G.R. No. 78860, 28 May 1990, 185 SCRA 741

FACTS:

Private respondent, Milagros Cayas, is a registered owner of a Mazda bus, a public vehicle, which was insured by the petitioner. On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its passengers. One of the passengers injured, Edgardo Perea, filed a civil case against Cayas while the other 3 agreed to a settlement with Cayas for 4,000.00 each.
When the case was executed against Cayas, the latter filed a complaint for a sum of money and damages against the insurer, herein petitioner; that she sought reimbursement of the amounts paid to the injured passengers under the civil case and so as to the amounts paid under the agreed settlement. The court rendered judgment by default ordering petitioner, PCSI, to pay Milagros Cayas P50,000 as compensation for the injured passengers, P5,000 as moral damages and P5,000 as attorney’s fees. The CA affirmed in toto the said decision of the RTC.

ISSUE:

Whether petitioner can seek to limit its liability only to the payment made by private respondent to Perea and only up to the amount of P12,000.00 and altogether deny liability for the payments made to the other three (3) injured passengers in the amount of P4,000.00 each or a total of P12,000.00?

RULING:

Yes. In the case at bar, the insurance policy clearly and categorically placed petitioner’s liability for all damages arising out of death or bodily injury sustained by one person as a result of any one accident at P12,000.00. Said amount complied with the minimum fixed by the law then prevailing, Section 377 of Presidential Decree No. 612 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that the liability of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use of their vehicles shall not be less than P12,000. In other words, under the law, the minimum liability is P12,000 per passenger. Petitioner’s liability under the insurance contract not being less than P12,000.00, and therefore not contrary to law, morals, good customs, public order or public policy, said stipulation must be upheld as effective, valid and binding as between the parties. 15
In like manner, we rule as valid and binding upon private respondent the condition above-quoted requiring her to secure the written permission of petitioner before effecting any payment in settlement of any claim against her. There is nothing unreasonable, arbitrary or objectionable in this stipulation as would warrant its nullification. The same was obviously designed to safeguard the insurer’s interest against collusion between the insured and the claimants.
It being specifically required that petitioner’s written consent be first secured before any payment in settlement of any claim could be made, private respondent is precluded from seeking reimbursement of the payments made to the 3 passengers; del Carmen, Magsarili and Antolin in view of her failure to comply with the condition contained in the insurance policy.
Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds application in the present case. Thus, it was error on the part of the trial and appellate courts to have disregarded the stipulations of the parties and to have substituted their own interpretation of the insurance policy. In Phil. American General Insurance Co., Inc vs. Mutuc, 18 we ruled that contracts which are the private laws of the contracting parties should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what form they may be, whenever the essential requisites for their validity are present.
WHEREFORE, the decision of the Court of Appeals is hereby modified in that petitioner shall pay Milagros Cayas the amount of Twelve Thousand Pesos (P12,000. 00) plus legal interest from the promulgation of the decision of the lower court until it is fully paid and attorney’s fees in the amount of P5,000.00. No pronouncement as to costs.

*Case digest by Em Epsan M. Batoon LLB IV, Andres Bonifacio Law School, S.Y 2018-2019