Monday, April 4, 2011

CREDIT CAN’T WAIT (Awarding damages for an unreasonably long wait to get a credit card purchase approved/disapproved)

By Siesta-friendly

“[O]ne hour appears to be an awfully long, patently unreasonable length of time to approve or disapprove a credit card purchase” –  Supreme Court (Polo S. Pantaleon vs. American Express International, Inc, G.R. No. 174269, May 8, 2009)

In a nutshell, such was the reasoning behind the Supreme Court’s reinstatement of the Regional Trial Court’s decision awarding American Express credit cardholder Atty. Panteleon P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorney’s fees, and P85,233.01 as expenses of litigation. Sweet.

Well, maybe not so, at the time of the incident complained about by said Amex card owner. 

The facts are best lifted verbatim from the decision. Don’t worry, the paragraphs may be long but they are an easy read -

“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.


[On] 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. 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.  Mrs. Pantaleon also selected for purchase a pendant and a chain, 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. 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. 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. 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.

[A]fter coming back to Manila, Pantaleon sent a letter 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. In response, respondent sent a letter dated 24 March 1992, 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.”  Since respondent refused to accede to Pantaleon’s demand for an apology, the aggrieved cardholder instituted an action for damages with the [RTC]. Pantaleon prayed that he be awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary damages; P100,000.00, as attorney’s fees; and P50,000.00 as  litigation expenses.

So, was the approximately 1 hour delay by Amex in approving or disapproving its cardholder’s purchase a breach of its obligation to the latter?

We already know what the RTC held. On appeal by Amex to the CA, the latter found no breach on Amex’s part and decided against Atty. Pantaleon.

The CA’s decision was based on the traditional role of creditor-debtor between credit card companies and credit cardholders, respectively. Citing the principle of mora accipiendi (which is delay on the part of the creditor to accept the performance of the obligation), the CA held that Amex, as creditor, may be held liable if it refuses performance of its obligation without just cause.

The CA found that Amex’s “delay was not attended by bad faith, malice, or gross negligence" and that Amex “had exercised diligent efforts to effect the approval” of the purchase because the purchases were “not in accordance with the charge pattern” of Atty. Pantaleon since at the Coster Diamond House, he was “making his very first single charge purchase of US$13,826,” and “the record of [his] past spending with [Amex] at the time [did] not favorably support his ability to pay for such purchase.”

The SC, however, held that Atty. Pantaleon was instead correct in citing the principle of mora solvendi (delay on the part of the debtor to fulfill his obligation), not mora accipiendi.  The traditional role of a credit card company as creditor applies when the cardholder has already incurred a debt.  In this case, the debt had not yet been created; the purchase was still pending approval or disapproval by Amex.  Thus, under mora solvendi, Amex is not creditor but debtor “insofar as it has the obligation to the customer … to act promptly on its purchases on credit.”

So, was Amex guilty of delay?

The SC found culpable delay on the part of Amex citing the findings of the RTC where both parties admitted that “normal approval time for purchases was a matter of seconds”. 

The SC admits:

“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.

Ok, now that delay was established, are the P500,000 moral damages awarded correct?  The original prayer was for P5,000,000.

The SC further admits that –

“defendant 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.”

The SC found the RTC’s findings below sufficient in establishing that Amex acted fraudulently or in bad faith justifying the award for moral damages –

“While it is true that the Cardmembership Agreement, which [Amex] 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.

x   x   x

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…


[Amex Manila’s credit authorizer] further testified that there were no “delinquencies” in plaintiff’s account.

Thus, the SC found that culpable delay existed pursuant to Art. 1170 of the Civil Code which reads:

“Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.”

And that such delay caused Atty. Pantaleon injuries enumerated in Art. 2217 of the Civil Code, namely, “moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation” which gave rise to Amex’s liability for moral damages. 

What’s the moral of the story? Credit card companies, don’t let lawyers your customers wait for an unreasonably long time to approve or disapprove their credit card purchases. And saying sorry, as originally demanded, could avoid expensive litigation.



dabo said...

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The Legally Inclined said...

thank you dabo.