2013 (Mercantile Law) Bar Exam Questions: Essay Question 7

[Answer/discuss the question below. Or check Mercantile Law Instructions; Mercantile Law Essay Questions: 1, 2, 3, 4, 5, 68, 9 and 10; Mercantile Multiple Choice Questions: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15; See also 2013 Bar Exam: Information, Discussions, Tips, Questions and Results]


Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-standing insurance relationship with each other; SPMC secures the comprehensive fire insurance on its plant and facilities from SIC. The standing business practice between them has been to allow SPMC a credit period of 90 days from the renewal of the policy within which to pay the premium.

Soon after the new policy was issued and before premium payments could be made, a fire gutted the covered plant and facilities to the ground. The day after the fire, SPMC issued a manager’s check to SIC for the fire insurance premium, for which it was issued a receipt; a week later SPMC issued its notice of loss.

SIC responded by issuing its own manager’s check for the amount of the premiums SPMC had paid, and denied SPMC’s claim on the ground that under the “cash and carry” principle governing fire insurance, no coverage existed at the time the fire occurred because the insurance premium had not been paid.

Is SPMC entitled to recover for the loss from SIC? (8%)


  1. I had difficulty answering this one, what i know of is that the cash and carry principle for premium payments has exceptions, one of which is the credit arrangement which would entitle SPMC to claim. The facts however of the problem states that the notice of loss after the fire was given only a week after, i dont know what is the precise legal basis but i think the belated notice of loss would preclude SPMC from recovering. Any suggestion.

  2. makati tuscany case

    falls under the exception, the issuance of the check for payment of the unpaid premium retroacts to the date of the approval, thus insurer had no right to deny claim. Yun ang naalala ko ha. hehehe

  3. sorry am not sure if it was makati tuscany or the masagana case. basta yun ang naalala ko na ruling once my extension payment of the premiums during period of extension and loss occurs retracts to the time of extension thus my coverage.

    1. Yup im certain either of the 2 case, but the uncertainty lies on the belated notice of loss na lang, fire insurance kasi ito.

  4. i also based my answer on the existing credit arrangement. i did not consider the ‘belated notice’ because i deemed it as a stinger or pampagulo since SIC itself did not bring it up as an issue at all.

    1. Yun nga rin iniisip ko all the while kaya lang parang given kasi masyado, and i always stick to the thought that the 2013 bar was an issue finder rather than an issue poser question based on the instruction in each subject. Although SIC did not raise the issue I found it compelling to include the issue in my answer since the examiner’s question is too general in scope. I may rise or fall on this presumption, bahala na si Lord

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