Capital Insurance v.
Plastic Era
If the insurance policy is silent as to the mode of payment, promissory notes received by the company must
be deemed to have been accepted in payment of the premium.
Type of Insurance: Non-life (fire policy)
Insurer: Capital Insurance & Surety Co. (Capital Insurance)
PO: Plastic Era Manufacturing (Plastic Era)
Insured: Plastic Era
Beneficiary: N/A
Claimant / Wrongdoer / etc.: N/A
RECIT-READY:
When Capital Insurance delivered to Plastic Era its open fire policy whereby the former undertook to insure
the latter's property, the latter did not pay the premium, but instead executed an acknowledgment receipt
with a promise to pay the premium within 30 days from December 17, 1960, the effectivity date of the policy.
Capital Insurance duly accepted the receipt. On January 8, 1961, Plastic Era, in partial payment of the
premium, delivered a check of P1,000, postdated January 16, 1961. Petitioner tried to deposit the check only
on February 20, 1961, and the same was dishonored for lack of funds. But the records show that as of January
19, 1961, Plastic Era had sufficient funds with the bank to cover the check.
On January 18, 1961, or two days after the insurance premium became due, the insured properties were
destroyed by fire. In due time, Plastic Era notified Capital Insurance of the loss and demanded payment of
indemnity for the loss. Capital Insurance refused on the ground of non-payment of premium. Plastic Era sued
Capital Insurance and the trial court rendered judgment in favor of the former. The Court of Appeals sustained
the trial court.
On petition for review, the Supreme Court affirmed the judgment of the Court of Appeals sustaining that of
the lower court and held that by accepting Plastic Era's promise to pay the insurance premium, Capital
Insurance, in effect, had extended credit to the former and did not have the right to cancel the policy except
by putting Plastic Era in default by giving it personal notice to that effect.
COMPREHENSIVE DIGEST:
FACTS:
Petitioner Capital Insurance & Surety Co. (Capital Insurance) delivered to respondent Plastic Era
Manufacturing (Plastic Era) its open Fire Policy wherein the former undertook to insure the latters
building, equipments, raw materials, products and accessories.
The policy provides if the property insured would be destroyed or damaged by fire after the payment
of the premiums, the insurance company shall make good all such loss or damage in an amount not
exceeding P100,000.00.
On the day the insurance policy was delivered, Plastic Era did not pay the Capital Insurance, but
instead executed an acknowledgment receipt.
In said receipt Plastic Era promised to pay the premium within 30 days from the effectivity date of the
policy on December 17, 1960 (Jan. 16) and Capital Insurance accepted it.
In partial payment of the insurance premium, Plastic Era delivered to Capital Insurance a check for
the amount of P1,000.00 postdated January 16, 1961 (30 days after Dec. 17).
o The records show that as of January 19, 1961, Plastic Era had enough balance to cover the
amount (P 1,193.41).
o However, Capital Insurance deposited the check late as it was only on February 20, 1961. (By
that time, Plastic Eras account was insufficient to cover the premium)
On January 18, or two days after the insurance premium became due, the property insured by Plastic
Era was destroyed by fire. It thus notified Capital Insurance of the loss and demanded payment.
Capital Insurance refused for the reason that Plastic Era failed to pay the insurance premium.
Plastic Era thus filed a complaint against Capital Insurance for the recovery of the sum of P100,000.
Capital Insurance interposed the defense that since the premium remained unpaid, its obligation to
answer for Plastic Eras eventual loss was not yet demandable and that Plastic Era forfeited its policy.
ISSUE:
W/N a contract of insurance has been duly perfected between the petitioner and respondent YES
HELD:
Admittedly, under the Negotiable Instruments Law, the mere delivery of a bill of exchange in
payment of a debt does not immediately effect payment. Tender of draft or check in order to effect
payment that would extinguish the debtor's liability should be actually cashed.
Jurisprudence on Insurance Law states, however, that if the insurance policy is silent as to the mode
of payment, promissory notes received by the company must be deemed to have been accepted in
payment of the premium.
o In other words, a requirement for the payment of the first or initial premium in advance or
actual cash may be waived by the acceptance of a promissory note.
Precisely, this was what actually happened when the Capital Insurance accepted the
acknowledgment receipt of the Plastic Era promising to pay the insurance premium within thirty (30)
days from December 17, 1960. Hence, when the damage of the insured property occurred, the
insurance policy was in full force and effect.
By Capital Insurances acceptance of the acknowledgment receipt (which is in a form of promissory
note), it has implicitly agreed to modify the tenor of the insurance policy and in effect, waived the
provision therein that it would only pay for the loss or damage in case the same occurs after the
payment of the premium.
Further, the fact that the check issued by Plastic Era in partial payment of the promissory note was
later on dishonored did not in any way operate as a forfeiture of its rights under the policy, there being
no express stipulation therein to that effect.
By accepting its promise to pay the insurance premium, Capital Insurance had in effect extended
credit to Plastic Era.
The Court ruled that the payment of the premium on the insurance policy therefore became an
independent obligation. Thus, the non-fulfilment of which would entitle Capital Insurance to recover.
The Court ruled that Capital could just deduct the premium due and unpaid upon the satisfaction of
the loss under the policy.
o Sa madaling salita, binawasan na lang daw dapat ni Capital Insurance yung unpaid premium sa
ibabayad nila kay Plastic Era under the policy. Wala raw silang karapatan to deny payment
Further, the Court ruled that checks must be presented for payment within a reasonable amount of
time.
o Here, The Court ruled that Capital Insurance was estopped from claiming a forfeiture of its
policy for non-payment even if the check had been dishonored later, since it held it for an
unreasonable amount of time before presentment of check.
o Again, the check was postdated Jan. 16. The records show that the account still had sufficient
funds on Jan. 19. Plastic Era cannot be faulted by Capital Insurances decision to present the
check for payment only on Feb. 20.
