Acol vs. Philippine Commercial Credit Card Incorporated

A stipulation in a credit card contract of adhesion that requires the card issuer's notification of its member establishments—rather than the cardholder's prompt notice of loss—to relieve the cardholder of liability for unauthorized charges is void for being contrary to public policy.

Manuel Acol held a Bankard credit card issued by respondent. Upon discovering its loss on April 18, 1987, he immediately reported it verbally and subsequently in writing. Before the issuer included the card in its cancellation bulletin on April 21, 1987, unauthorized purchases totaling P76,067.28 were made. The issuer billed Acol, relying on Provision No. 1 of the Terms and Conditions, which held the cardholder liable until a reasonable time after written notice of loss and actual inclusion in the cancellation bulletin.

• Issuance and Use: On August 20, 1982, petitioner Manuel Acol applied for and was issued a Bankard credit card and extension cards by respondent, which he used regularly for several years.
• Loss and Notice: Late in the evening of April 18, 1987, petitioner discovered the loss of his credit card. In the first hour of April 19, 1987, he verbally reported the loss to respondent's office. On April 20, 1987, he reiterated the report and, following respondent's instructions, sent a written notice of loss, which was received on April 22, 1987.
• Unauthorized Purchases and Cancellation: On April 19 and 20, 1987, an unidentified person used the lost card to purchase P76,067.28 worth of commodities. On April 21, 1987, respondent issued a special cancellation bulletin to its accredited establishments.
• Billing Dispute: Respondent billed petitioner for the unauthorized charges. Petitioner refused to pay, citing his prompt notice of loss. Respondent initially agreed to reverse the billings pending investigation and confirmed that petitioner did not make the purchases, but ultimately insisted on collection based on Provision No. 1 of the Terms and Conditions governing the card.

• Validity of Contract Provision: Petitioner argued that the contested provision in the contract of adhesion was contrary to public policy because the effectivity of the cancellation rested on an act entirely beyond the control of the cardholder.
• Unfairness of "Reasonable Time": Petitioner maintained that the phrase "reasonable time" gave the issuer the opportunity to profit from unauthorized charges despite receipt of immediate written notice, allowing indefinite delay in notification.

• Enforceability of Stipulation: Respondent argued that the stipulation was valid and binding, representing the most practicable procedure and policy of the company.
• Conditions for Relief: Respondent countered that the cardholder could only be relieved of liability upon the fulfillment of two conditions stipulated in the contract: receipt by the card issuer of written notice of loss and actual inclusion of the card in the cancellation bulletin.

• Validity of Adhesion Contract Stipulation: Whether the contested provision in the credit card contract of adhesion, requiring actual inclusion in the cancellation bulletin to relieve cardholder liability for unauthorized charges, is valid and binding.

• Validity of Adhesion Contract Stipulation: The provision was struck down as contrary to public policy. Prompt notice by the cardholder to the credit card company of the loss or theft of the card suffices to relieve the cardholder of liability for unauthorized use. Requiring the cardholder to wait until the credit card company has notified its member establishments puts the cardholder at the mercy of the issuer, which may delay notification indefinitely or fail to notify promptly through no fault of the cardholder. The phrase "reasonable time" allows the issuer to profit from unauthorized charges despite immediate written notice.

• Contracts of Adhesion and Public Policy — Stipulations in contracts of adhesion that are contrary to law, morals, good customs, public order, or public policy are void. In the context of credit card agreements, a stipulation requiring the card issuer's notification of member establishments—rather than the cardholder's prompt notice of loss—to relieve the cardholder of liability for unauthorized charges is contrary to public policy. The cardholder cannot be made to bear the risk of the issuer's delay or failure to notify its establishments after prompt notice has been given.

• "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."

• Ermitaño v. Court of Appeals, 365 Phil. 671 (1999) — Followed. The factual circumstances and the assailed contract stipulation were virtually identical. The rule was established that prompt notice by the cardholder suffices to relieve liability, and stipulations requiring issuer notification of member establishments as a condition for relieving liability are contrary to public policy.

• Article 1306, Civil Code — Prohibits contracting parties from establishing stipulations contrary to law, morals, good customs, public order, or public policy. Applied to strike down the credit card contract provision requiring actual inclusion in the cancellation bulletin before relieving the cardholder of liability, as such stipulation was found to be contrary to public policy.

Puno, Sandoval-Gutierrez, Azcuna, Garcia