G.R. No. L-20853 May 29, 1967
Bonifacio Bros., Inc., et al., plaintiffs-appellants, vs. Enrique Mora, et al., defendants-appellees.

FACTS

Enrique Mora mortgaged his Oldsmobile sedan to H.S. Reyes, Inc., with a condition to insure the car with H.S. Reyes, Inc. as beneficiary. The car was insured with State Bonding & Insurance Co., Inc., under Policy A-0615, which contained a “loss payable” clause stating, “Loss, if any is payable to H.S. Reyes, Inc.” During the policy’s effectivity, the car met with an accident. The insurance company assigned the claim to H.H. Bayne Adjustment Co. for investigation. Without the knowledge or consent of H.S. Reyes, Inc., Enrique Mora authorized Bonifacio Bros., Inc. to repair the vehicle, with materials supplied by Ayala Auto Parts Co. The repair bill amounted to P2,102.73. The insurance company, after deducting a franchise amount of P100, drew a check for P2,002.73 payable to Enrique Mora or H.S. Reyes, Inc., and entrusted it to the adjustment company. The car was delivered to Mora without the consent of H.S. Reyes, Inc., and without payment to Bonifacio Bros., Inc. and Ayala Auto Parts Co. Bonifacio Bros., Inc. and Ayala Auto Parts Co. filed a complaint to collect the insurance proceeds directly from the insurance company and Mora. The insurance company filed an answer with a counterclaim for interpleader. The Municipal Court of Manila ruled in favor of H.S. Reyes, Inc., declaring it had a better right to the insurance proceeds. The Court of First Instance affirmed this decision.

ISSUE

Whether there is privity of contract between Bonifacio Bros., Inc. and Ayala Auto Parts Co. (the appellants) and the State Bonding & Insurance Co., Inc., entitling the appellants to recover the insurance proceeds directly.

RULING

No. The Supreme Court affirmed the lower courts’ decisions, ruling that H.S. Reyes, Inc. has the better right to the insurance proceeds. The Court held that contracts, including insurance policies, generally take effect only between the parties thereto, except in specific instances provided by law, such as a stipulation pour autrui (a stipulation in favor of a third party). The insurance contract in question did not contain any stipulation clearly and deliberately conferring a favor or benefit upon any repairmen or materialmen. The only beneficiary clearly designated by the “loss payable” clause was H.S. Reyes, Inc. The appellants were not parties to the contract, and no obligation on the part of the insurance company to pay them directly could be inferred. Paragraph 4 of the policy, which allowed the insured to authorize repairs under certain conditions, merely established a procedure for the insured to claim indemnity and did not create a right of action for the appellants against the insurer. The appellants’ claim, being merely equitable in nature, should be pursued against Enrique Mora, with whom they contracted. Furthermore, the Court rejected the appellants’ contention that the term “loss” in the policy did not cover mere “damage,” holding that in insurance law, “loss” embraces injury or damage. Therefore, H.S. Reyes, Inc., as the designated mortgagee-beneficiary, was entitled to the proceeds.