Pantaleon vs. American Express International, Inc.
involving three contracts, namely: the sales contract
629 SCRA 276, G.R. No. 174269 August 25, 2010 between the credit card holder and the merchant or the Resolution business establishment which accepted the credit card; the loan agreement between the credit card issuer and the Credit Cards; Words and Phrases.—A credit card is credit card holder; and the promise to pay between the defined as “any card, plate, coupon book, or other credit credit card issuer and the merchant or business device existing for the purpose of obtaining money, goods, establishment. From the loan agreement perspective, the property, labor or services or anything of value on credit.” contractual relationship begins to exist only upon the It traces its roots to the charge card first introduced by the meeting of the offer and acceptance of the parties Diners Club in New York City in 1950. American Express involved. In more concrete terms, when cardholders use followed suit by introducing its own charge card to the their credit cards to pay for their purchases, they merely American market in 1958. In the Philippines, the now offer to enter into loan agreements with the credit card defunct Pacific Bank was responsible for bringing the first company. Only after the latter approves the purchase credit card into the country in the 1970s. However, it was requests that the parties enter into binding loan contracts, only in the early 2000s that credit card use gained wide in keeping with Article 1319 of the Civil Code. acceptance in the country, as evidenced by the surge in the number of credit card holders then. Same; Default; Requisites; Since the credit card company has no obligation to approve the purchase requests of its Same; Every credit card transaction involves three credit cardholders, the cardholder cannot claim that the contracts— the sales contract, the loan agreement, and former defaulted in its obligation—without a demandable the promise to pay.—Simply put, every credit card obligation, there can be no finding of default.—Since transaction involves three contracts, namely: (a) the sales American Express International, Inc. (AMEX) has no contract between the credit card holder and the merchant obligation to approve the purchase requests of its credit or the business establishment which accepted the credit cardholders, Pantaleon cannot claim that AMEX defaulted card; (b) the loan agreement between the credit card in its obligation. Article 1169 of the Civil Code, which issuer and the credit card holder; and lastly, (c) the provides the requisites to hold a debtor guilty of culpable promise to pay between the credit card issuer and the delay, states: “Article 1169. Those obliged to deliver or to merchant or business establishment. do something incur in delay from the time the obligee judicially or extrajudicially demands from them the Same; Contracts of Adhesion.—In our jurisdiction, we fulfillment of their obligation.” x x x. The three requisites for generally adhere to the Gray ruling, recognizing the a finding of default are: (a) that the obligation is relationship between the credit card issuer and the credit demandable and liquidated; (b) the debtor delays card holder as a contractual one that is governed by the performance; and (c) the creditor judicially or terms and conditions found in the card membership extrajudicially requires the debtor’s performance. Based agreement. This contract provides the rights and liabilities on the above, the first requisite is no longer met because of a credit card company to its cardholders and vice versa. AMEX, by the express terms of the credit card agreement, We note that a card membership agreement is a contract is not obligated to approve Pantaleon’s purchase request. of adhesion as its terms are prepared solely by the credit Without a demandable obligation, there can be no finding card issuer, with the cardholder merely affixing his of default. signature signifying his adhesion to these terms. This circumstance, however, does not render the agreement Same; Same; A demand presupposes the existence of an void; we have uniformly held that contracts of adhesion obligation between the parties.—Apart from the lack of any are “as binding as ordinary contracts, the reason being demandable obligation, we also find that Pantaleon failed that the party who adheres to the contract is free to reject to make the demand required by Article 1169 of the Civil it entirely.” The only effect is that the terms of the contract Code. As previously established, the use of a credit card are construed strictly against the party who drafted it. to pay for a purchase is only an offer to the credit card company to enter a loan agreement with the credit card Same; In more concrete terms, when cardholders use holder. Before the credit card issuer accepts this offer, no their credit cards to pay for their purchases, they merely obligation relating to the loan agreement exists between offer to enter into loan agreements with the credit card them. On the other hand, a demand is defined as the company—only after the latter approves the purchase “assertion of a legal right; x x x an asking with authority, requests that the parties enter into binding loan claiming or challenging as due.” A demand presupposes contracts.—Although we recognize the existence of a the existence of an obligation between the parties. relationship between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the Same; The right to review a card holder’s credit history, terms of the card membership agreement (customarily although not specifically set out in the card membership signified by the act of the cardholder in signing the back of agreement, is a necessary implication of the credit card the credit card), we have to distinguish this contractual company’s right to deny authorization for any requested relationship from the creditor-debtor relationship which charge.—AMEX’s credit authorizer, Edgardo Jaurigue, only arises after the credit card issuer has approved the explained that having no pre-set spending limit in a credit cardholder’s purchase request. The first relates merely to card simply means that the charges made by the an agreement providing for credit facility to the cardholder. cardholder are approved based on his ability to pay, as The latter involves the actual credit on loan agreement demonstrated by his past spending, payment patterns, and personal resources. Nevertheless, every time Same; The Court holds that AMEX is neither contractually Pantaleon charges a purchase on his credit card, the bound nor legally obligated to act on its cardholders’ credit card company still has to determine whether it will purchase requests within any specific period of time, much allow this charge, based on his past credit history. This less a period of a “matter of seconds”—the standard right to review a card holder’s credit history, although not therefore is implicit and, as in all contracts, must be based specifically set out in the card membership agreement, is on fairness and reasonableness, read in relation to the a necessary implication of AMEX’s right to deny Civil Code provisions on human relations.—In light of the authorization for any requested charge. foregoing, we find and so hold that AMEX is neither contractually bound nor legally obligated to act on its Same; Even if the cardholder did prove that the credit card cardholders’ purchase requests within any specific period company, as a matter of practice or custom, acted on its of time, much less a period of a “matter of seconds” that customers’ purchase requests in a matter of seconds, this Pantaleon uses as his standard. The standard therefore is would still not be enough to establish a legally implicit and, as in all contracts, must be based on fairness demandable right—as a general rule, a practice or custom and reasonableness, read in relation to the Civil Code is not a source of a legally demandable or enforceable provisions on human relations, as will be discussed below. right.—As for Pantaleon’s previous experiences with AMEX (i.e., that in the past 12 years, AMEX has always Same; Human Relations; Abuse of Rights; Damages; In approved his charge requests in three or four seconds), the context of a credit card relationship, although there is this record does not establish that Pantaleon had a legally neither a contractual stipulation nor a specific law requiring enforceable obligation to expect AMEX to act on his the credit card issuer to act on the credit card holder’s charge requests within a matter of seconds. For one, offer within a definite period of time, the principles set out Pantaleon failed to present any evidence to support his in Article 19 of the Civil Code provide the standard by assertion that AMEX acted on purchase requests in a which to judge the credit card company’s actions.—Article matter of three or four seconds as an established practice. 19 pervades the entire legal system and ensures that a More importantly, even if Pantaleon did prove that AMEX, person suffering damage in the course of another’s as a matter of practice or custom, acted on its customers’ exercise of right or performance of duty, should find purchase requests in a matter of seconds, this would still himself without relief. It sets the standard for the conduct not be enough to establish a legally demandable right; as of all persons, whether artificial or natural, and requires a general rule, a practice or custom is not a source of a that everyone, in the exercise of rights and the legally demandable or enforceable right. performance of obligations, must: (a) act with justice, (b) give everyone his due, and (c) observe honesty and good Same; A survey of Philippine law on credit card faith. It is not because a person invokes his rights that he transactions demonstrates that the State does not require can do anything, even to the prejudice and disadvantage credit card companies to act upon its cardholders’ of another. While Article 19 enumerates the standards of purchase requests within a specific period of time.—Nor conduct, Article 21 provides the remedy for the person can Pantaleon look to the law or government issuances as injured by the willful act, an action for damages. We the source of AMEX’s alleged obligation to act upon his explained how these two provisions correlate with each credit card purchases within a matter of seconds. As the other in GF Equity, Inc. v. Valenzona 462 SCRA 466 following survey of Philippine law on credit card (2005): “[Article 19], known to contain what is commonly transactions demonstrates, the State does not require referred to as the principle of abuse of rights, sets certain credit card companies to act upon its cardholders’ standards which must be observed not only in the exercise purchase requests within a specific period of time. of one’s rights but also in the performance of one’s duties. Republic Act No. 8484 (RA 8484), or the Access Devices These standards are the following: to act with justice; to Regulation Act of 1998, approved on February 11, 1998, is give everyone his due; and to observe honesty and good the controlling legislation that regulates the issuance and faith. The law, therefore, recognizes a primordial limitation use of access devices, including credit cards. The more on all rights; that in their exercise, the norms of human salient portions of this law include the imposition of the conduct set forth in Article 19 must be observed. A right, obligation on a credit card company to disclose certain though by itself legal because recognized or granted by important financial information to credit card applicants, as law as such, may nevertheless become the source of well as a definition of the acts that constitute access some illegality. When a right is exercised in a manner device fraud. As financial institutions engaged in the which does not conform with the norms enshrined in business of providing credit, credit card companies fall Article 19 and results in damage to another, a legal wrong under the supervisory powers of the Bangko Sentral ng is thereby committed for which the wrongdoer must be Pilipinas (BSP). BSP Circular No. 398 dated August 21, held responsible. But while Article 19 lays down a rule of 2003 embodies the BSP’s policy when it comes to credit conduct for the government of human relations and for the cards—“The Bangko Sentral ng Pilipinas (BSP) shall maintenance of social order, it does not provide a remedy foster the development of consumer credit through for its violation. Generally, an action for damages under innovative products such as credit cards under conditions either Article 20 or Article 21 would be proper.” In the of fair and sound consumer credit practices. The BSP context of a credit card relationship, although there is likewise encourages competition and transparency to neither a contractual stipulation nor a specific law requiring ensure more efficient delivery of services and fair dealings the credit card issuer to act on the credit card holder’s with customers.” (Emphasis supplied) offer within a definite period of time, these principles provide the standard by which to judge AMEX’s actions. Same; Same; Same; Same.—It is an elementary rule in is the loss, hurt, or harm which results from the injury; and our jurisdiction that good faith is presumed and that the damages are the recompense or compensation awarded burden of proving bad faith rests upon the party alleging it. for the damage suffered. Thus, there can be damage Although it took AMEX some time before it approved without injury in those instances in which the loss or harm Pantaleon’s three charge requests, we find no evidence to was not the result of a violation of a legal duty. In such suggest that it acted with deliberate intent to cause cases, the consequences must be borne by the injured Pantaleon any loss or injury, or acted in a manner that person alone, the law affords no remedy for damages was contrary to morals, good customs or public policy. We resulting from an act which does not amount to a legal give credence to AMEX’s claim that its review procedure injury or wrong. These situations are often called damnum was done to ensure Pantaleon’s own protection as a absque injuria.” In other words, in order that a plaintiff may cardholder and to prevent the possibility that the credit maintain an action for the injuries of which he complains, card was being fraudulently used by a third person. he must establish that such injuries resulted from a breach Pantaleon countered that this review procedure is of duty which the defendant owed to the plaintiff—a primarily intended to protect AMEX’s interests, to make concurrence of injury to the plaintiff and legal responsibility sure that the cardholder making the purchase has enough by the person causing it. The underlying basis for the means to pay for the credit extended. Even if this were the award of tort damages is the premise that an individual case, however, we do not find any taint of bad faith in such was injured in contemplation of law. Thus, there must first motive. It is but natural for AMEX to want to ensure that it be a breach of some duty and the imposition of liability for will extend credit only to people who will have sufficient that breach before damages may be awarded; and the means to pay for their purchases. AMEX, after all, is breach of such duty should be the proximate cause of the running a business, not a charity, and it would simply be injury. ludicrous to suggest that it would not want to earn profit for its services. Thus, so long as AMEX exercises its rights, performs its obligations, and generally acts with good faith, BPI Investment Corporation vs. Court of Appeals with no intent to cause harm, even if it may occasionally 377 SCRA 117, G.R. No. 133632 February 15, 2002 inconvenience others, it cannot be held liable for damages. Obligations and Contracts; Loans; A loan contract is not a consensual contract but a real contract, perfected only Same; Same; Same; Same.—In Nikko Hotel Manila upon the delivery of the object of the contract.—We agree Garden v. Reyes, 452 SCRA 532 (2005), we ruled that a with private respondents. A loan contract is not a person who knowingly and voluntarily exposes himself to consensual contract but a real contract. It is perfected only danger cannot claim damages for the resulting injury: “The upon the delivery of the object of the contract. Petitioner doctrine of volenti non fit injuria (“to which a person misapplied Bonnevie. The contract in Bonnevie declared assents is not esteemed in law as injury”) refers to self- by this Court as a perfected consensual contract falls inflicted injury or to the consent to injury which precludes under the first clause of Article 1934, Civil Code. It is an the recovery of damages by one who has knowingly and accepted promise to deliver something by way of simple voluntarily exposed himself to danger, even if he is not loan. negligent in doing so.” This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the Same; Same; While a perfected loan contract can give most basic rule when travelling in a tour group is that you rise to an action for damages, said contract does not must never be a cause of any delay because the schedule constitute the real contract of loan which requires the is very strict. When Pantaleon made up his mind to push delivery of the object of the contract for its perfection and through with his purchase, he must have known that the which gives rise to obligations only on the part of the group would become annoyed and irritated with him. This borrower.—In Saura Import and Export Co. Inc. vs. was the natural, foreseeable consequence of his decision Development Bank of the Philippines, 44 SCRA 445, to make them all wait. petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application through a board Same; Same; Same; Same; Principle of Damnum Absque resolution. Thereafter, the corresponding mortgage was Injuria; Words and Phrases; There is a material distinction executed and registered. However, because of acts between damages and injury—injury is the illegal invasion attributable to petitioner, the loan was not released. Later, of a legal right while damage is the loss, hurt, or harm petitioner instituted an action for damages. We recognized which results from the injury; There can be damage in this case, a perfected consensual contract which under without injury in those instances in which the loss or harm normal circumstances could have made the bank liable for was not the result of a violation of a legal duty.—More not releasing the loan. However, since the fault was importantly, AMEX did not violate any legal duty to attributable to petitioner therein, the court did not award it Pantaleon under the circumstances under the principle of damages. A perfected consensual contract, as shown damnum absque injuria, or damages without legal wrong, above, can give rise to an action for damages. However, loss without injury. As we held in BPI Express Card v. CA, said contract does not constitute the real contract of loan 296 SCRA 260 (1998): “We do not dispute the findings of which requires the delivery of the object of the contract for the lower court that private respondent suffered damages its perfection and which gives rise to obligations only on as a result of the cancellation of his credit card. However, the part of the borrower. there is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage Same; Same; A contract of loan involves a reciprocal rights which were violated by BPIIC. For this purpose, the obligation, wherein the obligation or promise of each party amount of P25,000 is sufficient. is the consideration for that of the other; It is a basic principle in reciprocal obligations that neither party incurs Same; Same; Same; Same; Attorney’s Fees; An award of in delay, if the other does not comply or is not ready to attorney’s fees is warranted where a party was compelled comply in a proper manner with what is incumbent upon to litigate.—As in SSS where we awarded attorney’s fees him.—We also agree with private respondents that a because private respondents were compelled to litigate, contract of loan involves a reciprocal obligation, wherein we sustain the award of P50,000 in favor of private the obligation or promise of each party is the consideration respondents as attorney’s fees. for that of the other. As averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the Producers Bank of the Philippines vs. CA monthly amortization commencing on May 1, 1981, one 397 SCRA 651, G.R. No. 115324 February 19, 2003 month after the supposed release of the loan. It is a basic principle in reciprocal obligations that neither party incurs Civil Law; Contracts; Loan; Distinguished from in delay, if the other does not comply or is not ready to Commodatum; Article 1933 of the Civil Code distinguishes comply in a proper manner with what is incumbent upon between the two kinds of loans.—By the contract of loan, him. Only when a party has performed his part of the one of the parties delivers to another, either something not contract can he demand that the other party also fulfills his consumable so that the latter may use the same for a own obligation and if the latter fails, default sets in. certain time and return it, in which case the contract is Consequently, petitioner could only demand for the called a commodatum; or money or other consumable payment of the monthly amortization after September 13, thing, upon the condition that the same amount of the 1982 for it was only then when it complied with its same kind and quality shall be paid, in which case the obligation under the loan contract. Therefore, in computing contract is simply called a loan or mutuum. Commodatum the amount due as of the date when BPIIC extrajudicially is essentially gratuitous. Simple loan may be gratuitous or caused the foreclosure of the mortgage, the starting date with a stipulation to pay interest. In commodatum, the is October 13, 1982 and not May 1, 1981. bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. Same; Same; Foreclosure of Mortgage; Damages; Where the borrower was irregular in the payment of its monthly Same; Quasi-Delicts; Employer-Employee Relationship; amortization, it may not claim moral and exemplary Solidary Liability; Employers shall be held primarily and damages due to the erroneous foreclosure proceedings solidarily liable for damages caused by their employees initiated by the creditor-mortgagor.—Private respondents acting within the scope of their assigned tasks.—Under counter that BPIIC was guilty of bad faith and should be Article 2180 of the Civil Code, employers shall be held liable for said damages because it insisted on the payment primarily and solidarily liable for damages caused by their of amortization on the loan even before it was released. employees acting within the scope of their assigned tasks. Further, it did not make the corresponding deduction in the To hold the employer liable under this provision, it must be monthly amortization to conform to the actual amount of shown that an employer-employee relationship exists, and loan released, and it immediately initiated foreclosure that the employee was acting within the scope of his proceedings when private respondents failed to make assigned task when the act complained of was committed. timely payment. But as admitted by private respondents Case law in the United States of America has it that a themselves, they were irregular in their payment of corporation that entrusts a general duty to its employee is monthly amortization. Conformably with our ruling in SSS, responsible to the injured party for damages flowing from we cannot properly declare BPIIC in bad faith. the employee’s wrongful act done in the course of his Consequently, we should rule out the award of moral and general authority, even though in doing such act, the exemplary damages. employee may have failed in its duty to the employer and disobeyed the latter’s instructions. Same; Same; Same; Same; The negligence of the creditor-mortgagor in relying merely on the entries found in the deed of mortgage, without checking and correspondingly adjusting its records on the amount actually released to the borrower and the date when it was released, which negligence resulted in damages to the latter, entitles the borrower to an award of nominal damages in recognition of its rights which were violated.— In our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking and correspondingly adjusting its records on the amount actually released to private respondents and the date when it was released. Such negligence resulted in damage to private respondents, for which an award of nominal damages should be given in recognition of their