Case Summary (A.C. No. 12424)
Relevant Dates and Applicable Law
- Credit card issuance: 1989, with expiration in March 1993
- Incident date of refused payment: November 21, 1992
- Payment settlement by Armovit: April 1, 1992
- Correspondences and suspension notices: March-April 1992
- Regional Trial Court (RTC) decision date: April 22, 1996
- Court of Appeals (CA) decision date: February 26, 2004
- Supreme Court decision date: October 8, 2014
- Applicable law: 1987 Philippine Constitution; New Civil Code provisions, including Articles 2208, 2220, 2232, 1371, and 1377; Rules of Court embodying the Parol Evidence Rule.
Factual Background and Claims
Armovit was issued a BPI Express credit card with a P20,000 credit limit. On November 21, 1992, her card was declined during payment because BPI Express Card had cancelled her credit privileges due to alleged non-payment for three months. Armovit denied any default and claimed she was never informed of any requirement to re-apply for reactivation of her credit card. BPI Express Card contended that Armovit failed to pay her obligations timely, suspended her card accordingly, and that she failed to comply with the submission of a new application form as a requisite for reactivation. They also claimed to have notified her of these conditions.
Procedural History
Armovit filed suit against BPI Express Card for damages, alleging negligence and bad faith. She sought P2,000,000 in damages for embarrassment and humiliation. BPI Express Card countered by asserting lack of cause and justifying suspension under the contract’s terms. The RTC ruled in favor of Armovit, ordering payment of moral damages (P100,000), exemplary damages (P10,000), attorney’s fees (P10,000), and costs of suit. The CA affirmed this judgment in 2004. BPI Express Card filed a motion for reconsideration which was denied, leading to this Supreme Court appeal.
Issue Presented
Whether the Court of Appeals erred in affirming the award of moral and exemplary damages in favor of Armovit against BPI Express Card for the wrongful suspension of her credit card privileges.
Contractual Relationship and Terms Governing Credit Cards
The Supreme Court recognized that the credit card-holder and issuer relationship is contractual and governed by the terms and conditions stipulated in the card membership agreement. These terms serve as binding law between the parties. Any breach entitles recovery of moral damages only if the issuer acted fraudulently or with bad faith.
Definition and Threshold of Bad Faith and Negligence
The Court explained that bad faith or malice connotes a deliberate and dishonest design to inflict injury but also recognized that gross negligence may be equivalent to bad faith under Article 2220 of the Civil Code. Reckless, wanton disregard of contractual obligations can justify moral and exemplary damages.
Analysis of the Terms and Conditions and Notice Requirements
The Court examined the printed terms and conditions accompanying the credit card applications and concluded that they did not explicitly impose the submission of a new application form as a precondition for reactivating the card after temporary suspension. Imposing such a condition without clear written agreement would contravene the Parol Evidence Rule, which prohibits adding new terms not contained in the written agreement.
The Court further noted that contemporaneous communications—demand letters dated March 19 and March 31, 1992—only indicated that payment of outstanding obligations was required to lift the suspension. The absence of explicit instructions for submitting a new application form meant that BPI Express Card’s claim imposing such a requirement was unsupported by the contract or prior notice.
Construction of Contract as Adhesion and Interpretation Against Drafter
Acknowledging that credit card contracts are contracts of adhesion drafted unilaterally by the issuer, the Court construed ambiguous provisions against BPI Express Card. The unclear language of the April 8, 1992 letter, which vaguely requested submission of an application form for “reevaluation,” did not serve as a clear condition precedent to reactivation.
Findings on BPI Express Card’s Conduct and Negligence
The Court agreed with the CA’s finding that BPI Express Card acted negligently and in bad faith by suspending Armovit’s credit card despite her compliance with payment, and by failing to give clear notice of any additional requirements for reactivation. The inadvertent
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Facts of the Case
- Ma. Antonia R. Armovit was issued a pre-approved BPI Express Credit Card in 1989 with a P20,000.00 credit limit, set to expire end of March 1993.
- On November 21, 1992, Armovit attempted to use her credit card to pay a lunch bill, only to find it was cancelled and thus dishonored, causing her extreme embarrassment as she lacked sufficient cash and her guests had to share the payment.
- Upon inquiry, Armovit was informed her credit card privileges were suspended due to alleged failure to pay outstanding obligations. She denied any default and demanded P2,000,000.00 as compensation for the humiliation suffered.
- BPI Express Credit alleged it had sent a telegraphic message on March 19, 1992 requesting payment of arrears for three months, and that failure to comply led to the credit card suspension effective March 31, 1992.
- The bank claimed it notified Armovit of the suspension and cautioned against card usage to avoid embarrassment, and further that although the debt was settled by April 1992, she did not submit a required application form to reactivate the card privileges.
- BPI Express Credit later sent an apology telegraphic message on March 12, 1993 mistakenly including Armovit’s card in a Caution List, acknowledging error.
- Armovit sued for damages claiming she was a good-standing cardholder with no unpaid balances.
- BPI Express Credit raised defenses including lack of cause of action and stated suspension was due to default consistent with card terms and conditions; they also claimed the use of the suspended card was wrongful as she failed to comply with reactivation requirements.
Trial Court Ruling
- The Regional Trial Court (RTC) ruled in favor of Armovit on April 22, 1996.
- The RTC found that the terms and conditions governing the credit card use were first made known to Armovit only on April 8, 1992, after suspension.
- It held that Armovit could not be blamed for non-compliance with the reactivation requirements unknown to her.
- The RTC ruled that payment made on April 1, 1992, rendered the suspension unjustified.
- It found no clear evidence that submission of an application form was a precondition to lift suspension.
- BPI Express Credit was found negligent and acting in bad faith.
- Damages awarded include