PERLA COMPANIA DE SEGUROS, INC., PETITIONER, VS. HONORABLE COURT OF APPEALS AND MILAGROS CAYAS, RESPONDENTS.

This is a petition
for review on certiorari of the decision of the Court of Appeals^[1]
affirming in toto the decision of the
Regional Trial Court of Cavite, Branch XVI,^[2] the dispositive portion of which
states:

“IN VIEW OF THE FOREGOING, judgment is hereby rendered
ordering defendant Perla Compania
de Seguros, Inc. to pay plaintiff Milagros Cayas the sum of P50,00.0.00 under
its maximum liability as provided for in the insurance policy; and the sum of
P5,000.00 as reasonable attorney’s fees, with costs against said defendant.

“SO
ORDERED.”^[3]

Private respondent Milagros Cayas was
the registered owner of a Mazda bus with serial no. TA3H4
P-000445 and plate no. PUB-4G-593.^[4]
Said passenger vehicle was insured with Perla Compania de Seguros, Inc. (PCSI)
under policy no. LT0/60CC-04241 issued on February 3, 1978.^[5]

On December 17, 1978,
the bus figured in an accident in Naic, Cavite injuring several of its
passengers.  One of them, 19­-year-old Edgardo Perea, sued Milagros Cayas for damages in the Court of First Instance of Cavite, Branch I^[6]
docketed as Civil Case No. NC-794; while three others, namely:  Rosario del Carmen, Ricardo Magsarili and Charlie Antolin,
agreed to a settlement of P4,000.00 each with Milagros
Cayas.

At the pre-trial of Civil Case No.
NC-794, Milagros Cayas failed to appear and hence,
she was declared as in default.  After
trial, the court rendered a decision^[7]
in favor of Perea with its dispositive
portion reading thus:

“WHEREFORE, under our present imperatives, judgment is hereby
rendered in favor of the plaintiffs and against the defendant Milagros Cayas who is hereby ordered to compensate the plaintiff
Edgar Perea with damages in the sum of Ten Thousand
(P10,000.00) Pesos for the medical predicament he found himself as damaging
consequences of defendant Milagros Cayas‘ complete
lack of ‘diligence of a good father of a family’ when she secured the driving
services of one Oscar Figueroa
on December 17, 1978; the sum of Ten Thousand (P10,000.00) Pesos for exemplary
damages; the sum of Five Thousand (P5,000.00) Pesos for moral damages; the sum of
Seven Thousand (P7,000.00) Pesos for Attorney’s fees, under the imperatives of
the monetary power of the peso today;

“With costs against the defendant.

“SO
ORDERED.”

When the decision in Civil Case No. NC-794 was about to be
executed against her, Milagros Cayas filed a
complaint against PCSI in the Office of the Insurance Commissioner praying that
PCSI be ordered to pay P40,000.00 for all the claims against her arising from
the vehicular accident plus legal and other expenses.^[8]
Realizing her procedural mistake, she later withdrew said complaint.^[9]

Consequently, on November
11, 1981, Milagros Cayas filed a
complaint for a sum of money and damages against PCSI in the Court of First
Instance of Cavite (Civil Case No. N-4161).  She alleged therein that to satisfy the
judgment in Civil Case No. NC-794, her house and lot were levied upon and sold
at public auction for P38,200;^[10]
that to avoid numerous suits and the “detention” of the insured
vehicle, she paid P4,000 to each of the following injured passengers:  Rosario del Carmen, Ricardo Magsarili and Charlie Antolin:  that she could not have suffered said
financial setback had the counsel for PCSI, who also represented her, appeared
at the trial of Civil Case No. NC-794 and attended to the claims of the three
other victims; that she sought reimbursement of said amounts from the
defendant, which notwithstanding the fact that her claim was within its
contractual liability under the insurance policy, refused to make such
reimbursement; that she suffered moral damages as a consequence of such
refusal, and that she was constrained to
secure the services of counsel to protect her rights.  She prayed that judgment be rendered
directing PCSI to pay her P50.000 for compensation of the injured victims, such
sum as the court might approximate as damages, and P6,000
as attorney’s fees.

In view of Milagros Cayas‘ failure to
prosecute the case, the court motu proprio ordered its dismissal without
prejudice.^[11]
Alleging that she had not
received a copy of the answer to
the complaint, and that “out of sportsmanship”, she did not file a
motion to hold PCSI in default, Milagros Cayas moved
for the reconsideration of the dismissal order. 
Said motion for reconsideration was acted upon favorably by the court in
its order of March 31, 1982.

About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an answer.  The motion was granted and plaintiff was
allowed to adduce evidence ex-parte.  On July
13, 1982, the court rendered judgment by default ordering 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.

Said decision was set aside after the PCSI filed a motion therefor.  Trial of
the case ensued.  In due course, the court promulgated a
decision in Civil Case No. N-4161, the dispositive
portion of which was quoted earlier, finding that:

“In disavowing its obligation to plaintiff under the insurance
policy, defendant advanced the proposition that before it can be made to pay,
the liability must first be determined in an appropriate court action.  And so plaintiff’s liability was determined
in that case filed against her by Perea in the Naic CFI.  Still,
despite this determination of liability, defendant sought escape from its
obligation by positing the theory that plaintiff Milagros Cayas
lost the Naic case due to her negligence because of
which, efforts exerted by defendant’s lawyers in protecting Cayas‘
rights proved futile and rendered nugatory. 
Blame was laid entirely on plaintiff by defendant for losing the Naic case.  Defendant
labored under the impression that had Cayas
cooperated fully with defendant’s lawyers, the latter could have won the suit
and thus relieved of any
obligation to Perea. 
Defendant’s posture is stretching the factual circumstances of the Naic
case too far.  But even accepting
defendant’s postulate, it cannot be said, nor was it shown positively and
convincingly, that if the Naic case had proceeded on
trial on the merits, a decision favorable to Milagros Cayas
could have been obtained.  Nor was it
definitely established that if the pre-trial was undertaken in that case,
defendant’s lawyers could have mitigated the claim for damages by Perea against Cayas.”^[12]

The court, however, held that inasmuch as Milagros Cayas failed to establish
that she underwent moral
suffering and mental anguish to justify her prayer for damages, there should be
no such award.  But, there being proof
that she was compelled to engage the services of counsel to protect her rights
under the insurance policy, the court allowed attorney’s fees in the amount of
P5,000.

PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987
affirmed in toto the lower court’s
decision.  Its motion for reconsideration
having been denied by said appellate court, PCSI filed the instant petition
charging the Court of Appeals with having erred in affirming in toto the decision of the lower court.

At the outset, we hold as factual and therefore undeserving of
this Court’s attention, petitioner’s assertions that private respondent lost
Civil Case No. NC-794 because of her negligence and that
there is no proof that the decision in said case has been executed.  Said contentions, having been raised and
threshed out in the Court of Appeals and rejected by it, may
no longer be addressed to this Court.

Petitioner’s other contentions are primarily concerned with the
extent of its liability to private respondent under the insurance policy.  This, we consider to be the only issue in
this case.

Petitioner seeks to limit its liability only to the payment made
by private respondent to Perea and only up to the amount of P12,000.00.  It
altogether denies liability for the payments made by private respondents to the other three (3)
injured passengers Rosario del Carmen, Ricardo Magsarili
and Charlie Antolin in the amount of P4,000.00 each
or a total of P12,000.00.

There is merit in petitioner’s assertions.

The insurance policy involved explicitly limits petitioner’s
liability to P12,000.00 per person and to P50,000.00
per accident.^[13]
Pertinent provisions of the policy also state:

“SECTION I – Liability to the
Public

“x x x             x x x                 x x x

“3.     The Limit of
Liability stated in Schedule A as applicable (a) to THIRD PARTY is the limit of
the Company’s liability for all
damages arising out of death, bodily injury and damage to property combined so
sustained as the result of any one accident; (b) “per person” for
PASSENGER liability is the limit of the Company’s liability for all damages
arising out of death or bodily injury sustained by one person as the result of
any one accident; (c) “per accident” for PASSENGER liability is,
subject to the above provision respecting per person, the total limit of the
Company’s liability for all such damages arising out of death or bodily injury
sustained by two or more persons as the result of any one accident.”

“Conditions Applicable to All
Sections

“x x x             x x x                 x x x

“5.     No admission,
offer, promise or payment shall be made by or on behalf of the Insured without
the written consent of the Company which shall be entitled, if it so desires,
to take over and conduct in his
(sic) name the defense or settlement of any claim, or to prosecute in his (sic)
name for its own benefit any claim for indemnity or damages or otherwise, and
shall have full discretion in the
conduct of any proceedings in the settlement of any claim, and the insured
shall give all such information
and assistance as the Company may
require.  If the Company shall make any
payment in settlement of any claim, and such payment includes any amount not
covered by this Policy, the Insured shall repay the Company the amount not so
covered.

We have ruled in Stokes vs. Malayan Insurance
Co., Inc.^[14]
that the terms of the contract constitute the measure of the insurer’s
liability and compliance therewith is a condition precedent to the insured’s
right of recovery from the insurer.

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.

In her cross-examination before the trial court, Milagros Cayas admitted, thus:

“Atty.
Yabut:

q       With respect to the other injured
passengers of your bus wherein you made payments you did not secure the consent
of defendant (herein petitioner) Perla Compania de Seguros when you made
those payments?

a       I informed them about that.

q       But
they did not give you the written authority that you were supposed to pay those
claims?

a       No, sir.”^[16]

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 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.^[17]
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.

Moreover, we stated in Pacific Oxygen & Acetylene
Co. vs. Central Bank,^[19]
that the first and fundamental duty of the courts is the application of the law
according to its express terms, interpretation being called for only when such
literal application is impossible.

We observe that although Milagros Cayas
was able to prove a total loss of only P44,000.00,
petitioner was made liable for the amount of P50,000.00, the maximum liability
per accident stipulated in the policy. 
This is patent error.  An
insurance indemnity, being merely an assistance or restitution insofar as can
be fairly ascertained, cannot be availed of by any accident victim or claimant
as an instrument of enrichment by reason of an accident.^[20]

Finally, we find no reason to disturb the award of attorney’s
fees.

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.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin, and Cortes, JJ., concur.

^[1]
Jose A.R. Melo, J., ponente, with Esteban M. Lising
and Celso L. Magsino, JJ., concurring.

^[2]
Luis L. Victor, presiding judge.

^[3]
p. 25, Rollo.

^[4]
Exh.
B.

^[5]
Exh.
A

^[6]
Pablo D. Suarez, presiding judge.

^[7]
Exh.
C.

^[8]
Exh.
G.

^[9]
Exh.
H.

^[10]
Original Record on Appeal, pp. 2 & 16.

^[11]
Original Record on Appeal, p. 10.

^[12]
p. 24. Rollo.

^[13]
Limits of Liability, Exh.
“A”.

^[14]
L-34768, February 28, 1984,
127 SCRA 766, 769, citing Young vs. Midland Textile
Insurance,  Co.,
30 Phil. 617.

^[15]
Art. 1306, Civil Code.

^[16]
TSN, April 29, 1983, p. 9.

^[17]
Henson vs. Intermediate Appellate Court, G.R. No. 72456, February 19,
1987, 148 SCRA 11; Dihiansan, et al. vs. Court
of Appeals, G.R. No. 49839, September 14, 1987, 153 SCRA 712; Escano vs. Court of Appeals, 100 SCRA 197.

^[18]
G.R. No. L-19632, November 13, 1974, 61 SCRA 22, cited in Castro vs. Court of Appeals, G.R. No.
L-44727, September 11, 1980, 99 SCRA
197.

^[19]
G.R. No. L-21881,  March 1, 1969, 22 SCRA 917.

^[20]
Sec. 383, Insurance Code of 1978.