27 Artex v. Wellington (Wellington’s Direct Contractual Liability) a.

a. The general rule is: contracts take effect only between the parties,
Reinsurance|June 27, 1973|J. Teehankee
Nature of the Case: Appeal from CFI decision
Digest Maker: Lugo
SUMMARY: Respondent Wellington Insurance Co. insured Petitioner Artex
Development Co. against fire/lightning and business interruptions. Both are only
partly paid. Respondent suggests that the remaining amount should be recovered
by petitioner through an action against the respondent’s reinsurer Alexander and
Alexander New York because that remaining amount pertains to the part the
reinsurer assumed pursuant to the reinsurance contract between respondent and
the reinsurer. SC disagreed and held that the petitioner is not a party to the
reinsurance contract and that the reinsurance contract did not provide for a clause
allowing the petitioner-insured to have a right of action against the reinsurer.
their assigns and heirs.
b. The exception to this general rule refers to contracts with
stipulations pour autrui or in favor of a third person not a party to
the contract.
c. Petitioner-insured, not being a party to respondent-insurer's
reinsurance contracts, therefore, could not directly demand
enforcement of such reinsurance contracts. The reinsurance contract
did not give the insured a right to enforce such contract.
d. Assuming that petitioner-insured could avail of the reinsurance
contracts and directly sue the reinsurers for payment of the loss,
still such assumption would not in any way affect or cancel out
respondent-insurer's direct contractual liability to petitioner-
insured under the insurance policy to indemnify plaintiff for the
property losses.

DOCTRINE: A third party not privy to a contract that contains no stipulations RULING: ACCORDINGLY, the judgment of the lower court is affirmed.
pour autrui in its favor may not enforce the contract. Applying this to insurance
contracts: the insured cannot enforce a contract that is between the insurer and the
reinsurer.

FACTS:
 Respondent Wellington Insurance Co., Inc. insured for P24,346,509 the
buildings, stocks and machinery of petitioner Artex Development Co., Inc.,
against loss or damage by fire or lightning.
 Respondent, later on, insured petitioner against business interruption for
P5,200,000.
 The buildings, stocks and machineries of petitioner's spinning department
were burned. The total property loss was the P10,106,554.40 and the total
business interruption loss was P3,000,000.
 Respondent has paid to the petitioner the sum of P6,481,870.07 of the
property loss and P1,864,134.08 on business interruption loss, leaving a
balance of P3,624,683.43 and P1,748,460.00, respectively.
 However, petitioner later filed a manifestation that the only remaining
liability subject of litigation shall be that proportion of the loss reinsured
with Alexander and Alexander, Inc. of New York. (P397,813) This is after
respondent made further partial payments leaving the amount shouldered
by the reinsurer in the reinsurance contract.
 Respondent now argues that that remaining amount should be recovered by
the petitioner through an action against the reinsurer and not against them
(respondent).
 CFI ruled that the respondent-insurer is still liable for this balance.

ISSUES & RATIO:

1. WON the petitioner-insured, through the manifestation they made, is
deemed to have waived their action against the respondent-insurer and
should only recover solely on the reinsurer - NO