Case Digest: Pantaleon vs American Express Bank (2010)

Facts:
AMEX is a corporation engaged in providing credit services through the operation of a charge card system.
Pantaleon was a cardholder since 1980.

Pantaleon, his wife, daughter and son went on a guided European tour and subsequently arrived in
Amsterdam. While in Coster Diamond House, his wife wanted to purchase some diamond pieces,
amounting to $13, 826. Pantaleon presented his credit card which was swiped. He was then asked to sign
the charge slip which was electronically transferred to AMEX’s Amsterdam office. However, Coster was
not able to receive approval from AMEX for the purchase so Pantaleon asked the clerk to cancel the sale.
The store manager convinced Pantaleon to wait for a few minutes and subsequently told Pantaleon that
AMEX was asking for bank references and Pantaleon responded by giving names of his Phil. depository
banks. Still, it was not approved. But Coster decided to release the items even without AMEX’s approval
since the tour couldn’t go on without them.

In all, it took AMEX a total of 78 minutes to approve Pantaleon’s purchase and to transmit the approval
to the jewelry store.

This was followed by two similar incidents when the family then had another trip to the US. They also
experienced inconvenience using the AMEX credit card in purchasing golf equipment and children’s shoes.

When they got to Manila, Pantaleon sent a letter to AMEX, demanding an apology for the humiliation
and inconvenience. AMEX responded that the delay in Amsterdam was due to the amount involved,
saying that the purchase deviated from his established charge purchase pattern. Dissatisfied, Pantaleon
filed an action for damages in RTC.

The testimony of AMEX’s credit authorizer Edgardo Jaurique, the approval time for credit card charges
would be three to four seconds under regular circumstances. Here, it took AMEX 78 minutes to approve
the Amsterdam purchase. SC attributed the unwarranted delay to Jaurique, who had to go over Pantaleon’s
past credit history, his payment record and his credit and bank references before he approved the purchase.
In 2009, the SC reversed the ruling in CA; and said that AMEX was guilty of mora solvendi or debtor’s
default. AMEX as debtor had an obligation as the credit provider to act on Pantaleon’s purchase requests,
whether to approve or disapprove them, with "timely dispatch."

Hence, this motion for reconsideration.

Issue: WON AMEX is liable for breach of its contractual obligations and is liable for damages.

Ruling:
No, AMEX is not liable for breach of contractual obligation with Pantaleon and is not liable for damages.
The Court had the occasion to present the nature of credit card transactions which involves three (3)
contracts. (a) the sales contract between the credit card holder and the merchant; (b) the loan agreement
between the credit card issuer and holder; and (c) the promise to pay between the credit card issuer and
the merchant.

Philippine jurisdiction generally adheres to the Gray ruling, recognizing the relationship between the credit
card issuer and holder as a contractual one that is governed by the terms and conditions found in the card
membership agreement. A card membership agreement is a contract of adhesion.

With regard to AMEX’s obligations, Pantaleon assumes that since his credit card has no pre-set spending
limit, AMEX has to approve all charge requests. However, the Court said that there is first a need to
distinguish a relationship between credit card issuer-holder to a creditor-debtor relationship. In an issuer-
holder relationship, it relates merely to an agreement providing for credit facility to the holder. On the other
hand, in a creditor-debtor relationship, it involves the actual credit on loan agreement involving three
contracts.

When cardholders use their cards to pay, they merely offer to enter into loan agreements with the company.
It is only after the approval do the parties enter into binding loan contracts, in keeping with NCC 1319.This
is supported in the reservation found in the card membership agreement which clearly states that AMEX
"reserves the right to deny authorization for any requested Charge."

Thus, since AMEX has no obligation to approve purchase requests, Pantaleon can’t claim that AMEX
defaulted. In this case, there is no demandable obligation. Before the credit card issuer accepts this offer,
no obligation relating to the loan agreement exists between them. A demand presupposes the existence of
an obligation between the parties. Moreover, AMEX is not bound or obligated to act on its cardholders’
purchase requests within any specific period of time.

Since there is no legal injury or breach of any contractual obligation on the part of AMEX, it is not liable
to pay damages to Pantaleon.

XXXX

G.R. No. 174269, May 8 2009 [Credit Transaction]

FACTS:

After the Amsterdam incident that happened involving the delay of American Express Card to approve
his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon commenced a complaint for
moral and exemplary damages before the RTC against American Express. He said that he and his family
experienced inconvenience and humiliation due to the delays in credit authorization. RTC rendered a
decision in favor of Pantaleon. CA reversed the award of damages in favor of Pantaleon, holding that
AmEx had not breached its obligations to Pantaleon, as the purchase at Coster deviated from Pantaleon's
established charge purchase pattern.

ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.

RULING:
1. Yes. The popular notion that credit card purchases are approved “within seconds,” there really is no
strict, legally determinative point of demarcation on how long must it take for a credit card company to
approve or disapprove a customer’s purchase, much less one specifically contracted upon by the parties.
One hour appears to be patently unreasonable length of time to approve or disapprove a credit card
purchase.

The culpable failure of AmEx herein is not the failure to timely approve petitioner’s purchase, but the
more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that
AmEx’s credit authorizers did not have sufficient basis on hand to make a judgment, we see no reason
why it could not have promptly informed Pantaleon the reason for the delay, and duly advised him that
resolving the same could take some time.

2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred delay, but
because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article
2217 of the Civil Code for which moral damages are remunerative. The somewhat unusual attending
circumstances to the purchase at Coster – that there was a deadline for the completion of that purchase by
petitioner before any delay would redound to the injury of his several traveling companions – gave rise to
the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation sustained by
Pantaleon, as concluded by the RTC.
G.R. No. 174269 May 8, 2009

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.

DECISION

TINGA, J.:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the
second to the last day of the tour. As the group had arrived late in the city, they failed to engage in
any sight-seeing. Instead, it was agreed upon that they would start early the next day to see the
entire city before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The group
was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond
polishing that lasted for around ten minutes.1 Afterwards, the group was led to the store’s showroom
to allow them to select items for purchase. Mrs. Pantaleon had already planned to purchase even
before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in
approximation that she decided to buy.2 Mrs. Pantaleon also selected for purchase a pendant and a
chain,3 all of which totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour
group was slated to depart from the store. The sales clerk took the card’s imprint, and asked
Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondent’s Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved.
His son, who had already boarded the tour bus, soon returned to Coster and informed the other
members of the Pantaleon family that the entire tour group was waiting for them. As it was already
9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon
asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more
minutes. After 15 minutes, the store manager informed Pantaleon that respondent had demanded
bank references. Pantaleon supplied the names of his depositary banks, then instructed his
daughter to return to the bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the
items even without respondent’s approval of the purchase. The spouses Pantaleon returned to the
bus. It is alleged that their offers of apology were met by their tourmates with stony silence.4 The tour
group’s visible irritation was aggravated when the tour guide announced that the city tour of
Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry
at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while her husband had to take a
tranquilizer to calm his nerves.

It later emerged that Pantaleon’s purchase was first transmitted for approval to respondent’s
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondent’s Manila office at 9:33
a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was transmitted to
respondent’s Amsterdam office at 10:38 a.m., several minutes after petitioner had already left
Coster, and 78 minutes from the time the purchases were electronically transmitted by the jewelry
store to respondent’s Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use
his AmEx card, several times without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money
instead from a friend, after more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase children’s shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by
respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and
his family thereby suffered" for respondent’s refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating
among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase
pattern established."10 Since respondent refused to accede to Pantaleon’s demand for an apology,
the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of
Makati City, Branch 145.11 Pantaleon prayed that he be awarded ₱2,000,000.00, as moral damages;
₱500,000.00, as exemplary damages; ₱100,000.00, as attorney’s fees; and ₱50,000.00 as litigation
expenses.12

On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding him
₱500,000.00 as moral damages, ₱300,000.00 as exemplary damages, ₱100,000.00 as attorney’s
fees, and ₱85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while
Pantaleon moved for partial reconsideration, praying that the trial court award the increased amount
of moral and exemplary damages he had prayed for.14 The RTC denied Pantaleon’s motion for
partial reconsideration, and thereafter gave due course to respondent’s Notice of Appeal.15

On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages in
favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence,
this petition.

The key question is whether respondent, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it still remained liable for
damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondent’s
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of
seconds." Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on the
part of respondent in approving the purchases. However, it made two critical conclusions in favor of
respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had
established for himself, as exemplified by the fact that at Coster, he was "making his very first single
charge purchase of US$13,826," and "the record of [petitioner]’s past spending with [respondent] at
the time does not favorably support his ability to pay for such purchase."17

On the premise that there was an obligation on the part of respondent "to approve or disapprove with
dispatch the charge purchase," petitioner argues that the failure to timely approve or disapprove the
purchase constituted mora solvendi on the part of respondent in the performance of its obligation.
For its part, respondent characterizes the depiction by petitioner of its obligation to him as "to
approve purchases instantaneously or in a matter of seconds."

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that
the obligation is demandable and liquidated; the debtor delays performance; and the creditor
judicially or extrajudicially requires the debtor’s performance.18 Petitioner asserts that the Court of
Appeals had wrongly applied the principle of mora accipiendi, which relates to delay on the part of
the obligee in accepting the performance of the obligation by the obligor. The requisites of mora
accipiendi are: an offer of performance by the debtor who has the required capacity; the offer must
be to comply with the prestation as it should be performed; and the creditor refuses the performance
without just cause.19 The error of the appellate court, argues petitioner, is in relying on the invocation
by respondent of "just cause" for the delay, since while just cause is determinative of mora
accipiendi, it is not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor,20 with the
card company as the creditor extending loans and credit to the card holder, who as debtor is obliged
to repay the creditor. This relationship already takes exception to the general rule that as between a
bank and its depositors, the bank is deemed as the debtor while the depositor is considered as the
creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and again see the credit
card company as the debtor/obligor, insofar as it has the obligation to the customer as
creditor/obligee to act promptly on its purchases on credit.

Ultimately, petitioner’s perspective appears more sensible than if we were to still regard respondent
as the creditor in the context of this cause of action. If there was delay on the part of respondent in
its normal role as creditor to the cardholder, such delay would not have been in the acceptance of
the performance of the debtor’s obligation (i.e., the repayment of the debt), but it would be delay in
the extension of the credit in the first place. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on credit, has already
been constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry) had
not yet been perfected, as it remained pending the approval or consent of the respondent credit card
company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioner’s
purchases with "timely dispatch," or for the purposes of this case, within a period significantly less
than the one hour it apparently took before the purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioner’s purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customer’s purchase request, whether such action
be favorable or unfavorable. We quote the trial court, thus:

As to the first issue, both parties have testified that normal approval time for purchases was a matter
of seconds.

Plaintiff testified that his personal experience with the use of the card was that except for the three
charge purchases subject of this case, approvals of his charge purchases were always obtained in a
matter of seconds.

Defendant’s credit authorizer Edgardo Jaurique likewise testified:

Q. – You also testified that on normal occasions, the normal approval time for charges would
be 3 to 4 seconds?

A. – Yes, Ma’am.

Both parties likewise presented evidence that the processing and approval of plaintiff’s charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of
seconds".

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the
time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the Credit
Authorization System (CAS) record of defendant at Phoenix Amex shows that defendant’s
Amsterdam office received the request to approve plaintiff’s charge purchase at 9:20 a.m.,
Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at
10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese [sic] "Positive
Identification of Card holder necessary further charges require bank information due to high
exposure. By Jack Manila."

The delay in the processing is apparent to be undue as shown from the frantic successive queries of
Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how
long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times
Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase
referred to it, yet it sat on its hand, unconcerned.

xxx

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix
time from 01:20 when the charge purchased was referred for authorization, defendants own record
shows:

01:22 – the authorization is referred to Manila Amexco

01:32 – Netherlands gives information that the identification of the cardmember has been
presented and he is buying jewelries worth US $13,826.

01:33 – Netherlands asks "How long will this take?"

02:08 – Netherlands is still asking "How long will this take?"

The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act
on his use of the card abroad "with special handling."22 (Citations omitted)
 xxx

Notwithstanding the popular notion that credit card purchases are approved "within seconds," there
really is no strict, legally determinative point of demarcation on how long must it take for a credit card
company to approve or disapprove a customer’s purchase, much less one specifically contracted
upon by the parties. Yet this is one of those instances when "you’d know it when you’d see it," and
one hour appears to be an awfully long, patently unreasonable length of time to approve or
disapprove a credit card purchase. It is long enough time for the customer to walk to a bank a
kilometer away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase
"in timely dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly,
had respondent disapproved petitioner’s purchase "within seconds" or within a timely manner, this
particular action would have never seen the light of day. Petitioner and his family would have
returned to the bus without delay – internally humiliated perhaps over the rejection of his card – yet
spared the shame of being held accountable by newly-made friends for making them miss the
chance to tour the city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and
that the cardholder is within his means to make such transaction. The culpable failure of respondent
herein is not the failure to timely approve petitioner’s purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even assuming that respondent’s credit
authorizers did not have sufficient basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way, petitioner would have had informed
basis on whether or not to pursue the transaction at Coster, given the attending circumstances.
Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land and
soon forced to confront the wrath of foreign folk.

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad
faith, and the court should find that under the circumstances, such damages are due. The findings of
the trial court are ample in establishing the bad faith and unjustified neglect of respondent,
attributable in particular to the "dilly-dallying" of respondent’s Manila credit authorizer, Edgardo
Jaurique.23 Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the
amount of time it should take defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires "special handling", meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or traveller’s checks, which can be
delivered and accepted quickly. Such right was not accorded to plaintiff in the instances complained
off for reasons known only to defendant at that time. This, to the Court’s mind, amounts to a wanton
and deliberate refusal to comply with its contractual obligations, or at least abuse of its rights, under
the contract.24

xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it
alleges to have consumed more than one hour to simply go over plaintiff’s past credit history with
defendant, his payment record and his credit and bank references, when all such data are already
stored and readily available from its computer. This Court also takes note of the fact that there is
nothing in plaintiff’s billing history that would warrant the imprudent suspension of action by
defendant in processing the purchase. Defendant’s witness Jaurique admits:

Q. – But did you discover that he did not have any outstanding account?

A. – Nothing in arrears at that time.

Q. – You were well aware of this fact on this very date?

A. – Yes, sir.

Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s account.25

It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to
the particular injuries under Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster – that
there was a deadline for the completion of that purchase by petitioner before any delay would
redound to the injury of his several traveling companions – gave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as
concluded by the RTC.27 Those circumstances are fairly unusual, and should not give rise to a
general entitlement for damages under a more mundane set of facts.

We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-
fast rule in determining what would be a fair and reasonable amount of moral damages, since each
case must be governed by its own peculiar facts, however, it must be commensurate to the loss or
injury suffered.28 Petitioner’s original prayer for ₱5,000,000.00 for moral damages is excessive under
the circumstances, and the amount awarded by the trial court of ₱500,000.00 in moral damages
more seemly. 1avvphi 1

Likewise, we deem exemplary damages available under the circumstances, and the amount of
₱300,000.00 appropriate. There is similarly no cause though to disturb the determined award of
₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil
Case No. 92-1665 is hereby REINSTATED. Costs against respondent.

SO ORDERED