Ongkeko v. BPI Express Card Corporation
REITERATIONFacts
The Antecedents: On 1990-09-13, an application for a credit card was made with respondent and petitioner signed a surety undertaking. The card was renewed in 1991 and the credit limit was increased thereafter. As of 1996-05-12, the principal had an outstanding balance claimed by respondent. Respondent filed an action for sum of money on 1996-05-28 against the principal and petitioner as surety. Petitioner admitted his undertaking but contended liability was limited to the original credit limit and that renewal without his consent extinguished his obligation. Procedural History: The Metropolitan Trial Court of Makati rendered judgment on 2000-01-31 finding petitioner liable and awarding amounts, interest, and attorney's fees. The Regional Trial Court of Makati, Branch 135, affirmed in a Decision dated 2000-07-10 and issued an Order on 2000-10-02. The Court of Appeals affirmed the liability but deleted the award of attorney's fees in its Decision dated 2001-01-25 and Resolution dated 2001-02-23. Petitioner filed a petition for review on certiorari before the Supreme Court. The Petition: Petitioner contended that (a) he is not liable for purchases made after the expiration and renewal without his notice or consent, (b) the surety undertaking is a contract of adhesion that should be construed against respondent, and (c) changed circumstances at renewal extinguished his obligation. He sought relief from the lower courts' adverse rulings.
Issue(s)
Whether petitioner is liable for obligations incurred after the original credit card term and after renewal without petitioner's consent. Whether the renewal or modification of the credit card agreement constituted a novation that released petitioner from his surety obligation. Whether the characterization of the surety undertaking as a contract of adhesion renders it unenforceable against petitioner.
Ruling
The petition is DENIED for lack of merit. The Court affirmed that the surety undertaking executed by petitioner was clear, unambiguous, and contained an express waiver of discharge in case of change or novation and a provision making the undertaking continuing until full satisfaction of obligations. Double costs were imposed against petitioner.
Ratio Decidendi
On Whether petitioner is liable for obligations incurred after the original credit card term and after renewal without petitioner's consent: The Court held that petitioner is liable for the full extent of the principal's indebtedness because the surety undertaking he signed expressly bound him jointly and severally to pay all obligations, charges, and liabilities incurred under the credit card account, including those under renewals and extensions. The undertaking specifically provided that it would continue to be binding notwithstanding any change or novation in the terms and conditions governing the issuance and use of the credit card and would subsist until all obligations were fully paid and satisfied. Applying Molino v. Security Diners International Corporation, the Court emphasized that where the language of the surety undertaking is clear and unambiguous, the literal meaning controls and the surety cannot limit liability by reference to the credit limit indicated on the card. The Court also cited Pacific Banking Corporation v. IAC to reinforce that a guarantor's or surety's explicit waiver of discharge in case of novation makes the undertaking continuing and binding for the full amount of the principal's indebtedness. Given the plain language of petitioner's undertaking, there was no room for interpretation and only application was required to hold petitioner liable. On Whether the renewal or modification constituted a novation that released petitioner from his surety obligation: The Court recognized that a renewal or upgrading of a credit card may amount to a novation of the original agreement between the card issuer and the cardholder. However, the Court ruled that novation does not relieve a surety where the surety has expressly waived discharge in case of change or novation in the agreement governing the use of the card. The Court applied the principle as enunciated in Molino v. Security Diners International Corporation, noting that the petitioner there had expressly waived discharge and thus remained bound despite novation; the same situation is present here because petitioner's undertaking contains an identical waiver and a clear statement that the undertaking is continuing. The Court further relied on Article 1370 of the Civil Code to affirm that where contractual terms are clear, their literal meaning controls. Therefore, the existence of a novation between the cardholder and the issuer did not extinguish the surety's obligation because petitioner had contractually consented to remain bound. On Whether the characterization of the surety undertaking as a contract of adhesion renders it unenforceable against petitioner: The Court acknowledged that the surety undertaking is a contract of adhesion, prepared unilaterally by the card issuer and presented on a take-it-or-leave-it basis. Nonetheless, the Court reiterated established law that contracts of adhesion are "as binding as ordinary contracts," since the adhering party is free to reject the contract entirely. The Court reasoned that petitioner, being the employer of the principal and a presumably careful person, voluntarily and intelligently assumed the obligation. Because the terms of the undertaking are clear and unambiguous, the adhesive nature of the contract does not invalidate or diminish its enforceability. Consequently, the Court affirmed the liability arising from the clearly worded surety undertaking.
Main Doctrine
A surety undertaking that expressly waives discharge in case of change or novation and states that it is a continuing one binds the surety for the full extent of the principal's indebtedness until the obligation is fully paid, notwithstanding renewals or increases in credit limit.