This series of articles on the subject, “What credit cardholders should know about interest and penalties on credit card transactions” is a public service to enlighten credit cardholders on the subject of interests and penalties relating to their credit card transactions.

On September 17, 2009, the Supreme Court promulgated its decision in the much-publicized case entitled Ileana Dr. Macalinao (Petitioner) vs. Bank of the Philippine Islands (Respondent) – a case which deals on the rates of interest and penalty relating to credit card transaction.

The Macalinao case is an appeal to the Supreme Court by a credit cardholder of BPI Mastercard of a decision of the lower courts [Metropolitan Trial Court of Makati (MeTC), Regional Trial Court (RTC) of Makati City and Court of Appeals (CA)] – basically on the matter of the amount of monthly interest rate and monthly penalty rate that petitioner Macalinao should be paying BPI for the use of her BPI Mastercard.

The facts of the case show that Petitioner Macalinao defaulted in paying for her purchases as a credit cardholder of BPI Mastercard although she made previous partial payments. Under the provisions of the Agreement between Macalinao and BPI (embodying the Terms and Conditions governing the issuance and use of the credit card), the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month.

Upon default of payment by Macalinao, BPI sent a letter dated January 5, 2004 demanding payment from Macalinao in the amount of P141,518.34. For failure of Macalinao to pay, BPI filed a complaint with the Metropolitan Trial Court (MeTC) of Makati against Macalinao and her husband Danilo Macalinao. Despite the fact that a copy of the complaint was served to the Macalinao spouses, they failed to file their answer. BPI then moved that the judgment be rendered in accordance with Section 6 of the Rule on Summary Procedure.

Section 6 of the Rule on Summary Procedure states that: “Should the defendant fail to answer the complaint within the period above provided, the court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts alleged in the complaint and limited to what is prayed for therein: Provided, however, that the court may in its discretion reduce the amount of damages and attorney’s fees claimed for being excessive or otherwise unconscionable. x x x ”

In its complaint, BPI prayed for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos and seventy-eight centavos (P154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorney’s fees, and of the cost of suit.

The decision of the Metropolitan Trial Court (MeTC) was for petitioner Macalinao and her husband to pay the amount of P141,518.34 plus 2% interest and penalty charges per month from January 5, 2004 until fully paid.

The above-mentioned decision of the Metropolitan Trial Court (MeTC) was appealed by Macalinao and her husband to the Regional Trial Court (RTC) of Makati City. The Regional Trial Court (RTC) affirmed the decision of the Metropolitan Trial Court (MeTC) on October 14, 2004.

Petitioner Macalinao later filed a petition for review with the Court of Appeals (CA). (Macalinao filed the petition before the Court of Appeals (CA) alone since her husband died on October 18, 2005) The Court of Appeals (CA) affirmed the decision of the Regional Trial Court (RTC) with modification as to total amount due and the rate of interest and penalty charges. More specifically, the Court of Appeals (CA) increased the interest and penalty charges from 2% to 3% per month from January 5, 2004 until fully paid and the total amount was decreased from P141,518.34 to P126,706.70.

The basis of the decision of Court of Appeals (CA) to increase the rate of interest and penalty charges imposed by the Regional Trial Court (RTC) is the Agreement between BPI and the spouses Macalinao (embodying the Terms and Conditions governing the issuance and use of the BPI Credit Card) which stipulates, among others, a 3% monthly rate of interest and an additional penalty fee equivalent to another 3% of the amount due for every month.

The Court of Appeals (CA) further said that “respondent BPI should not compound the interest in the instant case in the absence of a stipulation to that effect. The CA also held, however, that the MeTC erred in modifying the amount of interest rate from 3% to monthly to only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general public. It explained that contracts of adhesion are not invalid per se and are not entirely prohibited.” (Emphasis supplied)

One may ask: What is a Contract of Adhesion?

In the case of Philippine Commercial Bank vs Court of Appeals and Rory W. Lim (G.R. No. 97785, March 29, 1996), the Supreme Court said, “A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.”

In the same aforementioned case, the Court further said: “It is equally important to stress, though, that the Court is not precluded from ruling out blind adherence to their terms if the attendant facts and circumstances show that they should be ignored for being obviously too one-sided. Indeed, Article 21 of the Civil Code is quite explicit in providing that "[a]ny person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." Freedom of contract is subject to the limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is not binding and will not be enforced.”

In short, the Agreement between Macalinao and BPI is a standard application form which Macalinao may accept or reject but definitely the latter cannot modify or amend. This Agreement is an example of a Contract of Adhesion. (TO BE CONTINUED)