Credit Card Companies Can Revoke Cards, But Must Avoid Negligence

TLDR: This case clarifies that credit card companies can revoke cards based on their agreements with cardholders. However, they must exercise due diligence to avoid causing undue harm or humiliation. A cardholder’s refusal to cooperate with verification procedures can negate claims of negligence against the company.

G.R. No. 138550, October 14, 2005

Introduction

Imagine being in a foreign country, ready to pay for your purchases, only to have your credit card confiscated and cut in half in front of your family. This embarrassing scenario highlights the importance of understanding the rights and responsibilities of both cardholders and credit card companies. What recourse do you have if your card is suddenly revoked? This case between American Express International, Inc. and Noel Cordero addresses the extent to which credit card companies are liable for damages when a card is revoked.

In 1991, Noel Cordero’s American Express extension card was confiscated and cut in half at a Watson’s Chemist Shop in Hong Kong, causing him significant embarrassment. Cordero sued American Express for damages, claiming that the company’s negligence led to his public humiliation. The central legal question revolved around whether American Express was liable for damages due to the card confiscation and the alleged failure to notify Cordero about a prior attempted fraudulent use of his card number.

Legal Context: Quasi-Delict and Contractual Obligations

This case hinges on the legal concept of quasi-delict, as defined in Article 2176 of the Civil Code of the Philippines. This article states: “Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.” However, the Court also clarified that the existence of a contract does not automatically preclude a claim for quasi-delict. A breach of contract can also be a tort, allowing the application of tort rules.

Proximate cause is another critical element. Proximate cause is defined as the cause that, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. Determining proximate cause involves considering logic, common sense, policy, and precedent.

Furthermore, the Cardmember Agreement plays a crucial role. Paragraph 16 of the agreement states: “The Card remains our property and we can revoke your right and the right of any Additional Cardmember to use it at any time, we can do this with or without giving you notice… The revocation, repossession or request for the return of the Card is not, and shall not constitute any reflection of your character or credit-worthiness and we shall not be liable in any way for any statement made by any person requesting the return or surrender of the Card.”

Case Breakdown: The Hong Kong Incident

The story unfolds in Hong Kong, where Noel Cordero, along with his family, was on vacation. The key events are:

• November 29, 1991: The Cordero family arrives in Hong Kong for a three-day trip.
• November 30, 1991: Cordero attempts to use his American Express extension card at Watson’s Chemist Shop.
• The sales clerk calls American Express to verify the card.
• Susan Chong, the store manager, confiscates and cuts the card in half.
• Nilda Cordero, Noel’s wife, pays with her own American Express card.
• Nilda calls American Express in Hong Kong and learns about a previous attempted fraudulent use of a card with the same number.

Cordero filed a complaint for damages, arguing that American Express’s failure to inform him of the prior incident led to his humiliation. The trial court initially ruled in favor of Cordero. The Court of Appeals affirmed the trial court’s decision but reduced the amount of damages awarded.

However, the Supreme Court reversed the lower courts’ decisions. The Court emphasized that Cordero’s refusal to speak with American Express’s representative was the direct cause of the card confiscation. As the Supreme Court noted:

“When Watson Company called AEII for authorization, AEII representative requested that he talk to Mr. Cordero but he refused to talk to any representative of AEII. AEII could not prove then that he is really the real card holder.”

The Court further stated:

“To be sure, pursuant to the above stipulation, petitioner can revoke respondent’s card without notice, as was done here. It bears reiterating that the subject card would not have been confiscated and cut had respondent talked to petitioner’s representative and identified himself as the genuine cardholder. It is thus safe to conclude that there was no negligence on the part of petitioner and that, therefore, it cannot be held liable to respondent for damages.”

Practical Implications: Lessons for Cardholders and Companies

This case offers several important takeaways for both credit card companies and cardholders.

For credit card companies, it reinforces the right to revoke cards under the terms of their agreements. However, it also implies a duty to act reasonably and avoid causing unnecessary harm to cardholders. Proper verification procedures and clear communication are essential.

For cardholders, this case highlights the importance of understanding the terms and conditions of their credit card agreements. It also demonstrates the need to cooperate with verification procedures to avoid potential issues. Refusing to verify one’s identity can lead to card confiscation, negating claims of negligence against the company.

Key Lessons

• Read Your Agreement: Understand the terms and conditions of your credit card agreement, particularly the clauses related to card revocation.
• Cooperate with Verification: If a merchant or credit card company requests verification, comply promptly to avoid complications.
• Communicate Clearly: Maintain open communication with your credit card company to address any concerns or issues proactively.

Frequently Asked Questions

Q: Can a credit card company revoke my card without notice?

A: Yes, according to the standard credit card agreements, companies often reserve the right to revoke cards without prior notice. This is usually stipulated in the cardmember agreement.

Q: What should I do if my credit card is confiscated?

A: Remain calm and ask for a clear explanation. If possible, contact your credit card company immediately to understand the reason for the confiscation and explore potential solutions.

Q: Am I entitled to compensation if my credit card is wrongly confiscated?

A: It depends on the circumstances. If the confiscation was due to the company’s negligence or a breach of contract, you may be entitled to compensation. However, if the confiscation was due to your refusal to cooperate with verification, your claim may be weakened.

Q: What is the best way to avoid credit card fraud?

A: Monitor your credit card statements regularly, use strong passwords for online accounts, and be cautious when sharing your credit card information online or over the phone.

Q: How does the “Inspect Airwarn Support System” work?

A: This system flags cards suspected of unauthorized use. When a flagged card is presented, the merchant must verify the cardholder’s identity. If the identity is confirmed, the card is honored; otherwise, it may be confiscated.

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