36. Bonifacio Bros., Inc. v.

Mora 20 SCRA 261 (1967)

FACTS: Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to
H.S. Reyes, Inc., with the condition that they would be the beneficiary of its
insurance. The sedan was insured with State Bonding & Insurance Co., Inc. During
the period of effectivity, the sedan met an accident and it was appraised by Bayne
Adjustment Co. and repaired it with Bonifacio Bros. and the parts were supplied by
Ayala Auto Parts Co. This was all done without the knowledge of H.S. Reyes.
Enrique was billed P2,102.73 through Bayne. The insurance company drew a
check deducting P100 for franchise and entrusted it to Bayne payable to Enrique or
H.S. Reyes. Still unpaid, the sedan was delivered to Enrique without the
Knowledge of H.S. Reyes. Bonifacio Bros and Ayala Auto filed in the MTC on the
theory that the insurance proceeds should be paid directly to them. CFI affirmed
the ruling of MTCthat H.S. Reyes, Inc. as having a better right.
ISSUE: Whether there is privity of contract between the Bonifacio Bros. Inc and
the Ayala Auto Parts Co. on the one hand and the insurance company on the other.
HELD: NO. Judgment affirmed. It is fundamental that contracts take effect only
between the parties thereto, except on some specific instances provided by law
where the contract contains some stipulation in favor of a third person (Art. 1311,
Civil Code). Such stipulation is known as stipulation pour autrui or a provision in
favor of a third person not a party 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 (Art. 1311, Civil Code; Uy Tam, Et. Al. v.
Leonard, 30 Phil.. 471). 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