AGRICULTURAL CREDIT & COOPERATIVE FINANCING ADMINISTRATION (ACCFA), PLAINTIFF-APPELLANT, VS. ALPHA INSURANCE & SURETY CO., INC., DEFENDANT-APPELLEE, RICARDO A. LADINES, ET AL., …

Appeal, on points of law, against a decision of
the Court of First instance of Manila in its Case No. 43372, upholding a motion to dismiss.

At issue is the question whether or not the provision of a
fidelity bond, that no action shall be had or maintained thereon unless
commenced within one year from
the making of a claim for the loss upon which the action is based, is valid or void, in view of
Section 61-A of the Insurance Act invalidating stipulations limiting the time for commencing an action thereon
to less than one year from the
time the cause of action accrues.

Material to this decision are the
following facts:

According to the allegations of the complaint, in order to
guarantee the Asingan Farmers’ Cooperative Marketing
Association, Inc. (FACOMA) against Loss on account of “personal
dishonesty, amounting to larceny or estafa” of
its Secretary-Treasurer, Ricardo A. Ladines, the appellee, Alpha Insurance & Surety Company had issued,
on 14 February 1958, its bond, No. P-FID-15-58, for the sum of Five Thousand
Pesos (P5,000.00) with said Ricardo Ladines as principal and the appellee
as solidary surety. 
On the same date, the Asingan FACOMA assigned its rights to the appellant,
Agricultural Credit Cooperative and Financing Administration (ACCFA,for short) , with approval
of the principal and the surety.

During the effectivity of the bond, Ricardo Ladines
converted and misappropriated, to his personal benefit, some P11,513.22 of the FACOMA funds, of which P6,307.33 belonged to
the ACCFA.  Upon discovery of the loss,
ACCFA immediately notified in writing the surety company on 10
October, 1958, and
presented the proof of loss within the period fixed in the bond; but despite
repeated demands the surety company refused and failed to pay.  Whereupon, ACCFA filed suit
against appellee on 30 May 1960.

Defendant Alpha Insurance & Surety Co., Inc., (now appellee)
moved to dismiss the complaint for failure to state a cause of action, giving
as reason that (1) the same was filed more than one year after plaintiff made
claim for loss, contrary to the eighth condition of the bond, providing as follows:

“‘EIGHT. LIMITATION OF ACTION

‘No action, suit or proceeding shall be had or maintained upon this
Bond unless the same be commenced within one year from the time of making claim
for the loss upon which such action, suit or proceeding is based, in accordance
with the fourth section hereof.’ “

(2)
the complaint failed to show that
plaintiff had filed civil or criminal action against Ladines,
as required by conditions 4 and 11 of the bond; and (3) the Ladines was a necessary
and indispensable party but had not been joined a such.

At first, the Court of First Instance
denied dismissal; but, upon reconsideration, the court reversed its original
stand, and dismissed the complain on the ground that
the action was filed beyond the contractual limitation period (Record on
Appeal, pages 56-59).

Hence,
this appeal.

We find the appeal
meritorious.

A fidelity bond is, in effect, in the nature of a contract of
insurance a loss from misconduct, and is governed by the same principles of
interpretation Mechanics Savings Bank & Trust Co. vs. Guarantee Company, 68
Fed. 459; Chan Wei vs. Nemorosa, 103 Phil. 57.  Consequently, the condition of the bond in
question, limiting the period for bringing action thereon, is subject to the
provisions of Section 61-A of the Insurance Act (No. 2427), as amended by 4101
of the pre-Commonwealth Philippine Legislature, prescribing that –

“SEC. 61-A. – A condition,
stipulation or agreement in any policy of insurance, limiting the time for
commen­cing an action thereunder to a period of less than one year from
the time when the cause of action accrues is void.”

Since
a “cause of action” requires, as essential elements, not only a legal
right of the plaintiff and a correlative obligation of the defendant but also
“an act omission of the defendant in violation of said legal right” (Maao Sugar Gen vs. Barrios, 79 Phil. 666), the cause of
action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty (in
this case, to pay the amount of the
bond).  The year for instituting action
in court must be reckoned, therefore,
from the time of appellee’s refusal to comply with its bond; it can not be
counted from the creditor’s filing of the claim of loss for that does not import that the surety company will
refuse to pay.  In so far, therefore, as condition eight of
the bond requires action to be filed within one year from the filing of the
claim for loss, such stipulation
contradicts the public policy expressed in Section 61-A of the Philippine Insurance Act.  Condition eight of the bond, therefore, is null
and void, and the appellant is not
bound to comply with its provisions.

In Eagle Star Insurance
Co. vs. Chia Yu, 96 Phil. 696, 701, this Court ruled:

“It may perhaps be suggested that the policy clause relied on
by the insurer for defeating plaintiff’s action should be given the
construction that would harmonize it with section 61-A of the Insurance Act by
taking it to mean that the time given the insured for bringing his suit is
twelve months after the cause of section accrues.  But the question then would be:  When did the cause of action accrue? On that
question we agree with the court below
that plaintiff’s cause of action did not accrue until his claim was finally
rejected by the insurance company.  This
is because, before such final rejection, there was no real necessity for
bringing suit.  As the policy provides
that the insured should file his claim, first, with the carrier and then with
the insurer, he had a right to wait for his claim to be finally decided before going
to court.  The law does not encourage unnecessary litigation.”

The discouraging of
unnecessary litigation must be deemed a rule of public policy, considering the unrelieved congestion in the
courts.

As a consequence of the
foregoing, condition eight of the Alpha bond is null and void, and action may
be brought within the statutory period of limitation for written contracts (New
Civil Code, Article 1144).  The case of Ang vs. Fult Fire Insurance Co., 2 S. C. R. A. 945 (31 July 1961), relied upon by the
Court a quo, is no
authority against the views herein expressed, since the effect of
Section 61-A of the Insurance law on
the terms of the policy or contract was not there considered.

The condition of previous
conviction (paragraph b. clause 4, of the contract) having been deleted by express agreement, and the surety
having assumed solidary
liability, the other grounds of the
motion to dismiss are equally untenable A creditor may proceed
against any one of the solidary
debtors, or some or all of them simultaneously
(Article 1216, New Civil Code).

WHEREFORE, the appealed order granting the motion to
dismiss is reversed and set aside, and the records are remanded to the Court of
First Instance, with instructions to require defendant to answer and thereafter
proceed in conformity with the law and the Rules of Court.  Costs against appellee.

SO ORDERED.

Concepcion, C.J., Dizon,
Makalintal, Zaldivar,
Sanchez, Ruiz Castro, Angeles, and
Fernando, JJ., concur.