BONIFACIO BROS., INC. vs. ENRIQUE MORA (G.R. No.

L-20853, May 29, 1967)

Facts:
Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged the said car to
H.S. Reyes, Inc. with the condition that Enrique would insure the automobile and H.S Reyes
as the beneficiary. Thereafter, the automobile was insured with State Bonding & Insurance
Co., Inc.
During the effectivity of the contract, the car met an accident. The insurance
company (State Bonding) then assigned the accident to the Bayne Adjustment Co., for
investigation and appraisal of the damage.
Enrique Mora, without the knowledge and consent of the H.S. Reyes, authorized the
Bonifacio Bros. to furnish the labor and materials, some of which were supplied by Ayala
Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73
through the Bayne Ajustment Co.
The insurance company after claiming a franchise in the amount of P100, drew a
check in the amount of P2,002.73 as proceeds of the insurance policy, payable to the order
of Enrique Mora of H.S. Reyes, Inc. and entrusted the check to Bayne Adjustment for
disposition and delivery to the proper party.
In the meantime, the car was delivered to Enrique Mora without the consent of the
H.S. Reyes and without payment to the Bonifacio Bros and Ayala Auto Parts of the cost of
repairs and materials.
Upon the theory that the insurance proceeds should be paid directly to them,
Bonifacio Bros. Inc and Ayala Auto Parts filed a complaint for the collection of the sum of
P2,002.73 against Enrique Mora and State Bonding.

Issue:
Whether or not Bonifacio Bros and Ayala Auto Parts can recover the insurance
proceeds.

Held:
No. Bonifacio Bros and Ayala Auto Parts cannot recover the insurance proceeds.
They are not mentioned in the contract as parties thereto nor is there any clause of provision
therefrom which we can infer that there is obligation on the part of the insurance company to
pay the costs directly to them. It is fundamental that contracts take effect only between the
parties thereto, except in some specific instances provided by law where the contract
contains some stipulation in favor of a third person. Such stipulation is known as stipulation
pour autrui or a provision in favor of a third person not to pay to the contract. Under this
doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of
the contract, provided that the contracting parties have clearly and deliberately conferred a
favor upon such person. Consequently, a third person not a party to the contract has no
action against the parties thereto, and cannot generally demand the enforcement of the
same. In the instant case, the insurance contract does not contain any words or clauses to
disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the
car in question. Moreover, a policy of insurance is a distinct and independent contract
between the insured and insurer, and third persons have no right either in a court of equity,
or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed
or implied between the insured and third person. In this case, no contract of trust, expressed
or implied exists. In addition, Section 50 of the Insurance Act provides that “the insurance
shall be applied exclusively to the proper interests of the person in whose name it is made
unless otherwise specified in the policy.
 ARTEX DEVELOPMENT CO., INC., vs. WELLINGTON INSURANCE CO., INC.
G.R. No. L-29508, June 27, 1973
Facts:
Wellington Insurance Co., insured the buildings, stocks, and machinery and business
interruptions of Artex Development Co., Inc. against loss or damage by fire or lighting upon
payment of corresponding premiums. On September 22, 1963, the buldings, stocks and
machineries of the Artex Development’s Spinning Department was burned.
Artex through counsel Norberto Quisumbing made a manifestation that only about
P397,000.00 is the remaining balance and liability which was the subject of reinsurance with
Alexander and Alexander Inc, of New York, Artex acknowledging here the receipt
of P3,600,000 as FINAL and FULL SETTLEMENT of all claims against Welllington.

Wellington in its brief raises the issue that Artex deemed to have agreed to look SOLELY to
the reinsurers for indemnity in case of loss since their paid up capital stock is only P500,000
and that they have to secure such reinsurance coverage the over P24M fire insurance
coverage of the policy issued by Wellington to Artex.

Issue:
Whether or not reinsurance contract of the parties makes the insured to look solely to
the reinsurers for indemnity in case of loss.

Held:
No. Article 1311 of the 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. Artex not
being a party or privy to Wellington’s reinsurance contracts could not directly demand
enforcement of such insurance contracts. Unless there is a specific grant in, or assignment
of, reinsurance contract in favor of the insured or manifest intention of the contracting parties
to the insurance contrary to grant such benefit or favor to the insured, not being privy to the
reinsurance contract, has no cause of action against the reinsurer. It is expressly provided in
Section 91 of the Insurance Act that “the original insured has no interest in a contract of
reinsurance.”