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Insurance Case Digest: Capital Insurance & Surety Co. Inc. v. Plastic Era Co. Inc (1975)

G.R.No. L-22375    July 18, 1975
Lessons Applicable: Estoppel and credit extension (Insurance)
Laws Applicable: Article 1249 of the New Civil Code


  • December 17, 1960: Capital Insurance & Surety Co., Inc. delivered to the respondent Plastic Era Manufacturing Co., Inc. its open Fire Policy insuring its building, equipments, raw materials, products and accessories located at Sheridan Street, Mandaluyong, Rizal between December 15, 1960 1 pm - December 15, 1961 1 pm up to P100,000 but Plastic Era did not pay the premium
  • January 8, 1961: Plastic Era delivered to Capital Insurance its partial payment through check P1,000 postdated January 16, 1961
  • February 20, 1961: Capital Insurance tried to deposit the check but it was dishonored due to lack of funds.  According to the records, on January 19, 1961 Plastic Era has had a bank balance of P1,193.41
  • January 18, 1961: Plastic Era's properties were destroyed by fire amounting to a loss of P283,875.  The property was also insured to Philamgen Insurance Company for P200K.
  • Capital Insurance refused Plastic Era's claim for failing to pay the insurance premium
  • CFI: favored Capital Insurance
  • CA: affirmed
ISSUE: W/N there was a valid insurance contract because there was an extention of credit despite failing to encash the check payment

HELD: YES. Affirmed

  • Article 1249 of the New Civil Code
    • The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired
  • Capital Insurance accepted the promise of Plastic Era to pay the insurance premium within 30 days from the effective date of policy. Considering that the insurance policy is silent as to the mode of payment, Capital Insurance is deemed to have accepted the promissory note in payment of the premium. This rendered the policy immediately operative on the date it was delivered.
  • By accepting its promise to pay the insurance premium within thirty (30) days from the effectivity date of the policy — December 17, 1960 Capital Insurance had in effect extended credit to Plastic Era.
  • Where credit is given by an insurance company for the payment of the premium it has no right to cancel the policy for nonpayment except by putting the insured in default and giving him personal notice
  • Having held the check for such an unreasonable period of time, Capital Insurance was estopped from claiming a forfeiture of its policy for non-payment even if the check had been dishonored later.