Title
SCC Chemicals Corp. vs. Court of Appeals
Case
G.R. No. 128538
Decision Date
Feb 28, 2001
SCC failed to repay a loan secured by a surety agreement. SIHI sued; SCC's defenses were rejected due to waived cross-examination and judicial admissions. SC upheld liability but deleted attorney’s fees.
loan dispute
loan
interest rate

Case Summary (G.R. No. 128538)

Loan Transaction and Surety Undertakings

On December 13, 1983, SCC, through its chairman Danilo Arrieta and vice president Pablo (Pablito) Bermundo, obtained a loan from SIHI in the amount of P129,824.48. The loan bore an annual interest rate of thirty percent, plus penalty charges of two percent per month on the remaining principal balance upon non-payment on the due date, which was January 12, 1984.

To secure the loan, Arrieta and Leopoldo Halili executed a Comprehensive Surety Agreement binding themselves jointly and severally to pay the obligation upon maturity. SCC failed to pay the loan when it matured. SIHI thereafter sent demand letters to SCC, Arrieta, and Halili, but despite receipt, no payment was made.

Filing of the Civil Action and Stipulation of Facts

On August 2, 1984, SIHI filed Civil Case No. 84-25881 in the RTC of Manila, Branch 33, for a sum of money with a prayer for preliminary attachment against SCC, Arrieta, and Halili. In its answer, SCC asserted SIHI’s lack of cause of action and contended, among others, that the promissory note was null and void for lack or failure of consideration.

At pre-trial, the parties were allowed to attempt an amicable settlement but reached none. They, however, agreed to a stipulation of facts. They admitted that the court had jurisdiction over the parties and over the case, that SIHI had sent a demand letter to SCC dated April 4, 1984 together with a statement of account of the same date, and that these were received by SCC. They further stipulated that SCC, acting through Arrieta and Bermundo, executed a promissory note on December 13, 1983 for P129,824.48, with maturity on January 12, 1984.

Trial Court Proceedings and SCC’s Failure to Cross-Examine

The case proceeded to trial on the sole issue of whether the defendants were liable to SIHI and the extent of that liability. SIHI presented a single witness to prove its claim. The record showed that the cross-examination of SIHI’s witness was postponed several times at the instance of either party, and the case was calendared multiple times for hearing. On those dates, SCC or its counsel failed to appear despite due notice.

Eventually, the trial court held that SCC had waived its right to cross-examine SIHI’s witness. The court then deemed the case submitted for decision.

On March 22, 1993, the trial court rendered judgment in favor of SIHI, ordering SCC and the defendants to pay jointly and severally: (a) SIHI the principal sum of P150,483.16 with interest at thirty percent per annum from April 1984 until full payment; and (b) attorney’s fees equivalent to twenty-five percent of the total amount due and demandable, plus costs.

Appeal to the Court of Appeals

SCC appealed to the Court of Appeals, docketed as CA-G.R. CV No. 45742. SCC argued that SIHI failed to prove its cause of action by preponderance of evidence. It challenged the competency of SIHI’s lone witness, asserting that the witness’s competence and personal knowledge were not established. SCC also argued that SIHI failed to prove the genuineness of signatures on documentary exhibits, noting that the signatures were neither marked nor offered in evidence, and that SIHI did not present the original documents.

On November 12, 1996, the Court of Appeals affirmed in toto the trial court’s judgment. On February 27, 1997, it denied SCC’s motion for reconsideration.

Issues Raised in the Petition for Review

Before the Supreme Court, SCC assigned two principal errors: first, that the Court of Appeals erred in holding SIHI had proved its cause of action by preponderant evidence; and second, that the appellate court erred in upholding the award of attorney’s fees.

With respect to the first issue, SCC insisted that SIHI relied on testimony that violated the evidentiary rules on personal knowledge and hearsay. SCC also maintained that SIHI did not sufficiently authenticate and establish the due execution and genuineness of private documents under the applicable provisions of the Rules of Court, and that SIHI’s failure to present original documents warranted the presumption of suppression of evidence under Rule 131 (Section 3[e]).

Supreme Court’s Treatment of the Evidence and Waiver of Cross-Examination

The Court held that SCC’s challenge to the testimony was misplaced. It noted that the Court of Appeals found SCC had failed to appear on multiple scheduled hearing dates despite due notice. Those hearings were precisely opportunities for SCC to cross-examine SIHI’s lone witness.

On the invoked hearsay rule, the Court addressed Rule 130, Section 36, which generally confines testimony to personal knowledge and excludes hearsay. The Court reiterated that while hearsay is ordinarily excluded, an exception exists when the opposing party fails to object. The Court emphasized that the rationale for the exception lay in the right to cross-examine, which negates any hearsay concern.

However, the Court found that SCC’s repeated failure to cross-examine operated as an implied waiver. SCC was afforded several opportunities at the trial level to cross-examine but did not take advantage of them. Accordingly, the Court concluded that the Court of Appeals did not err in sustaining the trial court’s finding of waiver, and it held SCC could not belatedly raise the hearsay characterization of the testimony.

The Court further ruled that the testimony in question was not hearsay because the Court of Appeals correctly found SIHI’s witness to be competent and to have testified to facts within his personal knowledge. On that basis, the Court found no reversible error in the appellate court’s evidentiary rulings.

Judicial Admissions on the Promissory Note and Demand Letter

The Court also held that SCC’s remaining objections were either moot or academic. Central to this conclusion was SCC’s own stipulation of facts at pre-trial, which included admissions regarding the execution of the promissory note and the receipt of the demand letter and statement of account.

The Court treated SCC’s pre-trial admissions as judicial admissions. Under Rule 129, Section 4, a judicial admission does not require proof. Because SCC had admitted the execution of the promissory note and its receipt of SIHI’s demand letter during pre-trial, the Court ruled that genuineness and authenticity issues could not prevail. The Court also held that SCC’s reliance on the best evidence rule would not advance its position, since SIHI did not need to present originals when the execution and existence of the documents had already been established through judicial admission at pre-trial.

Finally, the Court noted that SCC failed to present evidence to refute liability or to show payment or other forms of extinguishment of the obligation. Thus, the Court concluded that SCC remained liable on its obligation pursuant to Article 1159 of the Civil Code, which provides that obligations arising from contracts have the force of law between contra

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