SPOUSES RAINIER JOSE M. YULO AND JULIET L. YULO, PETITIONERS, VS. BANK OF THE PHILIPPINE ISLANDS, RESPONDENT.

Yulo versus Bank of the Philippine Islands

The Case

This is a petition for review on certiorari brought by Spouses Rainier Jose M. Yulo and Juliet L. Yulo against the Bank of the Philippine Islands, arising from a complaint for a sum of money filed by the bank to collect on unpaid credit card obligations. The spouses admit they used the cards but insist they were never shown, much less made to agree to, the Terms and Conditions that the bank says govern their account. The case matters because it fixes where the burden of proof lies when a bank issues a pre-approved or pre-screened credit card: the provider must prove that its client read and consented to the Terms and Conditions, and failure to do so means the client cannot be bound by them, even if he admittedly used the card.

Procedural History

The Bank of the Philippine Islands filed its complaint for a sum of money before the Metropolitan Trial Court of Makati City. After unsuccessful mediation, the case was re-raffled and tried. The Metropolitan Trial Court ruled for the bank, ordering the spouses to pay jointly and severally, but it equitably reduced the contractual interest and penalty from three percent each per month to one percent each per month, computed from demand, and awarded attorney's fees.

The spouses appealed to the Regional Trial Court of Makati City, which dismissed the appeal and affirmed the Metropolitan Trial Court in its entirety. The Regional Trial Court held that for pre-approved cards the bank bore the burden of proving consent, and found that burden discharged by a Delivery Receipt signed by Rainier's authorized representative and by his use of the card.

The spouses then filed a petition for review before the Court of Appeals, which denied the petition and affirmed the Regional Trial Court. The Court of Appeals likewise relied on the Delivery Receipt and on the spouses' failure to contest the charges in their monthly Statements of Account. The spouses elevated the matter to the Supreme Court through a petition for review on certiorari.

Facts

On October 9, 2006, the Bank of the Philippine Islands issued Rainier a pre-approved credit card, and his wife Juliet received an extension card on the same account. The spouses used the cards regularly, charging goods and services, and at first settled their accounts. By July 2008 they became delinquent, and their outstanding balance grew to 264,773.56 pesos by November 29, 2008.

The bank sent a demand letter on November 11, 2008 for 253,017.62 pesos, and another on February 12, 2009 for 325,398.42 pesos. On February 23, 2009, the bank sued for a sum of money before the Metropolitan Trial Court of Makati City.

In their Answer, the spouses admitted using the cards but claimed their total liability was only 20,000 pesos, and alleged that the bank never fully disclosed the Terms and Conditions. The bank presented a Delivery Receipt for the credit card packet, signed by one Jessica Baitan as Rainier's authorized representative. The bank did not present the Terms and Conditions themselves, and offered no proof of Baitan's authority beyond a check mark in a box beside the words authorized representative.

Issues

• Whether or not petitioners Rainier Jose M. Yulo and Juliet L. Yulo are bound by the Terms and Conditions on their use of the credit cards issued by respondent Bank of the Philippine Islands.

Applicable Provisions

Article 1868 of the Civil Code defines the contract of agency, which the Court uses to test whether Baitan could receive the card packet for Rainier:

ARTICLE 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

Without proof of Rainier's consent or authority, Baitan's receipt of the packet cannot be treated as his acceptance of the Terms and Conditions.

Article 1869 of the Civil Code tells us how agency may arise, and it is the basis for asking whether Rainier's acts or silence made Baitan his agent:

ARTICLE 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Agency may be oral, unless the law requires a specific form.

The Court finds nothing in the record from which such an implied agency could be drawn.

Article 1169 of the Civil Code fixes the moment of delay, which determines when legal interest begins to run on the reduced balance:

ARTICLE 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

The Court counts interest from the first extrajudicial demand, not from the date of default claimed by the spouses.

Ruling

On the sole issue, the Court ruled that the spouses are not bound by the Terms and Conditions, because the bank failed to prove that Rainier read and consented to them. When a card is issued pre-approved, the usual screening steps, such as filing an application form and submitting documents, are dispensed with, and the card is issued outright. Unlike an applicant who signs a form and expressly consents, a pre-screened holder's consent is not immediately apparent, so the provider bears the burden of proving it.

The Court found that burden unmet. The Delivery Receipt showed only that Baitan received the packet; it did not show her relationship to Rainier, and the bank offered no proof that Rainier authorized her, relying solely on a self-serving check mark. Applying the elements of agency, the Court held that no agency relationship was established between Rainier and Baitan.

Still, the Court held the spouses liable for the principal obligation. When they accepted the card by using it, a contractual relationship arose, and the Terms and Conditions would have been the law between the parties had consent been shown. Rainier himself admitted the purchases and did not dispute the transactions before his default. Following its earlier rulings, where consent to the Terms and Conditions is not proven, the client may be charged only legal interest. The Court therefore removed the finance charges, penalties, and interests of 9,321.17 pesos from the outstanding balance of 229,378.68 pesos, leaving 220,057.51 pesos, subject to twelve percent legal interest from the first extrajudicial demand until June 30, 2013, and six percent thereafter until fully paid. The award of 15,000 pesos in attorney's fees was deleted for lack of any factual or legal justification in the body of the trial court's decision.

Doctrine

When a credit card provider issues a pre-approved or pre-screened card, it must prove that the client read and consented to the Terms and Conditions governing the card's use. Failure to prove consent means the client cannot be bound by those provisions, despite admitted use of the card. Receipt of the card packet by a supposed authorized representative does not prove the client's consent unless the agency is itself established under Articles 1868 and 1869 of the Civil Code. Where consent is unproven, the client remains liable for the principal obligation, but only legal interest may be imposed, and any stipulated finance charges and penalties must be struck down.

Disposition

The petition was partially granted: the Court modified the Court of Appeals decision and directed the spouses to pay the bank 220,057.51 pesos plus twelve percent legal interest from November 11, 2008 until June 30, 2013 and six percent thereafter until fully paid, with the attorney's fees deleted.

Remember This

The one line to memorize: a pre-approved credit card holder cannot be bound by Terms and Conditions the provider never proved he read and consented to, and without that consent only legal interest may be charged. Examiners use this case on the burden of proof in pre-screened credit card contracts, on agency by a delivery receipt, and on the reduction of usurious charges to legal interest.