As regards the first defense, it should be noted that, although, in general, only parties to a

121 Phil. 251

contract may bring an action based thereon, this rule is subject to exceptions, one of which
is found in the second paragraph of Article 1311 of the Civil Code of the Philippines,
[ G.R. No. L-23276. November 29, 1968 ] reading:

"If a contract should contain some stipulation in favor of a third person, he

MELECIO COQUIA, MARIA ESPANUEVA AND MANILA YELLOW may demand its fulfillment provided communicated his acceptance to the
TAXICAB CO., INC., PLAINTIFFS-APPELLEES, VS. FIELDMEN'S obligor before its revocation. A mere incidental benefit or interest of a person
INSURANCE CO., INC., DEFENDANT-APPELLANT. is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person.”[2]
DECISION
This is but the restatement of a well-known principle concerning contracts pour autrui, the
enforcement of which may be demanded by a third party for whose benefit it was made,
CONCEPCION, C.J.: although not a party to the contract, before the stipulation in his favor has been revoked by
the contracting parties. Does the policy in question belong to such class of contracts pour
This is an appeal from a decision of the Court of First Instance of Manila, certified to us autrui?
by the Court of Appeals, only questions of law being involved therein. Indeed, the
pertinent facts have been stipulated and/or, admitted by the parties at the hearing of the In this connection, said policy provides, inter alia:
case in the trial court, to dispense with the presentation of evidence therein.
"Section I — Liability to Passengers. 1. The Company will, subject to the
It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. — Limits of Liability and under the Terms of this Policy, indemnify the Insured in
hereinafter referred to as the Company — issued, in favor of the Manila Yellow Taxicab the event of accident caused by or arising out of the use of Motor Vehicle
Co., Inc. — hereinafter referred to as the Insured — a common carrier accident insurance against all sums which the Insured will become legally liable to pay in respect
policy, covering the period from December 1, 1961 to December 1, 1962. It was stipulated of: Death or bodily injury to any fare-paying passenger including the Driver x
in said policy that: x x who is riding in the Motor Vehicle insured at the time of accident or injury.
"The Company will, subject to the Limits of Liability and under the Terms of "Section II — Liability to the Public
this Policy, indemnify the insured in the event of accident caused by or arising
out of the use of Motor Vehicle against all stuns which the Insured will become xxx xxx xxx
legally liable to pay in respect of: Death or bodily injury to any fare-paying
passenger including the Driver, Conductor and/or Inspector who is riding in "3. In terms of and subject to the limitations of and for the purposes of this
the Motor Vehicle insured at the time of accident or injury."[1] Section, the Company will indemnify any authorized Driver who is driving the
Motor Vehicle x x x."
While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by
Carlito Coquia, met a vehicular accident at Mañgaldan, Pangasinan, in consequence of "Conditions
which Carlito died. The Insured filed therefor a claim for P5,000.00 to which the
xxx xxx xxx
Company replied with an offer to pay P2,000.00, by way of compromise. The Insured
rejected the same and made a counter-offer for P4,000.00, but the Company did not accept
“7. In the event of death of any person entitled to indemnity under this Policy,
it. Hence, on September 18, 1962, the Insured and Carlito's parents, namely, Melecio
the Company will, in respect of the liability incurred by such person,
Coquia and Maria Espanueva hereinafter referred to as the Coquias — filed a complaint
indemnify his personal representatives in terms of and subject to the
against the Company to collect the proceeds of the aforementioned policy. In its answer,
limitations of this Policy, provided, that such representatives shall, as though
the Company admitted the existence thereof, but pleaded lack of cause of action on the
they were the Insured, observe, fulfill and be subject to the Terms of this
part of the plaintiffs.
Policy insofar as they can apply.
After appropriate proceedings, the trial court rendered a decision sentencing the Company
“8. The Company may, at its option, make indemnity payable directly to the
to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the
claimants or heirs of claimants, with or without securing the consent of or prior
Company, which contends that plaintiffs have no cause of action because: 2) the Coquias
notification to the Insured, it being the true intention of this Policy to protect,
have no contractual relation with the Company; and 2) the Insured has not complied with
to the extent herein specified and subject always to the Terms of this Policy,
the provisions of the policy concerning arbitration.
 the liabilities of the Insured towards the passengers of the Motor Vehicle and policy, its proper interpretation seems quite clear. When there is a difference
the Public." between the company and the insured as to the amount of the loss the policy
declares: ‘The same shall then be submitted to competent and impartial
Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is arbitrators, one to be selected by each party x x x'. It will be observed that the
driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the obligation to procure or demand an arbitration is not, by this clause, in terms
Company shall, likewise, "indemnify his personal representatives." In fact, the Company imposed on either party. It is not said that either the company or the insured
"may, at its option, make indemnity payable directly to the claimants or heirs of claimants shall take the initiative in setting the arbitration on foot. The company has no
x x x it being the true intention of this Policy to protect x x x the liabilities of the Insured more right to say the insured must do it than the insured has to say the
towards the passengers of the Motor Vehicle and the Public" - in other words, third company must do it. The contract in this respect is neither unilateral nor self-
parties. executing. To procure a reference to arbitrators, the joint and concurrent action
of both parties to the contract is indispensable. The right it gives and the
Thus, the policy under consideration is typical of contracts pour autrui, this character obligation it creates to refer the differences between the parties to arbitrators
being made more manifest by the fact that the deceased driver paid fifty percent (50%) of are mutual. One party to the contract cannot bring about an arbitration. Each
the corresponding premiums, which were deducted from his weekly commissions. Under party is entitled to demand a reference, but neither can compel it, and neither
these conditions, it is clear that the Coquias - who, admittedly, are the sole heirs of the has the right to insist that the other shall first demand it, and shall forfeit any
deceased - have a direct cause of action against the Company,[3] and, since they could right by not doing so. If the company demands it, and the insured refuses to
have maintained this action by themselves, without the assistance of the Insured, it goes arbitrate, his right of action is suspended until he consents to an arbitration;
without saying that they could and did properly join the latter in filing the complaint and if the insured demands an arbitration, and the company refuses to accede
herein.[4] to the demand, the insured may maintain a suit on the policy, notwithstanding
the language of the twelfth section of the policy, and, where neither party
The second defense set up by the Company is based upon Section 17 of the policy demands an arbitration, both parties thereby waive it.”[6]
reading:
To the same effect was the decision of the Supreme Court of Minnesota in Independent
"If any difference or dispute shall arise with respect to the amount of the School Dist. No. 35, St. Louis County vs. A. Hedenberg & Co., Inc.[7] from which we
Company's liability under this Policy, the same shall be referred to the decision quote:
of a single arbitrator to be agreed upon by both parties or failing such
agreement of a single arbitrator, to the decision of two arbitrators, one to be "This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W.
appointed in writing by each of the parties within one calendar month after 937, decided in 1893, this court held that the parties to a construction contract,
having been required in writing so to do by either of the parties and in case of having proceeded throughout the entire course of their dealings with each other
disagreement between the arbitrators, to the decision of an umpire who shall in entire disregard of the provision of the contract regarding the mode of
have been appointed in writing by the arbitrators before entering on the determining by arbitration the value of the extras, thereby waived such
reference and the costs of and incidental to the reference shall be dealt with in provision."
the Award. And it is hereby expressly stipulated and declared that it shall be a
condition precedent to any right of action or suit upon this Policy that the xxx xxx xxx
award by such arbitrator, arbitrators or umpire of the amount of the Company's
liability hereunder if disputed shall be first obtained." "The test for determining whether there has been a waiver in a particular case
is stated by the author of an exhaustive annotation in 117 A.L.R. p. 304, as
The record shows, however, that none of the parties to the contract invoked this section, or follows: ‘Any conduct of the parties inconsistent with the notion that they
made any reference to arbitration, during the negotiations preceding the institution of the treated the arbitration provision as in effect, or any conduct which might be
present case. In fact, counsel for both parties stipulated, in the trial court, that none of reasonably construed as showing that they did not intend to avail themselves of
them had, at any time during said negotiations, even suggested the settlement of the issue such provision, may amount to a waiver thereof and estop the party charged
between them by arbitration, as provided in said section. Their aforementioned acts or with such conduct from claiming its benefits'.”
omissions had the effect of a waiver of their respective right to demand an arbitration.
Thus, in Kahnweiler vs. Phenix Ins. Co. of Brooklyn,[5] it was held: xxx xxx xxx

"Another well-settled rule for interpretation of all contracts is that the court "The decisive facts here are that both parties from the inception of their dispute
will lean to that interpretation of a contract which will make it reasonable and proceeded in entire disregard of the provisions of the contract relating to
just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause of this arbitration and that neither at any stage of such dispute, either before or after
commencement of the action, demanded arbitration, either by oral or written
 demand, pleading, or otherwise. Their conduct was as effective a rejection of
the right to arbitrate as if, in the best Coolidge tradition, they had said, 'We do
not choose to arbitrate'. As arbitration under the express provisions of article
40 was 'at the choice of either party,' and was chosen by neither, a waiver by
both of the right to arbitration followed as a matter of law.”

WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto,

with costs against the herein defendant-appellant, Fieldmen's Insurance Co., Inc.

SO ORDERED.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, and Capistrano,
JJ., concur.

[1] Underscoring ours.

[2] Underscoring ours.

[3] Uy Tam vs. Leonard, 30 Phil., 471, 485-486; Kauffman vs. Philippine National Bank,
42 Phil., 182, 187, 189.

[4] Guingon vs. Capital Insurance & Surety Co., Inc., L-22042, August 17, 1967.

[5] 67 Fed. 483, 487-488.

[6] Underscoring ours.

[7] 7 NW 2nd, 511, 517, 518.

Source: Supreme Court E-Library | Date created: June 04, 2015

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