G.R. No. 127246 . April 21, 1999.
SPOUSES LUIS M. ERMITAÑO and MANUELITA C. ERMITAÑO, petitioners, vs. THE COURT OF APPEALS AND BPI EXPRESS CARD CORP., respondents.

FACTS

Petitioners, spouses Luis and Manuelita Ermitaño, were cardholders of respondent BPI Express Card Corp. (BECC). On August 29, 1989, Manuelita’s bag containing her credit card was snatched. She reported the loss to BECC by telephone that same night and confirmed it in writing the next day, expressly stating she would not be responsible for subsequent charges. Despite this notice, unauthorized purchases were made with the lost card on August 30, 1989. BECC billed the spouses for these charges, invoking a stipulation in the credit card application form stating the cardholder remains liable for purchases made with a lost card until BECC receives notice and communicates that loss to its member-establishments. The spouses refused to pay, and BECC eventually suspended their credit privileges and demanded settlement. The spouses then sued for damages.
The trial court ruled in favor of the Ermitaños, declaring the contested stipulation void as contrary to public policy and for being a potestative condition dependent solely on BECC’s will. It also found the contract to be one of adhesion. The Court of Appeals reversed, holding the stipulation valid and binding, thus making the spouses liable for the unauthorized charges.

ISSUE

Whether the contractual stipulation making a cardholder liable for unauthorized purchases made with a lost card until the credit card company notifies its member-establishments is valid.

RULING

The Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision with modifications. The Court declared the stipulation void for being contrary to public policy. The legal logic is that a credit card company, as the entity issuing the cards and establishing the network with member-establishments, is in the best position to bear the risk of unauthorized use after a card is reported lost or stolen. It has the mechanisms and the responsibility to promptly disseminate notice of cancellation. To hold a cardholder liable until the company completes this internal notification places an unreasonable and unfair burden on the cardholder, who has already fulfilled his duty by giving prompt notice to the issuer. The condition effectively makes the cardholder’s liability dependent on the sole will of the company, which could delay notification indefinitely. Such a stipulation, found in a contract of adhesion prepared by the company, is unconscionable and violates the principle of equity. The cardholder’s prompt report of loss should be sufficient to absolve him of liability for subsequent unauthorized transactions. Consequently, the Ermitaños were not liable for the charges incurred after Manuelita reported the loss. The Court awarded moral damages and attorney’s fees, but deleted exemplary damages for lack of evidence of wanton or malevolent conduct by BECC.