Filipinas Textile Mills, Inc. vs. Court of Appeals

A document lacking the requisite documentary stamp is admissible in evidence when the adverse party fails to specifically deny its genuineness and due execution under oath pursuant to Section 8, Rule 8 of the Rules of Court, thereby waiving the formal requirement of revenue stamps. Furthermore, a surety is not discharged from liability by an extension of time granted to the principal debtor unless the extension is for a definite period pursuant to an enforceable agreement that precludes the creditor from suing the principal during that time.

In 1983, Filtex applied for domestic letters of credit with SIHI to finance the purchase of raw materials. SIHI issued the letters of credit authorizing Indo-Philippine Textile Mills, Inc., Texfiber Corporation, and Philippine Polyamide Industrial Corporation to draw drafts against Filtex. Upon sale and delivery of the merchandise, the suppliers issued sight drafts payable to SIHI, which Filtex accepted and SIHI negotiated. To secure payment, Filtex executed trust receipts agreeing to hold the merchandise in trust for SIHI and deliver the proceeds of any sale against the indebtedness. Villanueva executed a comprehensive surety agreement, jointly and severally guaranteeing the full and punctual payment of all of Filtex's indebtedness to SIHI. Filtex defaulted on the obligation, prompting SIHI to file a collection suit on December 6, 1985.

• The Credit Facilities: In 1983, Filtex applied for domestic letters of credit with SIHI to finance textile raw materials. SIHI issued letters of credit authorizing suppliers to draw drafts against Filtex for an aggregate amount not exceeding ₱3,737,988.05.
• The Sight Drafts and Trust Receipts: Upon delivery of merchandise, the suppliers issued sight drafts totaling ₱3,736,276.71, payable to SIHI, which Filtex accepted. SIHI paid the suppliers for Filtex's account. Filtex executed trust receipts (later replaced on June 22, 1984) agreeing to hold the goods in trust, sell them for SIHI's account, and deliver the proceeds. The trust receipts stipulated a 25% per annum interest on released amounts and a 2% per month penalty charge for delay in payment at maturity.
• The Surety Agreement: On November 9, 1982, Villanueva executed a comprehensive surety agreement guaranteeing, jointly and severally with Filtex, the full and punctual payment of all Filtex's indebtedness to SIHI until fully settled.
• Default and Pleadings: Filtex failed to pay its outstanding obligation despite demand, leading SIHI to file a complaint on December 6, 1985. In their respective answers, Filtex and Villanueva claimed the documents did not reflect their true will, asserted full payment, and alleged lack of cause of action. Villanueva additionally claimed the surety agreement was void and materially altered. Neither petitioner specifically denied under oath the genuineness and due execution of the actionable documents attached to the complaint.

• Admissibility of Documents: Petitioners argued that the letters of credit, sight drafts, trust receipts, and comprehensive surety agreement are inadmissible in evidence for lack of requisite documentary stamps under the Internal Revenue Code. They maintained that their implied admission of genuineness and due execution—due to failure to deny under oath—should not be equated with admission in evidence of the documents or admission of the obligation itself.
• Full Payment: Petitioners contended that they had fully paid the obligation and made an excess payment of ₱415,722.53.
• Validity of Surety Agreement: Villanueva asserted that the comprehensive surety agreement is null and void for lack of consent of Filtex and SIHI, inadmissible in evidence, and contains material alterations. He claimed that SIHI's grant of an extension of time to Filtex for payment discharged him from his liability as surety, and that the 25% annual interest was inserted without his consent.

• Admissibility of Documents: Respondent countered that petitioners expressly admitted the due execution of the documents in their answers, precluding them from questioning admissibility. The claim of inadmissibility was also deemed inconsistent with the defense of full payment. Furthermore, Filtex and Villanueva, as makers and signers, are the parties liable for the documentary stamp taxes under the Internal Revenue Code and are thus estopped from claiming inadmissibility.
• Full Payment: Respondent argued that the appellate court had already resolved the issue of payment, finding an unpaid balance of ₱7,868,881.11 as of January 31, 1989.
• Validity of Surety Agreement: Respondent asserted the validity and admissibility of the comprehensive surety agreement.

• Admissibility of Documents: Whether the letters of credit, sight drafts, trust receipts, and comprehensive surety agreement are admissible in evidence despite the absence of documentary stamps as required by the Internal Revenue Code.
• Factual Finding of Unpaid Balance: Whether petitioners fully paid their obligation and made an overpayment.
• Validity and Effect of Surety Agreement: Whether the comprehensive surety agreement is void for lack of consent or discharged by material alteration, specifically the extension of time granted to the principal debtor and the insertion of the 25% interest rate.

• Admissibility of Documents: The documents were deemed admissible, the failure to specifically deny their genuineness and due execution under oath resulting in implied admission and waiver of formalities such as revenue stamps. Petitioners, being the parties liable for the stamp taxes under Section 173 of the National Internal Revenue Code as makers, signers, issuers, and acceptors, are estopped from claiming inadmissibility based on non-payment thereof. The issue was additionally barred for being raised for the first time on appeal, violating basic rules of fair play and due process.
• Factual Finding of Unpaid Balance: The claim of full payment was rejected, the factual findings of the Court of Appeals affirming the trial court being conclusive and binding on the parties in a Rule 45 petition limited to questions of law.
• Validity and Effect of Surety Agreement: The surety agreement was upheld, Filtex's consent being presumed from Villanueva's signature on the sight drafts and trust receipts on its behalf and its admission of the agreement's execution in its Answer. The extension of time granted to Filtex did not discharge Villanueva, leniency without a binding agreement precluding the creditor from suing not constituting an extension discharging the surety. The 25% interest insertion did not invalidate the surety, Villanueva having countersigned the trust receipts containing the stipulation.

• Implied Admission of Actionable Documents — Under Section 8, Rule 8 of the Rules of Court, the genuineness and due execution of an actionable document copied in or attached to a pleading is deemed admitted unless specifically denied under oath by the adverse party. Such admission means the party admits voluntary signature, exact words and figures, delivery, and waives any lack of formalities required by law, such as a seal, acknowledgment, or revenue stamp.
• Estoppel to Question Admissibility Based on Documentary Stamps — The person making, signing, issuing, accepting, or transferring a document liable for documentary stamp tax under Section 173 of the National Internal Revenue Code is estopped from claiming the document is inadmissible in evidence for non-payment of the tax.
• Discharge of Surety by Extension of Time — An extension of time granted to the principal debtor does not discharge the surety unless the extension is for a definite period, pursuant to an enforceable agreement between the principal and creditor, made without the surety's consent or reservation of rights, and precludes the creditor from enforcing the principal contract within the period the creditor could otherwise have enforced it.

• "the admission of the genuineness and due execution of a document means that the party whose signature it bears admits that he voluntarily signed the document or it was signed by another for him and with his authority; that at the time it was signed it was in words and figures exactly as set out in the pleading of the party relying upon it; that the document was delivered; and that any formalities required by law, such as a seal, an acknowledgment, or revenue stamp, which it lacks, are waived by him."
• "In order to constitute an extension discharging the surety, it should appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a reservation of rights with respect to him. The contract must be one which precludes the creditor from, or at least hinders him in, enforcing the principal contract within the period during which he could otherwise have enforced it, and precludes the surety from paying the debt."

• Benguet Exploration, Inc. vs. Court of Appeals, G.R. No. 117434, 9 February 2001 — Followed. Cited for the rule that implied admission of genuineness and due execution of a document includes the waiver of formalities required by law, such as revenue stamps.
• Palmares vs. Court of Appeals, 351 Phil. 664 — Followed. Cited for the doctrine that an extension of time granted to the principal debtor does not discharge the surety unless it is a binding agreement for a definite period that precludes the creditor from suing the principal.
• Fortune Motors (Phils.) Corporation vs. Court of Appeals, 335 Phil. 315 — Followed. Cited for the principle that the Supreme Court's jurisdiction under Rule 45 is limited to reviewing errors of law, and factual findings of the Court of Appeals are conclusive and binding.

• Section 8, Rule 8, Rules of Court — Governs the specific denial under oath of actionable documents; failure to do so results in implied admission of genuineness and due execution. Applied to deem petitioners' challenge to the documents' formalities waived.
• Section 173, National Internal Revenue Code — Imposes liability for documentary stamp taxes on the person making, signing, issuing, accepting, or transferring the document. Applied to hold that petitioners, as signers/issuers, are estopped from invoking non-payment of stamps to render the documents inadmissible.
• Section 201, National Internal Revenue Code — Provides that documents lacking requisite stamps shall not be admitted in evidence. Subordinated to the rule on implied admission of actionable documents and the principle of estoppel.

Bellosillo (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr.