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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

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