American Express International, Inc. vs. Court of Appeals

Failure to indicate the dates on charge record forms does not constitute a breach of the Travel Agreement where the date requirement is merely incidental and not a determining condition of the parties' primary undertaking; forgery cannot be presumed and must be proved by clear, positive and convincing evidence.

American Express International, Inc. (AMEXCO) is a foreign corporation doing business in the Philippines through the American Express Card Service, while M R Travel Services, Inc. (M R Travel) is a domestic corporation transacting business as a travel agency. On 10 July 1986, they entered into a Travel Agreement under which AMEXCO cardholders could charge purchases of travel services from M R Travel. The agreement required, among others, that the card be presented before expiration and without notice of cancellation, that the card and charge record form bear the same signature, and that AMEXCO's responsibility be limited to $100.00 unless it had previously authorized a larger charge. M R Travel was also required to send completed charge record forms at least once each week indicating the dates when charges were incurred; otherwise, AMEXCO would not answer for charges not sent within ten days from the date they were incurred.

American Express International, Inc. (AMEXCO), a foreign corporation doing business in the Philippines through the American Express Card Service, and M R Travel Services, Inc. (M R Travel), a domestic travel agency, entered into a Travel Agreement on 10 July 1986. Under the agreement, AMEXCO cardholders could charge purchases of travel services from M R Travel on the following conditions: (a) the card had to be presented before expiration and, at the time of presentation, M R Travel must not have been notified of its cancellation; (b) the card had to bear the signature of the person whose name was stamped on its face, and the charge record form signed by the customer had to bear the same signature; and (c) AMEXCO's responsibility was limited to $100.00 unless it had previously authorized M R Travel to accept a larger charge. M R Travel was also required to send AMEXCO completed charge record forms at least once each week indicating the dates when the charges were incurred; otherwise, AMEXCO would not answer for charges not sent to it within ten days from the date they were incurred.

On 14 December 1987, M R Travel sent AMEXCO five charge record forms reflecting charge purchases made by AMEXCO cardholders: Samat Kadir, 12/08/87, P29,468.04, S/A No. 0326; Woon Man Voon, 12/10/87, P28,935.00, S/A No. 0335; Lau Lee Chuan A., 12/12/87, P23,533.60, S/A No. 0341; Carl McCabe, 12/14/87, P31,794.00, S/A No. 0343; and John Demoss, 12/14/87, P31,794.00, S/A No. 0347, for a total of P145,524.64. AMEXCO refused to honor these accounts on the ground that the dates of the transactions were not indicated in the forms and that the charges were confirmed by the cardholders concerned to have been fraudulently made. As to John Demoss, AMEXCO claimed that the signature on the charge record form was not that of the cardholder; as to Carl McCabe, its charge record form contained no approval code. M R Travel demanded payment but to no avail, and on 4 January 1988 AMEXCO unilaterally terminated the Travel Agreement.

M R Travel then commenced a suit for collection and damages against AMEXCO. The trial court found that (a) M R Travel failed to secure prior authorization from AMEXCO to charge beyond $100.00; (b) all five charge record forms did not reflect the dates when the charges were incurred, which was fatal because the period of payment was to be reckoned from those dates; (c) M R Travel failed to verify the identities of the cardholders because the airplane tickets bought on credit with the AMEXCO cards were not in the name of the AMEXCO cardholders; and (d) the signatures of the AMEXCO cardholders were forged because the cards concerned were reported lost and/or stolen and the signatures on the charge slips were different from those of the cardholders. The trial court concluded that M R Travel violated the agreement and that AMEXCO was justified in refusing to pay its claims.

At trial, Miguel Licarte, AMEXCO's fraud analyst, testified that upon verification the cardholders denied using their cards because they were outside the Philippines at the time the transactions were supposedly made. Marlyn Rosas testified that M R Travel followed its normal procedure in verifying the identities of the cardholders. The cardholders themselves were never presented before the trial court.

• Licarte's Testimony: Petitioner argued that the testimony of Miguel Licarte, AMEXCO's fraud analyst, was conclusive in establishing the trial court's findings; Licarte testified that upon verification the cardholders denied using their cards because they were outside the Philippines, from which it could be deduced that the cards were stolen or lost and the signatures on the charge record forms were forged. Petitioner maintained that the Court of Appeals had no reason to discard Licarte's testimony and label it hearsay, and that since no objection was made when the testimonial evidence was presented, it should be admitted and given value as such, citing Top Weld Manufacturing, Inc. vs. ECED.
• Date Requirement and Breach: Petitioner contended that the Court of Appeals erred in finding substantial compliance because it failed to apply Article 1159 of the New Civil Code, which provides that obligations have the force of law between the parties. The Travel Agreement clearly required the date to be indicated on the charge record forms, since the dates were the basis for billing the cardholders and for AMEXCO's policy not to be obligated by charges not sent within ten days from the dates incurred; failure to indicate the dates was therefore a breach.
• Negligence and Proximate Cause: Petitioner asserted that when one or two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss. Since the fraud was successfully perpetrated because of M R Travel's negligence in ascertaining the identity of the cardholders and in securing authorization from AMEXCO, M R Travel alone should bear the loss.

• Date Requirement: M R Travel pointed out that the lack of a date could not have led to the automatic denial of the charge slip because AMEXCO could still confirm the purchase with the cardholder or through records in AMEXCO's possession; the date was used for billing the cardholder, not the establishment.
• Forgery and Loss: M R Travel pointed out that it was the usual standard operating procedure for credit companies to require their cardholders to report a loss immediately, but Licarte failed to dwell on this matter; because M R Travel was not notified of any cancellation of cards, the allegation of theft or loss became doubtful if not highly questionable.
• Negligence: M R Travel maintained that it followed its normal procedure in verifying the identities of the cardholders, that the exercise of ordinary diligence was sufficient in previous transactions, and that it could not be required to observe a different degree of diligence. It also argued that it could not be faulted in its method of securing authorization because AMEXCO prescribed the procedure itself, and compliance resulted in the release of approval codes except for Carl McCabe, whose transaction no longer needed one according to an AMEXCO employee.

• Admissibility and Weight of Licarte's Testimony: Whether the Court of Appeals erred in discarding Licarte's testimony as hearsay and whether that testimony sufficiently established that the AMEXCO cards were stolen or lost and that the signatures on the charge record forms were forged.
• Date Requirement and Breach: Whether M R Travel breached the Travel Agreement by failing to indicate the dates on the charge record forms.
• Forgery: Whether AMEXCO proved forgery of the cardholders' signatures by clear, positive and convincing evidence.
• Negligence and Proximate Cause: Whether M R Travel's alleged negligence in verifying cardholder identities and securing authorization was the proximate cause of the loss, such that it should bear the loss.

• Admissibility and Weight of Licarte's Testimony: Admissible, but insufficient. The testimony did not qualify as hearsay and had to be admitted, yet it was admitted only to establish the utterance of the cardholders' denials, not their truth, and thus failed to prove theft, loss, or forgery.
• Date Requirement and Breach: No. Failure to indicate the dates did not constitute a breach because the date requirement was merely incidental and not a determining condition of the Travel Agreement.
• Forgery: No. Forgery cannot be presumed; it must be proved by clear, positive and convincing evidence, and AMEXCO failed to conduct the required signature examination or comparison.
• Negligence and Proximate Cause: No. M R Travel followed its normal verification procedure and the authorization procedure prescribed by AMEXCO, so no negligence could be imputed to it.

• Admissibility and Weight of Licarte's Testimony: The hearsay rule admits an exception where, regardless of the truth or falsity of a statement, the fact that it has been made is relevant; where the fact sought to be established is that certain words were spoken, without reference to their truth or falsity, the testimony of a person who heard the statement is original evidence and not hearsay. Such evidence, however, is admitted merely to establish the utterance of the words and not their truth. Licarte's testimony underscored his conversations with the cardholders and their denials, which simply established that AMEXCO verified the transactions and that Licarte was told the cardholders did not use their cards because they were outside the Philippines. Whether the cardholders actually used their cards or were out of the country was never ascertained; the cardholders were never presented in court. Thus, despite admission, the testimony did not sufficiently establish the truth of AMEXCO's claims and failed to prove the theft or loss of the cards, especially since Licarte did not elucidate how the theft occurred and was later reported, and did not dwell on the standard operating procedure requiring immediate loss reporting. Moreover, under the Travel Agreement, AMEXCO was obliged to notify M R Travel of any cancellation of cards; absent such notification, M R Travel was called upon to honor any AMEXCO card presented, making the allegation of theft or loss doubtful. Licarte's testimony likewise failed to demonstrate forgery; he only stated that the cardholders denied making the transactions, from which forgery cannot be deduced. AMEXCO should have conducted an examination of the signatures before the court and made a comparison of their differences and similarities, as required by Section 22, Rule 132 of the Rules of Court.
• Date Requirement and Breach: Article 1159 of the New Civil Code provides that obligations arising from contracts have the force of law between the parties, but the failure to indicate the dates on the charge record forms cannot lead to the conclusion that M R Travel failed to comply with its obligations. The indispensability of the date requirement was belied by Licarte's own testimony that the date was used for billing the cardholder, not the establishment. The lack of a date could not have led to automatic denial of the charge slip because AMEXCO could still confirm the purchase with the cardholder or through records in its possession. The primary object of the agreement was to enable AMEXCO cardholders to purchase travel services from M R Travel and charge these through their cards; with or without the date, the obligation of one to provide travel services and the other to be charged with the purchases stood. The date requirement was only incidental to this primary consideration and was required more for the convenience of the parties rather than as a determining condition of the agreement. The agreement would continue to subsist absent compliance with this stipulation, and the omission was not fatal.
• Forgery: Forgery cannot be presumed; it must be proved by clear, positive and convincing evidence. AMEXCO merely relied on Licarte's statement that the cardholders denied having made the transactions because they were allegedly not in the Philippines, but forgery cannot be deduced from such denial. In imputing a discrepancy between the signatures on the charge forms and those on the credit cards and AMEXCO's records, AMEXCO should have conducted an examination of the signatures before the court and compared their differences and similarities to satisfy the demands of evidence. Having failed to introduce ample proof to substantiate its claim of forgery, AMEXCO's case had no leg to stand on.
• Negligence and Proximate Cause: The principle that when one or two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss, did not apply because no negligence could be imputed to M R Travel. Marlyn Rosas testified that M R Travel followed its normal procedure in verifying the identities of the cardholders, and the exercise of ordinary diligence had been sufficient in previous transactions made by AMEXCO cardholders; M R Travel could not thereafter be required to observe a different degree of diligence. M R Travel also could not be faulted in its method of securing authorization because AMEXCO prescribed the procedure itself, and compliance with that procedure resulted in the release of approval codes, except for Carl McCabe, whose transaction, according to an AMEXCO employee, no longer needed one. Thus, no negligence was imputed to M R Travel.

• Hearsay Rule — Utterance Exception — Under the hearsay rule, evidence based on what was told to a witness is generally hearsay and without evidentiary weight. An exception exists where, regardless of the truth or falsity of a statement, the fact that it was made is relevant; where the fact sought to be established is that certain words were spoken, without reference to their truth or falsity, the testimony of a person who heard the statement is original evidence and not hearsay. Such evidence is admitted only to establish the utterance, not the truth of the words. Applied to Licarte's testimony, it was admissible to show that cardholders made denials, but not to prove that they did not use their cards or were abroad; hence it failed to prove theft, loss, or forgery.
• Forgery Must Be Proved by Clear, Positive and Convincing Evidence — Forgery cannot be presumed; it must be proved by clear, positive and convincing evidence. AMEXCO's reliance on cardholders' denials and alleged signature discrepancies, without a signature examination or comparison before the court, was insufficient to establish forgery.
• Substantial Compliance and Incidental Contractual Requirements — While obligations arising from contracts have the force of law between the parties under Article 1159, not every omitted contractual requirement constitutes a breach; an omission is not fatal where the requirement is merely incidental and not a determining condition of the parties' primary undertaking. The date requirement on charge record forms was incidental to the primary object of enabling cardholders to purchase travel services and charge them; its omission did not breach the Travel Agreement.
• Proximate Cause and Loss Allocation Between Innocent Parties — When one of two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss. No negligence was imputed to M R Travel because it followed its normal verification procedure and the authorization procedure prescribed by AMEXCO; therefore it did not bear the loss.

• "We hold that there was no breach of agreement since failure to indicate the dates cannot lead to the conclusion that private respondent M R TRAVEL failed to comply with its obligations." — States the ratio decidendi on the date requirement, rejecting AMEXCO's claim that the omission was a breach of the Travel Agreement.
• "Forgery cannot be presumed; it must be proved by clear, positive and convincing evidence." — Canonical formulation of the forgery evidentiary standard, applied to reject AMEXCO's forgery claim.
• "The date requirement was only incidental to this primary consideration and was required more for the convenience of the parties rather than as a determining condition of the agreement." — Explains why the omitted date was not a fatal breach and supports the substantial-compliance holding.
• "Where the statement utterances of specific words are the facts in issue the testimony of witness there to is not hearsay." — States the utterance exception to the hearsay rule, which made Licarte's testimony admissible but only as to the fact of the statements.

• Top Weld Manufacturing, Inc. vs. ECED, No. L-44944, 9 August 1985, 138 SCRA 118 — Cited by petitioner for the proposition that testimonial evidence not objected to should be admitted and given value; the Court addressed it in holding that Licarte's testimony did not qualify as hearsay and had to be admitted, though it remained insufficient to prove the truth of AMEXCO's claims.
• Tenio-Obsequio vs. Court of Appeals, G.R. No. 107967, 1 March 1994, 230 SCRA 550 — Relied on for the rule that forgery cannot be presumed and must be proved by clear, positive and convincing evidence; the Court used it to reject AMEXCO's forgery claim.
• Security Bank & Trust Company vs. Triumph Lumber and Construction Corporation, G.R. No. 126696, 21 January 1999 — Cited for the rule that findings of fact of the Court of Appeals are conclusive and binding on the Supreme Court, except when the factual findings of the trial court and the appellate court conflict; the Court applied the exception because the two lower courts' findings were conflicting.

• Article 1159, New Civil Code — Provides that obligations arising from contracts have the force of law between the parties and should be complied with in good faith. AMEXCO invoked it to argue that the date requirement in the Travel Agreement was binding; the Court acknowledged the provision but held that the omission of the date was not a breach because the requirement was merely incidental and not a determining condition of the agreement.
• Section 22, Rule 132, Rules of Court — Governs how the genuineness of handwriting may be proved, including by comparison made by the witness or the court with writings admitted or treated as genuine. AMEXCO should have conducted an examination and comparison of the signatures before the court to substantiate its forgery claim; its failure to do so left the claim unproved.
• Rule 45, Rules of Court — The petition was filed as a petition for review on certiorari under Rule 45, seeking review and setting aside of the Court of Appeals decision. The Supreme Court denied the petition and affirmed the Court of Appeals.

Puno, Mendoza, Quisumbing, and Buena, JJ., concurred.