrui or in favor of a third person not a party to the contract. Plaintiff-insured, not being a party or privy to defendant insurer's reinsurance contracts, therefore, could not directly demand enforcement of such reinsurance contracts.
