Mandarin Villa, Inc. vs.

CA and Clodualdo de Jesus

G.R. No. 119850. 20 June 1996.

Ponente: Franciso, J.:

Facts: In the evening of 19 Oct 1989, private respondent de Jesus hosted a dinner for his friends at the peririoners
restaurant, the Mandarin Villa Seafoods Village in Mandaluyong City. After dinner, the waiter handed to de Jesus the bill
amounting to P2,658.50. De Jesus offered his BANKARD credit card to the waiter for payment. Minutes later, the waiter
returned and audibly informed that said credit card had expired. De Jesus demonstrated that the card had yet to expire on
Sept 1990, as embossed on its face. De Jesus approached the cashier who again dishonored such card. De Jesus offered his
BPI express credit card instead and this was accepted, honored and verified. The trial court and CA held petitioner to be
negligent.

Issues: WON petitioner was negligent; If negligent, WON such negligence was the proximate cause of private respondents
damage.

Ruling: Petition dismissed. The test for determining the existence of negligence in a case may be stated as follows: did the
defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent person would
have used in the same situation? If not, then he is guilty of negligence. In the case at bar, the Point of Sale Guidelines
which outlined the steps that petitioner must follow under the circumstances reveals that whenever the words CARD
EXPIRED flashes on screen, petitioner should check cards expiry date as embossed in the card itself. If unexpired,
petitioner should honor the card. Clearly, it has not yet expired in 19 Oct 1989 when the same was dishonored by
petitioner. Hence, petitioner did not use the reasonable care and caution which an ordinary prudent person would have
used in the same situation and as such, petitioner is guilty of negligence.
The humiliation and embarrassment of private respondent was brought about by the fact of dishonor by petitioner of
private respondents valid BANKARD. Hence, petitioners negligence is the proximate cause of private respondents
damage.

Clodualdo is a practicing lawyer and a businessman. In the evening of October 19, 1989, he
invited his friends to a dinner party at Mandarin Villa Seafoods Village. After dinner, his bill
amounted to P2,658.50, to which he paid his credit card issued by Bankard and set to expire on
September 1990. The waiter accepted it and proceeded to the cashier to have it verified.
Several minutes later, the waiter returned to him and told him that his credit card is expired.
Clodualdo retorted that his credit card will expire on September 1990, which is embossed on the
card. Despite being told, the waiter refused to budge, so Clodualdo and his friend went to the
cashier to check. Indeed, the verification computer said CARD EXPIRED. When they returned to
their table, another friend jokingly told Clodualdo, O Clody, may problem ba? Baka kailangang
maghugas na kami ng pinggan?. Clody left the restaurant and got his BPI credit card, which
when presented to the cashier for verification was accepted. Clodualdo and his friends then left
the restaurant.

After the incident, Clodualdo filed a case for Damages against Mandarin and Bankard.

The trial court rendered judgment holding Mandarin and Bankard liable for damages, but on
appeal to the Court of Appeals, Bankard was found not liable, hence only Mandarin elevated the
case to the Supreme Court. In their appeal, Mandarin argued that it cannot be held liable for
damages for the following reasons: 1) it is not bound to accept credit card payments; 2) it was
not negligent; 3) the proximate cause of the damage was Clodualdos failure to bring cash for
payment.

The Supreme Court answered the issues point by point and dismissed accordingly Manadrins
appeal

On the first issue:

We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an Agreement
entered into by petitioner and BANKARD dated June 23, 1989, provides inter alia:

The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding
holders in the purchase of goods and/or services supplied by it provided that the card expiration
date has not elapsed and the card number does not appear on the latest cancellation bulletin of
lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or
irregularities appear on the face of the credit card.

While private respondent, may not be a party to the said agreement, the above-quoted
stipulation conferred a favor upon the private respondent, a holder of credit card validly issued
by BANKARD. This stipulation is a stipulation pour autri and under Article 1311 of the Civil Code
private respondent may demand its fulfillment provided he communicated his acceptance to the
petitioner before its revocation. In this case, private respondents offer to pay by means of his
BANKARD credit card constitutes not only an acceptance of the said stipulation but also an
explicit communication of his acceptance to the obligor.

In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village
stating that Bankard is accepted here. This representation is conclusive upon the petitioner
which it cannot deny or disprove as against the private respondent, the party relying thereon.
Petitioner, therefore, cannot disclaim its obligation to accept private respondents BANKARD
credit card without violating the equitable principle of estoppel.

On the second issue:

The test for determining the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use the reasonable care and caution
which an ordinary prudent person would have used in the same situation? If not, then he is guilty
of negligence. The Point of Sale (POS) Guidelines which outlined the steps that petitioner must
follow under the circumstances provides.

xxx xxx xxx

CARD EXPIRED

a. Check expiry date on card.

b. If unexpired, refer to CB.

b.1. If valid, honor up to maximum of SPL only.

b.2. If in CB as Lost, do procedures 2a to 2e.,

b.3. If in CB as Suspended/Cancelled, do not honor card.

c. If expired, do not honor card.

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the
screen of the verification machine, petitioner should check the credit cards expiry date
embossed on the card itself. If unexpired, petitioner should honor the card provided it is not
invalid, cancelled or otherwise suspended. But if expired, petitioner should not honor the card. In
this case, private respondents BANKARD credit card has an embossed expiry date of September
1990. 13 Clearly, it has not yet expired on October 19, 1989, when the same was wrongfully
dishonored by the petitioner. Hence, petitioner did not use the reasonable care and caution
which an ordinary prudent person would have used in the same situation and as such petitioner
is guilty of negligence. In this connection, we quote with approval the following observations of
the respondent Court.
Mandarin argues that based on the POS Guidelines (supra), it has three options in case the
verification machine flashes CARD EXPIRED. It chose to exercise option (c) by not honoring
appellees credit card. However, appellant apparently intentionally glossed over option (a)
Check expiry date on card (id.) which would have shown without any shadow of doubt that the
expiry date embossed on the BANKARD was SEP 90. (Exhibit D.) A cursory look at the
appellees BANKARD would also reveal that appellee had been as of that date a cardholder since
1982, a fact which would have entitled the customer the courtesy of better treatment.

Lastly, on the third issue:

We find this contention also devoid of merit. While it is true that private respondent did not
have sufficient cash on hand when he hosted a dinner at petitioners restaurant, this fact alone
does not constitute negligence on his part. Neither can it be claimed that the same was the
proximate cause of private respondents damage. We take judicial notice of the current practice
among major establishments, petitioner included, to accept payment by means of credit cards in
lieu of cash. Thus, petitioner accepted private respondents BPI Express Credit Card after
verifying its validity, a fact which all the more refutes petitioners imputation of negligence on
the private respondent.

Neither can we conclude that the remark of Professor Lirag was a supervening event and the
proximate cause of private respondents injury. The humiliation and embarrassment of the
private respondent was brought about not by such a remark of Professor Lirag but by the fact of
dishonor by the petitioner of private respondents valid BANKARD credit card. If at all, the remark
of Professor Lirag served only to aggravate the embarrassment then felt by private respondent,
albeit silently within himself.

BPI EXPRESS CARD CORPORATION, PETITIONER, VS. MA. ANTONIA R. ARMOVIT

Ma. Antonia (Antonia), then a depositor of the Bank of the Philippine Islands, was issued a BPI
Express Credit card with a credit limit of P20,000.00 and set to expire at the end of March, 1993.
On November 21, 1992, she treated her British friends from Hongkong to a lunch at Ortigas
Center, Center, Pasig City. When she handed the credit card as payment, the waiter soon
returned and informed her that upon verification, her BPI card had been cancelled and would not
not be honoured. Because she was out of cash, her friends were made to share the bill, to her
extreme embarrassment. When she called BPI Express Credit to verify the status of her credit
card, she learned that her card was summarily cancelled for failure to pay her outstanding
obligations, which she vehemently denied. She demanded compensation for the shame and
embarrassment she suffered in the amount of P2,000,000.00. By letter-reply, BPI informed
Antonia that they informed her by telegraphic message of her outstanding obligation, to which
she did not reply, thus they cancelled the card. Though the obligation was paid by April, 1992,
Antonia failed to submit the required application form in order to reactivate her credit card
privileges, thus her demand for monetary compensation had not basis in fact and in law.

Antonia thus sued BPI Express Credit for damages, averring that she had been a credit card
holder in good standing, and she had no outstanding obligation at the time of the incident. In its
defense, BPI countered that due to her failure to submit the required application form, her credit
card remained in the list of suspended cards; the cancellation itself was brought about by her
failure to pay three consecutive months.

In its ruling, the RTC held that the terms and conditions governing the use of credit card was
furnished to Antonia for the first time on April, 1992, after her card was suspended, thus she
could not be blamed for not complying with the same; her payment as of April, 1992 of the
unpaid obligation rendered the suspension of her credit card unjustified, and there was no
showing that submission of the application form had been a condition precedent for the lifting of
the suspension. Its appeal to the Ca denied by the appellate court, BPI then elevated its case to
the Supreme Court. It argues that Antonias failure to submit her application form to remove her
cards from the its list if suspended credit cards did not make it negligent towards Antonia.

The Supreme Court:

The relationship between the credit card issuer and the credit card holder is a contractual one
that is governed by the terms and conditions found in the card membership agreement. Such
terms and conditions constitute the law between the parties. In case of their breach, moral
damages may be recovered where the defendant is shown to have acted fraudulently or in bad
faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity. However, a conscious or intentional design need not always
be present because negligence may occasionally be so gross as to amount to malice or bad faith.
Hence, bad faith in the context of Article 2220 of the Civil Code includes gross negligence.

xxx

The Court disagrees with the contentions of BPI Express Credit. The Terms and Conditions
Governing the Issuance and Use of the BPI Express Credit Card printed on the credit card
application form spelled out the terms and conditions of the contract between BPI Express Credit
and its card holders, including Armovit. Such terms and conditions determined the rights and
obligations of the parties. Yet, a review of such terms and conditions did not reveal that Armovit
needed to submit her new application as the antecedent condition for her credit card to be taken
out of the list of suspended cards.

Considering that the terms and conditions nowhere stated that the card holder must submit the
new application form in order to reactivate her credit card, to allow BPI Express Credit to impose
the duty to submit the new application form in order to enable Armovit to reactivate the credit
card would contravene the Parol Evidence Rule. Indeed, there was no agreement between the
parties to add the submission of the new application form as the means to reactivate the credit
card. When she did not promptly settle her outstanding balance, BPI Express Credit sent a
message on March 19, 1992 demanding payment with the warning that her failure to pay would
force it to temporarily suspend her credit card effective March 31, 1992. It then sent another
demand letter dated March 31, 1992 requesting her to settle her obligation in order to lift the
suspension of her credit card and prevent its cancellation. In April 1992, she paid her obligation.
In the context of the contemporaneous and subsequent acts of the parties, the only condition for
the reinstatement of her credit card was the payment of her outstanding obligation. Had it
intended otherwise, BPI Express Credit would have surely informed her of the additional
requirement in its letters of March 19, 1992 and March 31, 1992. That it did not do so confirmed
that they did not agree on having her submit the new application form as the condition to
reactivate her credit card.

The letter of BPI Express Credit dated April 8, 1992 did not clearly and categorically inform
Armovit that the submission of the new application form was the pre-condition for the
reactivation of her credit card. The statement in the letter (i.e., accomplish the enclosed
application form and provide us with informations/documents that can help our Credit Committee
in reevaluating your existing facility with us.) merely raised doubt as to whether the
requirement had really been a pre-condition or not. With BPI Express Credit being the party
causing the confusion, the interpretation of the contract could not be done in its favor. Moreover,
it cannot be denied that a credit card contract is considered as a contract of adhesion because
its terms and conditions are solely prepared by the credit card issuer. Consequently, the terms
and conditions have to be construed against BPI Express Credit as the party who drafted the
contract.

Bereft of the clear basis to continue with the suspension of the credit card privileges of Armovit,
BPI Express Credit acted in wanton disregard of its contractual obligations with her. We concur
with the apt observation by the CA that BPI Express Credits negligence was even confirmed by
the telegraphic message it had addressed and sent to Armovit apologizing for the inconvenience
caused in inadvertently including her credit card in the caution list. It was of no consequence that
the telegraphic message could have been intended for another client, as BPI Express Credit
apparently sought to convey subsequently, because the tenor of the apology included its
admission of negligence in dealing with its clients, Armovit included. Indeed, BPI Express Credit
did not observe the prudence expected of banks whose business was imbued with public
interest.
PANTALEON VS AMERICAN EXPRESS

FACTS:

After the Amsterdam incident that happened involving the delay of American Express Card to
approve his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon
commenced a complaint for moral and exemplary damages before the RTC against American
Express. He said that he and his family experienced inconvenience and humiliation due to the
delays in credit authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached its obligations to
Pantaleon, as the purchase at Coster deviated from Pantaleon's established charge purchase
pattern.

ISSUE:

1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.

2. Whether or not AmEx is liable for damages.

RULING:

1. Yes. The popular notion that credit card purchases are approved within seconds, there really
is no strict, legally determinative point of demarcation on how long must it take for a credit card
company to approve or disapprove a customers purchase, much less one specifically contracted
upon by the parties. One hour appears to be patently unreasonable length of time to approve or
disapprove a credit card purchase.

The culpable failure of AmEx herein is not the failure to timely approve petitioners purchase, but
the more elemental failure to timely act on the same, whether favorably or unfavorably. Even
assuming that AmExs credit authorizers did not have sufficient basis on hand to make a
judgment, we see no reason why it could not have promptly informed Pantaleon the reason for
the delay, and duly advised him that resolving the same could take some time.

2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred
delay, but because the delay, for which culpability lies under Article 1170, led to the particular
injuries under Article 2217 of the Civil Code for which moral damages are remunerative. The
somewhat unusual attending circumstances to the purchase at Coster that there was a
deadline for the completion of that purchase by petitioner before any delay would redound to the
injury of his several traveling companions gave rise to the moral shock, mental anguish, serious
anxiety, wounded feelings and social humiliation sustained by Pantaleon, as concluded by the
RTC.

Credit Card Companys Right to Review Credit History Before

Approving Purchase
A cardholder who used his credit card to purchase diamond jewelry amounting to over $13,000 experienced delay in
obtaining approval of his purchase, causing him some embarassment. While the purchase was approved by the
card company, it took the card company more than an hour to finally send its approval to the merchant processing
the transaction.

Because of the humiliation suffered by the cardholder supposedly arising from the delay, the card holder sued the
credit card company for damages.

But the Supreme Court said that the credit card company was not liable to pay damages in this case because the
period of time it took to send its approval was justified. The Court also said:

The use of a credit card to pay for a purchase is only an offer to the credit card company to enter a loan agreement
with the credit card holder. Before the credit card issuer accepts this offer, no obligation relating to the loan
agreement exists between them.
In fact, credit card application forms typically contain terms stating that the credit card company reserves the right to
deny authorization for any requested charge.

But in this case, the card purchase was approved ALBEIT with some delay because the card company claimed that
it had to examine the credit history and purchase experience of the cardholder first to ensure that the transaction
was not a fraudulent purchase, considering that it was a single purchase worth more than $13,000, and it was the
first time that the cardholder spent that much on one transaction.

The Supreme Court did not find anything wrong with the delay in this case stating that :

The right to review a card holders credit history, although not specifically set out in the card membership
agreement, is a necessary implication of (the credit card companys) right to deny authorization for any requested
charge.

Added to that, it also noted that:

There is no provision in the (credit card) agreement that obligates (the credit card company) to act on all
cardholder purchase requests within a specifically defined period of time.

Mellon Bank vs. Magsino G.R. No. 71479 October 18, 1990
Section 2 of said law allows the disclosure of bank deposits in cases where the
money deposited is the subject matter of the litigation. Inasmuch as Civil Case No.
26899 is aimed at recovering the amount converted by the Javiers for their own
benefit, necessarily, an inquiry into the whereabouts of the illegally acquired
amount extends to whatever is concealed by being held or recorded in the name
of persons other than the one responsible for the illegal acquisition.

Facts: On May 27, 1977, Dolores Ventosa requested the transfer of $1,000 from the First National Bank of
Moundsville, West Virginia, U.S.A. to Victoria Javier in Manila through the Prudential Bank. Accordingly,
the First National Bank requested the petitioner, Mellon Bank, to effect the transfer. Unfortunately the wire
sent by Mellon Bank to Manufacturers Hanover Bank, a correspondent of Prudential Bank, indicated the
amount transferred as US$1,000,000.00 instead of US$1,000.00. Hence Manufacturers Hanover Bank
transferred one million dollars less bank charges of $6.30 to the Prudential Bank for the account of
Victoria Javier.

Javier withdrew $475,000 from account No. 343 and converted it into eight cashiers checks made out to
the following: (a) F.C. Hagedorn & Co., Inc., two cheeks for the total amount of P1,000,000; (b) Elnor
Investment Co., Inc., two checks for P1,000,000; (c) Paramount Finance Corporation, two checks for
P1,000,000; and (d) M. Javier, Jr., two checks for P496,000. Javier also brought several properties in the
United States including the one of his lawyer, Poblador.

Mellon Bank filed a complaint docketed as No. 148056 in the Superior Court of California, County of Kern,
against Melchor Javier, Jane Doe Javier, Honorio Poblador, Jrn, and Does I through V. In its first amended
complaint to impose constructive trust. The testimonies of these witnesses were objected to by the
defense on the grounds of res inter alios acta, immateriality, irrelevancy and confidentiality due to RA
1405. The Javier spouses also contend that inasmuch as the Mellon Bank had filed in California an action
to impose constructive trust on the California property and to recover the same.

Issue:1) Whether or not an account deposit which is relevant and material to the resolution of the case
may be covered under R.A. No. 1405.

2) Whether or not the principle of election of remedies bars recovery of Mellon Bank

Held:
1) Whether or not an account deposit which is relevant and material to the resolution of the case may be
covered under R.A. No. 1405.

Yes. Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited is
the subject matter of the litigation. 24 Inasmuch as Civil Case No. 26899 is aimed at recovering the
amount converted by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of the
illegally acquired amount extends to whatever is concealed by being held or recorded in the name of
persons other than the one responsible for the illegal acquisition.

2) Whether or not the principle of election of remedies bars recovery of Mellon Bank

The spouses Javiers reliance on the procedural principle of election of remedies as part of their ploy to
terminate Civil Case No. 26899 prematurely. With the exception of the Javiers, respondents failed to raise
it as a defense in their answers and therefore, by virtue of Section 2, Rule 9 of the Rules of Court, such
defense is deemed waived. 26 Notwithstanding its lengthy and thorough discussion during the hearing
and in pleadings subsequent to the answers, the issue of election of remedies has not, contrary to the
lower courts assertion, been elevated to a substantive one. Having been waived as a defense, it cannot
be treated as if it has been raised in a motion to dismiss based on the nonexistence of a cause of action.

Moreover, granting that the defense was properly raised, it is inapplicable in this case. In its broad sense,
election of remedies refers to the choice by a party to an action of one of two or more coexisting remedial
rights, where several such rights arise out of the same facts, but the term has been generally limited to a
choice by a party between inconsistent remedial rights, the assertion of one being necessarily repugnant
to, or a repudiation of, the other. In its technical and more restricted sense, election of remedies is the
adoption of one of two or more coexisting remedies, with the effect of precluding a resort to the others.

SECOND DIVISION

[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.

DECISION

QUISUMBING, J.:

This petition for review under Rule 45, of the Rules of Court, seeks to set aside the decision of the Court of Appeals
in C.A.-G.R. CV No. 47888 reversing the trial courts [1] judgment in Civil Case No. 61357, as well as the resolution of the
Court of Appeals denying petitioners motion for reconsideration.

In dispute is the validity of the stipulation embodied in the standard application form for credit cards furnished by
private respondent. The stipulation makes the cardholder liable for purchases made through his lost or stolen credit card
until (a) notice of such loss or theft has been given to private respondent and (b) the latter has communicated such loss or
theft to its member-establishments.

The facts, as found by the trial court, are not disputed.

Petitioner Luis Ermitao applied for a credit card from private respondent BPI Express Card Corp. (BECC) on October
8, 1986 with his wife, Manuelita, as extension cardholder. The spouses were given credit cards with a credit limit
of P10,000.00. They often exceeded this credit limit without protest from BECC.

On August 29, 1989, Manuelitas bag was snatched from her as she was shopping at the Greenbelt Mall in Makati,
Metro Manila. Among the items inside the bag was her BECC credit card. That same night she informed, by telephone,
BECC of the loss. The call was received by BECC offices through a certain Gina Banzon. This was followed by a letter
dated August 30, 1989. She also surrendered Luis credit card and requested for replacement cards. In her letter,
Manuelita stated that she shall not be responsible for any and all charges incurred [through the use of the lost card] after
August 29, 1989.[2]

However, when Luis received his monthly billing statement from BECC dated September 20, 1989, the charges
included amounts for purchases made on August 30, 1989 through Manuelitas lost card. Two purchases were made, one
amounting to P2,350.05 and the other, P607.50. Manuelita received a billing statement dated October 20, 1989 which
required her to immediately pay the total amount of P3,197.70 covering the same (unauthorized) purchases. Manuelita
again wrote BECC disclaiming responsibility for those charges, which were made after she had served BECC with notice
of the loss of her card.

Despite the spouses refusal to pay and the fact that they repeatedly exceeded their monthly credit limit, BECC sent
them a notice dated December 29, 1989 stating that their cards had been renewed until March 1991. Notwithstanding this,
however, BECC continued to include in the spouses billing statements those purchases made through Manuelitas lost
card. Luis protested this billing in his letter dated June 20, 1990.

However, BECC, in a letter dated July 13, 1990, pointed out to Luis the following stipulation in their contract:

In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in writing 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.
[3]

Pursuant to this stipulation, BECC held Luis liable for the amount of P3,197.70 incurred through the use of his wifes
lost card, exclusive of interest and penalty charges.

In his reply dated July 18, 1990, Luis stressed that the contract BECC was referring to was a contract of adhesion
and warned that if BECC insisted on charging him and his wife for the unauthorized purchases, they will sue BECC for
damages. This warning notwithstanding, BECC continued to bill the spouses for said purchases. [4]

On April 10, 1991, Luis used his credit card to purchase gasoline at a Caltex station. The latter, however, dishonored
his card. In reply to Luis demand for an explanation, BECC wrote that it transferred the balance of his old credit card to his
new one, including the unauthorized charges. Consequently, his outstanding balance exceeded his credit limit
of P10,000.00. He was informed that his credit card had not been cancelled but, since he exceeded his credit limit, he
could not avail of his credit privileges.

Once more, Luis pointed out that notice of the lost card was given to BECC before the purchases were made.

Subsequently, BECC cancelled the spouses credit cards and advised them to settle the account immediately or risk
being sued for collection of said account.

Constrained, petitioners sued BECC for damages. The trial court ruled in their favor, stating that there was a waiver
on the part of BECC in enforcing the spouses liability, as indicated by the following circumstances:

(1) Its failure to inform the spouses that the unauthorized charges on the lost card would be carried over to their
replacement cards; and

(2) Its act of unqualifiedly replacing the lost card and Luis card which were both surrendered by the spouses,
even after the spouses unequivocally denied liability for the unauthorized purchases.

The trial court further noted that the suspension of the spouses credit cards was based upon the lame excuse that
the credit limit had been exceeded, despite the fact that BECC allowed the spouses previously to exceed their credit limit,
even for almost two years after the loss of Manuelitas card. Moreover, the credit limit was exceeded only after BECC
added the unauthorized purchases to the liability of the spouses. BECC continued to send the spouses separate billing
statements that included the unauthorized purchases, with interest and penalty charges.

The trial court opined that the only purpose for the suspension of the spouses credit privileges was to compel them to
pay for the unauthorized purchases. The trial court ruled that the latter portion of the condition in the parties contract,
which states that liability for purchases made after a card is lost or stolen shall be for the account of the cardholder until
after notice of the loss or theft has been given to BECC and after the latter has informed its member establishments, is
void for being contrary to public policy and for being dependent upon the sole will of the debtor. [5]

Moreover, the trial court observed that the contract between BECC and the Ermitaos was a contract of adhesion,
whose terms must be construed strictly against BECC, the party that prepared it.

The dispositive portion of the trial courts decision reads:

WHEREFORE, and IN VIEW OF THE ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in favor
of the plaintiffs, Spouses Luis M. Ermitao and Manuelita C. Ermitao and against defendant BPI Express Card Corporation:
1. Ordering the said defendant to pay the plaintiffs the sum of P100,000.00 as moral damages.

2. Ordering said defendant to pay the plaintiffs the sum of P50,000.00 as exemplary damages.

3. Ordering said defendant to pay the plaintiffs the sum equivalent to twenty per cent (20%) of the amounts
abovementioned as and for attorneys fees and expenses of litigation; and

4. Ordering the said defendant to pay the costs of suit.

SO ORDERED.

But, on appeal this decision was reversed. The Court of Appeals stated that the spouses should be bound by the
contract, even though it was one of adhesion. It also said that Luis, being a lawyer, had all the tools to drive a hard
bargain had he wanted to.[6] It cited the case of Serra v. Court of Appeals[7] wherein this Court ruled that contracts of
adhesion are as binding as ordinary contracts. The petitioner in Serra was a CPA-lawyer, a highly educated man ... who
should have been more cautious in (his) transactions... [8] The Court of Appeals therefore disposed of the appeal as
follows:

THE FOREGOING CONSIDERED, the contested decision is REVERSED. Plaintiffs/appellees are hereby directed to pay
the defendant/appellant the amount of P3,197.70 with 3% interest per month and an additional 3% penalty equivalent to
the amount due every month until full payment. Without cost.

SO ORDERED.[9]

Hence, this recourse by petitioners, in which they claim that the Court of Appeals gravely erred in:

(i) Ruling that petitioners should be bound by the stipulations contained in the credit card application -- a document wholly
prepared by private respondent itself -- taking into consideration the professional credentials of petitioner Luis M. Ermitao;

(ii) Relying on the case of Serra v. Court of Appeals, 229 SCRA 60, because unlike that case, petitioners have no chance
at all to contest the stipulations appearing in the credit card application that was drafted entirely by private respondent,
thus, a clear contract of adhesion;

(iii) Ruling that private respondent is not estopped by its subsequent acts after having been notified of the loss/theft of the
credit card issued to petitioners; and

(iv) Holding that the onerous and unconscionable condition in the credit card application that the cardholder continues to
be liable for purchases made on lost or stolen credit cards not only after such notice has been given to appellant
but also after the latter has communicated such loss/ theft to its member establishments without any specific time or
period -- is valid.[10]

At the outset, we note that the contract between the parties in this case is indeed a contract of adhesion, so-called
because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion
thereto.[11] Such contracts are not void in themselves.[12] They are as binding as ordinary contracts. Parties who enter into
such contracts are free to reject the stipulations entirely. This Court, however, will not hesitate to rule out blind adherence
to such contracts if they prove to be too one-sided under the attendant facts and circumstances. [13]

The resolution of this petition, in our view, hinges on the validity and fairness of the stipulation on notice required by
private respondent in case of loss or theft of a BECC-issued credit card. Because of the peculiar nature of contracts of
adhesion, the validity thereof must be determined in light of the circumstances under which the stipulation is intended to
apply.[14]

The stipulation in question reads:

In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in writing 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.

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. [15]

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 member-
establishments. 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.

BECC asserts that the period that elapsed from the time of the loss of the card to the time of its unauthorized use
was too short such that it would be next to impossible for respondent to notify all its member-establishments regarding the
fact of the loss.[16] Nothing, however, prevents said member-establishments from observing verification procedures
including ascertaining the genuine signature and proper identification of the purported purchaser using the credit card.

BECC states that, between two persons who are negligent, the one who made the wrong possible should bear the
loss. We take this to be an admission that negligence had occurred.In effect, BECC is saying that the company, and the
member-establishments or the petitioners could be negligent. However, according to BECC, petitioners should be the
ones to bear the loss since it was they who made possible the commission of a wrong. This conclusion, however, is self-
serving and obviously untenable.

From one perspective, it was not petitioners who made possible the commission of the wrong. It could be BECC for
its failure to immediately notify its member-establishments, who appear lacking in care or instruction by BECC in proper
procedures, regarding signatures and the identification of card users at the point of actual purchase of goods or
services. For how else could an unauthorized person succeed to use Manuelitas lost card?

The cardholder was no longer in control of the procedure after it has notified BECC of the cards loss or theft. It was
already BECCs responsibility to inform its member-establishments of the loss or theft of the card at the soonest possible
time. We note that BECC is not a neophyte financial institution, unaware of the intricacies and risks of providing credit
privileges to a large number of people. It should have anticipated an occurrence such as the one in this case and devised
effective ways and means to prevent it, or otherwise insure itself against such risk.

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.[17]

On the matter of the damages petitioners are seeking, we must delete the award of exemplary damages, absent any
clear showing that BECC acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, as required by Article
2232 of the Civil Code. We likewise reduce the amount of moral damages to P50,000.00, considering the circumstances
of the parties to the case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 47888 is hereby REVERSED and the
decision of the Regional Trial Court, Branch 157, Pasig City in Civil Case No. 61375 is REINSTATED, with the
MODIFICATION that the award of exemplary damages in the amount of P50,000.00 is hereby deleted; and the amount of
moral damages is reduced to P50,000.00; but private respondent is further ordered to pay P25,000 as attorneys fees and
litigation expenses.

Costs against private respondents.

SO ORDERED.

Bellosillo (Chairman), Puno, Mendoza, and Buena, JJ., concur.