113. Artex Development Co.

vs Wellington
Insurance Co., GR. No. L-29508, June 27, 1973
Topic: Reinsurance
Ponente: Teehankee, J.
Author: Revy Neri
Link:
http://www.lawphil.net/judjuris/juri1973/jun1973/gr_2950
8_1973.html
FACTS:
1. Wellington insurance insured for P24,346,509 the building stocks and machinery of plaintiff Artex
against loss or damage by fire or lightning. Upon August 2, 1963 with an additional sum of P833,034.
2. Another insurance against business interruption (use and occupancy) for P5,200,000.
3. On September 22, 1963 the building, and machineries were burned and a notice of loss and damage
was given to Wellington.
4. Insurance adjusters computed the loss for the fire as P10,106,544.40 and Wellington paid only
P6,481,870.07, leaving a balance of P3,624,683.43
5. The computed business interruption loss was P3M but Wellington paid onlyP1,864,134.08 leaving a
balance of P1,748,460 (computation based on case)
6. Artex through counsel Norberto Quisumbing made a manifestation that only about P397,000 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
FULLSETTLEMENT of all claims against Welllington
7. Artex further prays to the court to affirm the lower courts decision of liquidation and prayed for
modification of the amount of liability to be fixed to P 397,813.00 plus 12% interest per annum thereof
for the late payment until April 10, 1969 and attorneys fees of 15% of the recovery, expenses
of litigation, no writ of execution however to be made within 3years from July10, 1969 per collateral
agreement of the parties.
8. 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:

1. WON reinsurance contract of the parties makes the insured to look SOLELY to the reinsurers for
indemnity in case of loss

HELD:

1. No. the insured who is not directly a party or privy to the reinsurance contract between Wellington and
Alexander and Alexander Inc., cannot demand enforcement of such insurance contracts.

RATIO:

1. The Contracts take effect only between the parties, their assigns and heirs as provide by Art 1311 of our
civil code. Further it provides that a contract with stipulations pour autrui or in favor of a third person
not a party to the contract, the parties must have CLEARLY and DELIBERATELY conferred favor
upon a third person.
2. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred favor upon a third person.
3. Plaintiff-insured, not being a party or privy to defendant insurer's reinsurance contracts, therefore,
could not directly demand enforcement of such insurance contracts. Defendant-appellant's contention
that the insured should be deemed have agreed to look solely to the reinsurers for indemnity case of
loss, since it was evident that with its mere P500,000. paid-up capital stock, it had to secure reinsurance
coverage the over P24-million fire insurance coverage of the policy issued by it to plaintiff-insured, is
manifestly untenable.

DOCTRINE

Article 1311 of our Civil Code expresses the universal rule that "Contracts take effect only between the parties,
their assigns and heirs" (with the heir being "not liable beyond the value of the property he received from the
decedent,") and provides for the exception of stipulations pour autrui or in favor of a third person not a party
to the contract.

SEPARATE OPINION: