Credit Limit Overload

by The Lawyer's Post September 23, 2014 Comments Off on Credit Limit Overload
Luis and Manuelita, husband and wife, applied for a credit card from BPI Express Card Corp. Among the
stipulation of the contract which the spouses signed when they applied for the credit card was the following
stipulation:
In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in citing to
BECC . . . purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of
the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen
BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to
its member establishments.
In one of her shopping spree, Manuelitas handbag was stolen. Among its contents was the BECC extension card.
Manuelita promptly notified BECC of the loss, and said she will not be liable for any purchases made using the
credit card after it was stolen. When Luiss monthly billing arrived, it included amounts for two purchases using
Manuelitas credit card made after it was already stolen and she had already notified BECC of its loss. Again,
Manuelita wrote BECC disclaiming responsibility for the purchase. BECC maintained that the spouses are liable for
the continued purchase, pointing out that the contract stated above specifically makes them liable. Luis countered
that it is a contract of adhesion where one party prepares it and the other party just signs the contract. Further, if
BECC will continue to charge him the contested purchases, then he will file an action for damages against the
company. Even so, BECC continued to bill Luis and Manuelita for the purchase, even after their cards expired and
the company renewed it. BECC then transferred the balance of Luis old card to the new card, including the
contested purchases, so that, in one of his purchases, his card was denied because it was already beyond the credit
limit. This fact Luis came to know only when Luis wrote the company asking for an explanation on why his credit
card was denied. BECC subsequently cancelled the card and demanded that they pay the full amount.
Luis and Manuelita then filed an action for damages against BECC.
The Regional Trial Court decided in favour of the spouses. It ruled that the stipulation that the spouses shall be
liable for all unauthorised purchases until they have informed the company of its loss and the company have
informed its member-establishments is void for being contrary to public policy.
On appeal by the company, the Court of Appeals reversed the decision of the trial court. It ruled that Luis is bound
by the contract even if it is a contract of adhesion. Contracts of adhesion by themselves are binding as ordinary
contract. Luis being a lawyer could have bargained for better terms, and could not therefore allege that he cannot be
bound by the contract of adhesion.

Luis and Manuelita elevated their case to the Supreme Court.

For the cardholder to be absolved from liability for unauthorized purchases made through his lost or stolen card,
two steps must be followed: (1) the cardholder must give written notice to BECC, and (2) BECC must notify its
member establishments of such loss or theft, which, naturally, it may only do upon receipt of a notice from the
cardholder. Both the cardholder and BECC, then, have a responsibility to perform, in order to free the cardholder
from any liability arising from the use of a lost or stolen card.
In this case, the cardholder, Manuelita, has complied with what was required of her under the contract with BECC.
She immediately notified BECC of the loss of her card on the same day it was lost and, the following day, she sent a
written notice of the loss to BECC. That she gave such notices to BECC is admitted by BECC in the letter sent to
Luis by Roberto L. Maniquiz, head of BECCs Collection Department.
Having thus performed her part of the notification procedure, it was reasonable for Manuelita and Luis, for that
matter to expect that BECC would perform its part of the procedure, which is to forthwith notify its memberestablishments. It is not unreasonable to assume that BECC would do this immediately, precisely to avoid any
unauthorized charges.
Clearly, what happened in this case was that BECC failed to notify promptly the establishment in which the
unauthorized purchases were made with the use of Manuelitas lost card. Thus, Manuelita was being liable for those
purchases, even if there is no showing that Manuelita herself had signed for said purchases, and after notice by her
concerning her cards loss was already given to BECC.
xxx
Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to
relieve the former of any liability occasioned by the unauthorized use of his lost or stolen card. The questioned
stipulation in this case, which still requires the cardholder to wait until the credit card company has notified all its
member-establishments, puts the cardholder at the mercy of the credit card company which may delay indefinitely
the notification of its members to minimize if not to eliminate the possibility of incurring any loss from unauthorized
purchases. Or, as in this case, the credit card company may for some reason fail to promptly notify its members
through absolutely no fault of the cardholder. To require the cardholder to still pay for unauthorized purchases after
he has given prompt notice of the loss or theft of his card to the credit card company would simply be unfair and
unjust. The Court cannot give its assent to such a stipulation which could clearly run against public policy.
G.R. No. 127246 April 21, 1999, SPOUSES LUIS M. ERMITAO and MANUELITA C. ERMITAO,
petitioners, vs. THE COURT OF APPEALS AND BPI EXPRESS CARD CORP., respondents.