2016 (Mercantile Law) Bar Exam Questions: Question 2

[Answer/discuss the question below, or see 2016 bar exam Mercantile Law Instructions; 2016 Mercantile Law Questions: 1345678910111213141516171819 and 20; See also 2016 Bar Exam: Information, Discussions, Tips, Questions and Results]


Jason is the proud owner of a newly-built house worth PS million. As a protection against any possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the company a week to approve Jason’s application. On October 18, 2016, Shure mailed the approved policy to Jason which the latter received five (5) days later. However, Jason’s house had been razed by fire which transpired a day before his receipt of the approved policy. Jason filed a written claim with Shure under the insurance policy. Shure prays for the denial of the claim on the ground that the theory of cognition applies to contracts of insurance.

Decide Jason’s claim with reasons. (5%)



    Jason written claim with Shure under the insurance policy will prosper,

    Fire insurance policy was paid in cash to Shure Insurance Corporation on October 11, 2016 and the contract was perfected on October 18, 2016 with receipt of the approved policy.

    Section 77. “An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.”

    Article 78 of the Insurance Code “An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid“

    What is being followed in insurance contracts is what is known as the “cognition theory” Thus, “an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge”.(Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269

    Essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)

  2. Jason’s Claim over the proceeds is bereft of merit.

    An insurance contract is consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. it must be noted that contracts of insurance is governed by cognition theory. it is that crucial point wherein there must be an actual communication to the insured of the approval of the application.

    In Great Pacific Life Assurance Corporation v CA, the SC held that the insured is the one making the offer by submitting an application to the insurer and the latter accepts the offer by approving the application. Thus, mere submission of the application without the corresponding approval of the policy does not result in the perfection of the contract of insurance.

    in the case at bar, Shure mailed the approved policy to Jason which the latter received five (5) days later clearly there was no assent to the application or actual communication of the approval. in this light Jason’s contention must fail

  3. Hula lang’s answer is the one bereft of merit. The insurance company’s contention is not tenable.

    Being a consensual contract, the moment the official letter of acceptance of the insurance company was duly mailed, regardless of the receipt of the one who offered, there is already meeting of the minds between the parties.

    Under the case at bar, the moment the insurance company duly mailed the letter, indicating therein that the offer of Jason is accepted, there is already meeting of the minds. Hence, the contract is already perfected, under the civil code.

    Yes, the cognition theory applies to insurance contracts. General rule states that, the mere mailing of the letter, provided it has been duly mailed, shall be considered accepted and received by the addressee, according to the rules of court and recent jurisprudence.

    Being consensual and the application of the cognition theory. Jason’s claim must prosper.

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