Yulo vs. Bank of the Philippine Islands

When issuing a pre-screened or pre-approved credit card, the credit card provider bears the burden of proving that its client read and consented to the terms and conditions governing the credit card's use; failure to prove consent means that the client cannot be bound by the provisions of the terms and conditions, particularly regarding interest and penalties, despite admitted use of the credit card.

The Bank of the Philippine Islands issued pre-approved credit cards to Rainier Jose M. Yulo and his wife Juliet L. Yulo in October 2006 without requiring the usual application process. The spouses regularly used the cards for purchases and initially made regular payments. However, they began defaulting on their obligations by July 2008, accumulating a substantial outstanding balance.

• Issuance of Pre-Approved Credit Cards: On October 9, 2006, the Bank of the Philippine Islands issued Rainier Yulo a pre-approved credit card, with his wife Juliet receiving an extension card. No application form was submitted or signed by Rainier as a condition for issuance.
• Use and Default: The Yulo Spouses regularly charged goods and services on their respective cards and initially settled their accounts. By July 2008, they became delinquent, with their outstanding balance reaching ₱264,773.56 by November 29, 2008.
• Demand and Suit: The Bank sent demand letters on November 11, 2008 and February 12, 2009. On February 23, 2009, the Bank filed a complaint for sum of money before the Metropolitan Trial Court of Makati City.
• Defense: In their Answer, the spouses admitted using the credit cards but claimed their total liability was only ₱20,000.00. They alleged the Bank failed to fully disclose the Terms and Conditions governing the cards' use.
• Lower Court Findings: The Metropolitan Trial Court ruled in favor of the Bank on June 29, 2012, ordering payment of ₱229,378.68 plus reduced interest and penalty of 1% each per month, and ₱15,000.00 attorney's fees. The Regional Trial Court affirmed this on June 26, 2013, finding that the Delivery Receipt signed by Rainier's authorized representative, Jessica Baitan, proved consent to the Terms and Conditions. The Court of Appeals affirmed the RTC on February 20, 2015, noting the spouses' failure to contest the charges and Rainier's familiarity with contracts as an insurance underwriter.

• Failure to Prove Consent to Terms and Conditions: Petitioner maintained that the Bank failed to prove that Rainier consented to the Terms and Conditions, which were never presented as evidence. The Delivery Receipt did not establish that Jessica Baitan was authorized to accept the terms on Rainier's behalf.
• Invalidity of Statements of Account: Petitioner argued that the Statements of Account merely reflected alleged transactions and were not valid proof of obligation; only the signed transaction slips constituted valid proof.
• Unconscionable Contract Terms: Petitioner assailed the Terms and Conditions as written in fine print and excessively long sentences designed to be ignored, rendering them prejudicial to the public.
• Excessive Charges: Petitioner claimed the imposed charges and penalties were excessive, usurious, and contrary to morals.
• Reckoning Date for Interest: Petitioner conceded that the reduced interest rates were proper but insisted the reckoning period should be from March 9, 2008 (date of first default), not February 12, 2009 (date of written demand).

• Procedural Defects: Respondent countered that the petition raised pure questions of fact improper under Rule 45 and was pro-forma for raising issues already ruled upon by lower courts.
• Binding Effect of Use and Delivery: Respondent argued that petitioners' use of the credit cards bound them to the Terms and Conditions contained in the credit card packet's Delivery Receipt. The Delivery Receipt signed by authorized representative Jessica Baitan proved Rainier's consent.
• Admission of Liability: Respondent maintained that petitioners failed to present alternative computations or contest the specific errors in the billing statements, and their failure to dispute the charges signified acceptance of their veracity.

• Binding Nature of Terms and Conditions: Whether the petitioners are bound by the Terms and Conditions governing their use of the pre-approved credit cards issued by the respondent.

• Binding Nature of Terms and Conditions: The petitioners are not bound by the interest and penalty provisions in the Terms and Conditions. For pre-approved credit cards, the provider bears the burden of proving the client's consent to the terms. The Delivery Receipt showing Jessica Baitan received the card packet was insufficient to establish an agency relationship or that Rainier authorized Baitan to accept the Terms and Conditions on his behalf; the check mark beside "Authorized Representative" was self-serving and insufficient proof of consent under Articles 1868 and 1869 of the Civil Code. Without proof of consent, the stipulated interest and penalties are inapplicable.
• Liability for Principal Amount: Despite the lack of consent to the Terms and Conditions, a contractual relationship was created when petitioners used the cards to purchase goods and services. Petitioners are liable for the principal amount of the actual charges incurred, which Rainier admitted during cross-examination.
• Computation of Outstanding Balance: The outstanding balance of ₱229,378.68 as of the July 9, 2008 Statement of Account must be reduced by deducting finance charges, penalties, and interests totaling ₱9,321.17, leaving a principal balance of ₱220,057.51.
• Applicable Interest Rate: The principal amount of ₱220,057.51 shall earn legal interest of twelve percent (12%) per annum from November 11, 2008 (date of first extrajudicial demand) until June 30, 2013, and six percent (6%) per annum from July 1, 2013 until fully paid, pursuant to Nacar v. Gallery Frames.
• Attorney's Fees: The award of ₱15,000.00 as attorney's fees is deleted for lack of basis, the Metropolitan Trial Court having failed to state the factual or legal justification for the award as required.

• Pre-approved Credit Cards and Consent — When a credit card provider issues a pre-screened or pre-approved credit card, it bears the burden of proving that the client read and consented to the Terms and Conditions. The usual screening processes (application forms, submission of documents) are dispensed with in pre-approved cards, making the recipient's consent to the terms not immediately apparent. Failure to prove consent means the client cannot be bound by provisions regarding interest, penalties, or other charges, despite admitted use of the card.
• Agency Relationship — The elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; and (4) the agent acts within the scope of his authority. A contract of agency requires proof of the principal's consent or authority; mere receipt by a third party without proof of authorization is insufficient.
• Credit Card Liability Without Stipulated Terms — Where the credit card provider fails to prove the client's consent to the Terms and Conditions, the client remains liable for the principal amount charged but is liable only for legal interest (12% per annum from demand until June 30, 2013; 6% per annum thereafter until fully paid), not the stipulated interest and penalties.

• "When issuing a pre-screened or pre-approved credit card, the credit card provider must prove that its client read and consented to the terms and conditions governing the credit card's use. Failure to prove consent means that the client cannot be bound by the provisions of the terms and conditions, despite admitted use of the credit card." — Establishes the primary burden of proof for credit card issuers regarding pre-approved cards.
• "A contract of agency is created when a person acts for or on behalf of a principal, with the latter's consent or authority... Respondent fell short in establishing an agency relationship between petitioner Rainier and Baitan, as the evidence presented did not support its claim that petitioner Rainier authorized Baitan to act on his behalf." — Explains the insufficiency of the Delivery Receipt to prove agency.
• "Without proof that petitioner Rainier read and agreed to the Terms and Conditions of his pre-approved credit card, petitioners cannot be bound by it." — Direct statement on the consequence of failing to prove consent.
• "When petitioners accepted respondent's credit card by using it to purchase goods and services, a contractual relationship was created between them... However, with respondent's failure to prove petitioner Rainier's conformity and acceptance of the Terms and Conditions, petitioners cannot be bound by its provisions." — Distinguishes between liability for principal (from use) and liability for stipulated terms (from consent).

• Alcaraz v. Court of Appeals, 529 Phil. 77 (2006) — Controlling precedent establishing that credit card providers must prove consent to Terms and Conditions for pre-approved cards, and that failure to do so limits liability to legal interest.
• Ledda v. Bank of the Philippine Islands, 699 Phil. 273 (2012) — Followed for the proposition that attorney's fees require specific justification and for the rule regarding proof of consent to credit card terms.
• Rallos v. Felix Go Chan & Sons Realty Corporation, 171 Phil. 222 (1978) — Followed for the definition of the elements of agency.
• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Followed for the applicable rates of legal interest (12% until June 30, 2013; 6% thereafter).
• BPI Express Card Corporation v. Armovit, 745 Phil. 31 (2014) — Cited for the principle that Terms and Conditions constitute the law between parties (distinguished in this case due to lack of consent).

• Article 1868, Civil Code — Defines the contract of agency as a relationship where a person binds himself to render service or do something in representation of another, with the latter's consent or authority.
• Article 1869, Civil Code — Provides that agency may be express or implied from the acts, silence, or lack of action of the principal, and may be oral unless the law requires a specific form.
• Article 1169, Civil Code — Provides that those obliged to deliver or do something incur in delay from the time the obligee judicially or extrajudicially demands fulfillment of the obligation.

Peralta, (Chairperson), A. Reyes, Jr., Hernando, and Carandang.