Artex Development Co. vs Wellington Insurance Co.

Author: Revy Neri 113. Artex Development Co. vs Wellington Link: Insurance Co., GR. No. L-29508, June 27, 1973 http://www.lawphil.net/judjuris/juri1973/jun1973/gr_2950 Topic: Reinsurance 8_1973.html Ponente: Teehankee, J. 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 P10,1 06,544.40 and Wellington paid only onl y 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 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 the court to affirm the lower court’s decision of  liquidation  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 19 69 and attorney’s fees of 15% of the r ecovery, 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 SO LELY to the reinsurers for indemnity in case of loss since their paid up capital stock is only P500,000 and an d 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 th e 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, contrac t, the parties must have CLEARLY and DELIBERATELY DE LIBERATELY conferred favor upon a third person. 2. If a contract should contain some stipulation in favor of a third person, he may ma y 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. 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 look solely to the reinsurers for indemnity case of loss, since it was evident that with its mere P50 0,000. paid-up capital stock, it had to secure reinsurance coverage the over P24-million fire insurance cove rage of the policy issued by it to plaintiff-insured, is manifestly untenable. DOCTRINE Article 1311 of our Civil Code expresses the u niversal rule that "Contracts take effect only between the parties, their assigns and heirs" (with the heir being "not liable b eyond the value of the property he received from the decedent,") and provides for the exception ex ception of stipulations pour stipulations pour autrui or in favor of a third person not a party to the contract. SEPARATE OPINION: