SPOUSES ARNALDO & NIDA CRUZ-TING, ET AL., PETITIONERS, VS. MEGA NINE CREDIT CORPORATION, RESPONDENT.

Cruz-Ting versus Mega Nine Credit Corporation

The Case

This is a petition for review filed by Spouses Arnaldo and Nida Cruz-Ting, Spouses Filemon and Evelyn Dimaandal, and Spouses Raul and Jesusa Trinidad against Mega Nine Credit Corporation. The petitioners stood as co-makers on a promissory note securing a loan obtained by their friend and business associate, Redentor Boado Bondoc. When Bondoc died without fully paying, the corporation sued the co-makers for a sum of money. The petitioners resisted chiefly on the ground that the promissory note was not admissible in evidence because the documentary stamp tax had not been paid. The case matters because it settles two linked points every examinee must know: that a judicial admission of the genuineness and due execution of a document binds the party who makes it, and that the non-payment of documentary stamp tax does not bar a document from being admitted in evidence where the party raising the objection is himself obliged to pay the tax.

Procedural History

Mega Nine Credit Corporation filed a complaint for sum of money before the Municipal Trial Court of Baliwag, Bulacan. The Municipal Trial Court ruled in favor of the corporation, ordering the petitioners to pay jointly and severally the outstanding principal, interest, liquidated penalty, attorney's fees, and costs of litigation. The petitioners appealed to the Regional Trial Court of Malolos, Bulacan, Branch 78, which affirmed the decision of the Municipal Trial Court in its entirety. The Regional Trial Court held that admissibility should not be equated with the weight of evidence, and that by admitting the due execution of the promissory note, the petitioners were estopped from questioning the lack of documentary stamps. The petitioners moved for reconsideration, which the Regional Trial Court denied. The petitioners then elevated the matter to the Supreme Court by a petition for review under Rule 42 of the Rules of Court.

Facts

Arnaldo, Filemon, and Raul acted as co-makers in a 150,000 peso loan obtained by their friend and business associate, Redentor Boado Bondoc, from Mega Nine Credit Corporation. Under the promissory note, the principal was payable in twenty-four weekly installments beginning February 14, 2003, with four percent interest per month. They also agreed to a four percent liquidated penalty per month of default and twenty-five percent of the total amount due as attorney's fees in case of litigation.

Bondoc died on May 19, 2004, without having fully settled the loan. On July 26, 2005, the corporation sent demand letters to the petitioners requiring them to pay the outstanding loan of 132,500 pesos as of May 12, 2003. Despite receipt, the petitioners refused to pay, and so the corporation filed the complaint for sum of money.

In their answer with counterclaim, the petitioners claimed that Bondoc had issued checks for the payment of his obligation, and that the promissory note could not be used as evidence against them because the appropriate excise tax had not been paid. During pre-trial, the parties stipulated that the loan agreement was admitted subject to the qualification that it had already been paid; that the three petitioners were co-makers and that the signatures on the promissory note were theirs; that the required documentary stamp tax had not been paid; that Bondoc had issued twenty-four checks as payment; and that the promissory note and the secretary's certificate existed and were duly executed, subject to a qualification as to enforceability. The Municipal Trial Court found that nineteen of the twenty-four checks bounced, leaving a balance of 132,500 pesos, and it reduced the stipulated interest and penalty because of previous irregular payments.

Issues

• Whether or not the Regional Trial Court erred in admitting the promissory note in evidence despite the non-payment of the documentary stamp tax.
• Whether or not the Regional Trial Court erred in affirming the decision of the Municipal Trial Court based solely on the implied admission in the answer and the qualified admission during pre-trial.

Applicable Provisions

Section 8 of Rule 8 of the Rules of Court provides:

When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleadings as provided in the preceding Section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts.

This provision supplies the rule on implied admission that the Court applies to the petitioners, who failed to deny the promissory note under oath.

Section 4 of the Rules of Court provides:

An admission, verbal or written, made by the party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

This provision governs the binding effect of the petitioners' admission during pre-trial.

Section 173 of the National Internal Revenue Code provides:

Upon documents, instruments, and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the person making, signing, issuing, accepting, or transferring the same, wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines and at the same time such act is done or transaction had.

This provision identifies who is liable for the stamp tax, which is central to the Court's holding that the petitioners are estopped from objecting.

Section 201 of the National Internal Revenue Code provides:

An instrument, document, or paper which is required by law to be stamped and which has been signed, issued, accepted, or transferred without being duly stamped, shall not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in evidence in any court until the requisite stamp or stamps shall have been affixed thereto and cancelled.

This is the provision the petitioners invoked, and which the Court declined to apply against them because of their own admission and their own liability for the tax.

Ruling

On the first issue, the Court held that the non-payment of the documentary stamp tax does not affect the admissibility of the promissory note as evidence. The Court relied on its earlier ruling in Filipinas Textile Mills versus Court of Appeals, which held that where the answer did not contain any specific denial under oath of the documents upon which the complaint was based, the genuineness and due execution of those documents were impliedly admitted. The Court explained that the admission of the genuineness and due execution of a document means that the party whose signature it bears admits that he voluntarily signed it, that at the time it was signed it was in words and figures exactly as set out in the pleading, that the document was delivered, and that any formalities required by law, such as a revenue stamp, which it lacks, are waived by him. The Court further reasoned that under Section 173 the liability for the stamp tax falls on the person making, signing, issuing, accepting, or transferring the document. Since the petitioners were parties and signatories to the promissory note, they were among those obliged to pay the tax, and they were therefore estopped from claiming that the document was inadmissible for non-payment.

On the second issue, the Court held that the petition lacked merit. The petitioners admitted the due execution of the promissory note and the genuineness of their signatures. The Court held that it did not matter whether the admission was made during pre-trial or arose from the failure to deny under oath, because both produce the same effect: a judicial admission that binds the person who makes it, absent any showing that it was made through palpable mistake. The Court also noted that the answer with counterclaim contained no denial under oath as to the genuineness and due execution of the promissory note. Apart from the failure to pay the excise tax, the petitioners did not impugn their signatures or the due execution of the instrument, and so the Regional Trial Court correctly held them liable.

Doctrine

First, the genuineness and due execution of a written instrument attached to a pleading are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts. Second, a judicial admission made in the course of the proceedings, whether during pre-trial or by operation of the rule on implied admission, does not require proof and binds the party who makes it, and may be contradicted only by showing palpable mistake or that no such admission was made. Third, the admission of the genuineness and due execution of a document carries with it a waiver of any formalities required by law, including the revenue stamp. Fourth, the non-payment of the documentary stamp tax does not render a document inadmissible in evidence where the party objecting is himself among those obliged by Section 173 to pay the tax, for he is estopped from raising the objection.

Disposition

The Supreme Court denied the petition and affirmed the decision and resolution of the Regional Trial Court, holding the petitioners liable to Mega Nine Credit Corporation.

Remember This

The one line to memorize: non-payment of the documentary stamp tax does not bar admissibility where the party objecting is himself liable to pay the tax, and a judicial admission of genuineness and due execution binds. Examiners use this case to test the interplay of Section 8 of Rule 8, judicial admissions, and Sections 173 and 201 of the National Internal Revenue Code.