Documentary Stamp Tax: When Unstamped Documents Are Still Admissible in Court

The Supreme Court has settled an important question for businesses and litigants: can a document be kept out of court simply because it lacks the required documentary stamps? In Filipinas Textile Mills, Inc. v. Court of Appeals (G.R. No. 119800, November 12, 2003), the Court ruled that unstamped documents may still be admitted in evidence under certain circumstances, particularly when the party objecting has already admitted their genuineness and due execution.

The Case Background

State Investment House, Inc. (SIHI) filed a collection suit against Filipinas Textile Mills (Filtex) and Bernardino Villanueva for unpaid obligations arising from domestic letters of credit, sight drafts, trust receipts, and a comprehensive surety agreement. The trial court ruled in favor of SIHI, ordering Filtex and Villanueva to pay over P7.8 million.

On appeal, the petitioners raised a new defense: the documents should be excluded from evidence because they were not stamped with documentary stamp taxes as required by the National Internal Revenue Code.

The Issue

The central question was whether letters of credit, sight drafts, trust receipts, and a surety agreement are admissible in evidence despite the absence of documentary stamps.

The Ruling

The Supreme Court affirmed the lower courts' decisions and held that the documents were admissible. Three key principles guided the Court's reasoning.

First, implied admission of genuineness. Under Section 8, Rule 8 of the Rules of Court, when a complaint is based on written instruments attached to the pleading, the genuineness and due execution of those documents are deemed admitted unless the adverse party specifically denies them under oath. Filtex and Villanueva failed to make such a sworn denial, so they were deemed to have admitted the documents' genuineness and due execution.

Second, waiver of formal requirements. Citing Benguet Exploration, Inc. v. Court of Appeals, the Court explained that admitting the genuineness and due execution of a document means the party waives any formalities required by law—including a seal, acknowledgment, or revenue stamp.

Third, the party liable for the tax cannot complain. Under the National Internal Revenue Code, the documentary stamp tax is imposed on the person who makes, signs, issues, accepts, or transfers the document. Filtex issued the trust receipts and accepted the sight drafts; Villanueva signed the surety agreement. Since they were the parties obliged to pay the stamp taxes, they were estopped from claiming the documents were inadmissible for non-payment. The exact section number of this provision is not specified in the decision's text as quoted in the library, but the principle is clearly established.

The Court also noted that the petitioners raised the objection only on appeal. Points not raised before the trial court ordinarily will not be considered by a reviewing court.

Other Issues Decided

The Court also addressed two related arguments. On the claim of full payment and overpayment, the Court declined to revisit the factual findings of the lower courts, which had exhaustively detailed the payments and the balance due. On Villanueva's claim that extending Filtex's payment period released him as surety, the Court cited Palmares v. Court of Appeals: mere delay by the creditor in suing the principal does not discharge a surety, especially when the surety could pay the debt and be subrogated to the creditor's rights.

Practical Takeaways

• Failure to deny under oath is costly. If a complaint is based on written documents, a defendant must specifically deny their genuineness and due execution under oath; otherwise, those documents are deemed admitted.
• Unstamped documents are not automatically inadmissible. The party who was supposed to pay the documentary stamp tax cannot later object to admissibility on that ground.
• Raise objections early. Legal theories and defenses not raised before the trial court will generally not be considered on appeal.
• Sureties remain liable despite creditor leniency. Extending time to pay does not release a surety unless there is a definite, enforceable agreement to extend made without the surety's consent.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.