G.R. No.

L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley,

deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the
estate of Thomas Hanley, deceased, brought this action in the Court of First
Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the
Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by
the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from
September 15, 1932, the date when the aforesaid tax was [paid under protest.
The defendant set up a counterclaim for P1,191.27 alleged to be interest due on
the tax in question and which was not included in the original assessment. From
the decision of the Court of First Instance of Zamboanga dismissing both the
plaintiff's complaint and the defendant's counterclaim, both parties appealed to
this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga,
Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and
personal properties. On june 14, 1922, proceedings for the probate of his will and
the settlement and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew

Hanley.

5. I direct that all real estate owned by me at the time of my death be not
sold or otherwise disposed of for a period of ten (10) years after my death,
and that the same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he
be directed that the same be used only for the education of my brother's
children and their descendants.
 6. I direct that ten (10) years after my death my property be given to the
above mentioned Matthew Hanley to be disposed of in the way he thinks
most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and
that my nephew, Matthew Hanley, is a son of my said brother, Malachi
Hanley.

The Court of First Instance of Zamboanga considered it proper for the best
interests of ther estate to appoint a trustee to administer the real properties
which, under the will, were to pass to Matthew Hanley ten years after the two
executors named in the will, was, on March 8, 1924, appointed trustee. Moore
took his oath of office and gave bond on March 10, 1924. He acted as trustee
until February 29, 1932, when he resigned and the plaintiff herein was appointed
in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of

Internal Revenue, alleging that the estate left by the deceased at the time of his
death consisted of realty valued at P27,920 and personalty valued at P1,465,
and allowing a deduction of P480.81, assessed against the estate an inheritance
tax in the amount of P1,434.24 which, together with the penalties for deliquency
in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the
date of payment and a surcharge of 25 per cent on the tax, amounted to
P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary
proceedings pending before the Court of First Instance of Zamboanga (Special
proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay
to the Government the said sum of P2,052.74. The motion was granted. On
September 15, 1932, the plaintiff paid said amount under protest, notifying the
defendant at the same time that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant overruled the plaintiff's protest
and refused to refund the said amount hausted, plaintiff went to court with the
result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to

his instituted heir, Matthew Hanley, from the moment of the death of the
former, and that from the time, the latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of

inheritance tax due on the estate of said deceased.
 III. In holding that the inheritance tax in question be based upon the value
of the estate upon the death of the testator, and not, as it should have
been held, upon the value thereof at the expiration of the period of ten
years after which, according to the testator's will, the property could be and
was to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net

amount of the estate subject to said tax, the amounts allowed by the court
as compensation to the "trustees" and paid to them from the decedent's
estate.

V. In not rendering judgment in favor of the plaintiff and in denying his

motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the
following error besides:

The lower court erred in not ordering the plaintiff to pay to the defendant
the sum of P1,191.27, representing part of the interest at the rate of 1 per
cent per month from April 10, 1924, to June 30, 1931, which the plaintiff
had failed to pay on the inheritance tax assessed by the defendant against
the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this
appeal: (a) When does the inheritance tax accrue and when must it be satisfied?
(b) Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator's death, or on its value ten years later? (c) In
determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at bar? Should the
provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect?
(e) Has there been deliquency in the payment of the inheritance tax? If so,
should the additional interest claimed by the defendant in his appeal be paid by
the estate? Other points of incidental importance, raised by the parties in their
briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the
same. Section 1536 as amended, of the Administrative Code, imposes the tax
upon "every transmission by virtue of inheritance, devise, bequest, gift mortis
causa, or advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an
excise or privilege tax imposed on the right to succeed to, receive, or take
property by or under a will or the intestacy law, or deed, grant, or gift to become
operative at or after death. Acording to article 657 of the Civil Code, "the rights to
the succession of a person are transmitted from the moment of his death." "In
other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the
property of the deceased ancestor. The property belongs to the heirs at the
moment of the death of the ancestor as completely as if the ancestor had
executed and delivered to them a deed for the same before his death." (Bondad
vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co.,
vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras
Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones,
38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs.
Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun
vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657
of the Civil Code is applicable to testate as well as intestate succession, it
operates only in so far as forced heirs are concerned. But the language of article
657 of the Civil Code is broad and makes no distinction between different classes
of heirs. That article does not speak of forced heirs; it does not even use the
word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil
Procedure regarding the authentication and probate of a will as a necessary
condition to effect transmission of property does not affect the general rule laid
down in article 657 of the Civil Code. The authentication of a will implies its due
execution but once probated and allowed the transmission is effective as of the
death of the testator in accordance with article 657 of the Civil Code. Whatever
may be the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the decedent's death. The
time when the heirs legally succeed to the inheritance may differ from the time
when the heirs actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del
causante, hasta que el heredero o legatario entre en posesion de los bienes de
la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha
de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que
debe considerarse como complemento del presente." (5 Manresa, 305; see also,
art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the
inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not
follow that the obligation to pay the tax arose as of the date. The time for the
payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of
the same Code. The two sections follow:
 SEC. 1543. Exemption of certain acquisitions and transmissions. — The
following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the

fiduciary heir or legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor.

In the last two cases, if the scale of taxation appropriate to the new
beneficiary is greater than that paid by the first, the former must pay the
difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be
paid:

(a) In the second and third cases of the next preceding section,
before entrance into possession of the property.

(b) In other cases, within the six months subsequent to the death of
the predecessor; but if judicial testamentary or intestate proceedings
shall be instituted prior to the expiration of said period, the payment
shall be made by the executor or administrator before delivering to
each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the
rate of twelve per centum per annum shall be added as part of the tax; and
to the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the collector, there shall be further added a
surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished

the Collector of Internal Revenue by the Clerk of Court within thirty days
after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection

(b) of section 1543, should read "fideicommissary" or "cestui que trust". There
was an obvious mistake in translation from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of
section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee
or donee. Under the subsection, the tax should have been paid before the
delivery of the properties in question to P. J. M. Moore as trustee on March 10,
1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real
properties are concerned, did not and could not legally pass to the instituted heir,
Matthew Hanley, until after the expiration of ten years from the death of the
testator on May 27, 1922 and, that the inheritance tax should be based on the
value of the estate in 1932, or ten years after the testator's death. The plaintiff
introduced evidence tending to show that in 1932 the real properties in question
had a reasonable value of only P5,787. This amount added to the value of the
personal property left by the deceased, which the plaintiff admits is P1,465,
would generate an inheritance tax which, excluding deductions, interest and
surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose
inheritance taxes takes its being and if, upon the death of the decedent,
succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the vlaue of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any
subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L.,
p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton
vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of
the state to an inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that time of such
property as passes to him. Subsequent appreciation or depriciation is
immaterial." (Ross, Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and
Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders,
taxation is postponed until the estate vests in possession or the contingency is
settled. This rule was formerly followed in New York and has been adopted in
Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule,
horever, is by no means entirely satisfactory either to the estate or to those
interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of
its anterior system, we find upon examination of cases and authorities that New
York has varied and now requires the immediate appraisal of the postponed
estate at its clear market value and the payment forthwith of the tax on its out of
the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E.,
782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy,
179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958;
Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs.
Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas.,
888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission
by inheritance is taxable at the time of the predecessor's death, notwithstanding
the postponement of the actual possession or enjoyment of the estate by the
beneficiary, and the tax measured by the value of the property transmitted at that
time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in
arriving at the net value of the estate on which the inheritance tax is to be
computed (sec. 1539, Revised Administrative Code). In the case at bar, the
defendant and the trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until March 10,
1924, among which were their fees and the proven debts of the deceased. The
plaintiff contends that the compensation and fees of the trustees, which
aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also
be deducted under section 1539 of the Revised Administrative Code which
provides, in part, as follows: "In order to determine the net sum which must bear
the tax, when an inheritance is concerned, there shall be deducted, in case of a
resident, . . . the judicial expenses of the testamentary or intestate proceedings, .
. . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services

(Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not
follow that the compensation due him may lawfully be deducted in arriving at the
net value of the estate subject to tax. There is no statute in the Philippines which
requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a
testamentary trust has been created, it does not appear that the testator intended
that the duties of his executors and trustees should be separated. (Ibid.; In
re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's
Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his
executors until the expiration of the period of ten years therein provided. Judicial
expenses are expenses of administration (61 C. J., p. 1705) but, in State vs.
Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". .
. The compensation of a trustee, earned, not in the administration of the estate,
but in the management thereof for the benefit of the legatees or devises, does
not come properly within the class or reason for exempting administration
expenses. . . . Service rendered in that behalf have no reference to closing the
estate for the purpose of a distribution thereof to those entitled to it, and are not
required or essential to the perfection of the rights of the heirs or legatees. . . .
Trusts . . . of the character of that here before the court, are created for the the
benefit of those to whom the property ultimately passes, are of voluntary
creation, and intended for the preservation of the estate. No sound reason is
given to support the contention that such expenses should be taken into
consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of
Thomas Hanley under the provisions of section 1544 of the Revised
Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606
went into effect on January 1, 1930. It, therefore, was not the law in force when
the testator died on May 27, 1922. The law at the time was section 1544 above-
mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the

time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th
ed., p. 3461). The taxpayer can not foresee and ought not to be required to
guess the outcome of pending measures. Of course, a tax statute may be made
retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49
Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should
operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct.
Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale
vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends,
or repeals an inheritance tax, unless the language of the statute clearly demands
or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.)
Though the last paragraph of section 5 of Regulations No. 65 of the Department
of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due
from which have not been paid, Act No. 3606 itself contains no provisions
indicating legislative intent to give it retroactive effect. No such effect can begiven
the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain

provisions of Act No. 3606 are more favorable to the taxpayer than those of Act
No. 3031, that said provisions are penal in nature and, therefore, should operate
retroactively in conformity with the provisions of article 22 of the Revised Penal
Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax
only, instead of on both the tax and the interest, as provided for in Act No. 3031,
and (2) the taxpayer is allowed twenty days from notice and demand by rthe
Collector of Internal Revenue within which to pay the tax, instead of ten days only
as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense
committed against the state which, under the Constitution, the Executive has the
power to pardon. In common use, however, this sense has been enlarged to
include within the term "penal statutes" all status which command or prohibit
certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their
commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes
collected by the means ordinarily resorted to for the collection of taxes are not
classed as penal laws, although there are authorities to the contrary.
(See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U.
S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs.
Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.)
Article 22 of the Revised Penal Code is not applicable to the case at bar, and in
the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive
effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain
time and the tax may be paid within another given time. As stated by this court,
"the mere failure to pay one's tax does not render one delinqent until and unless
the entire period has eplased within which the taxpayer is authorized by law to
make such payment without being subjected to the payment of penalties for
fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26
Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent's property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the meaning of
the first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is sustained. The
appointment of P. J. M. Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true that
the word "trust" is not mentioned or used in the will but the intention to create one
is clear. No particular or technical words are required to create a testamentary
trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the
purpose, are not necessary. In fact, the use of these two words is not conclusive
on the question that a trust is created (69 C. J., p. 714). "To create a trust by will
the testator must indicate in the will his intention so to do by using language
sufficient to separate the legal from the equitable estate, and with sufficient
certainty designate the beneficiaries, their interest in the ttrust, the purpose or
object of the trust, and the property or subject matter thereof. Stated otherwise,
to constitute a valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a
certain or ascertain object; statutes in some jurisdictions expressly or in effect so
providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to
create a trust. He ordered in his will that certain of his properties be kept together
undisposed during a fixed period, for a stated purpose. The probate court
certainly exercised sound judgment in appointment a trustee to carry into effect
the provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate
vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The
mere fact that the estate of the deceased was placed in trust did not remove it
from the operation of our inheritance tax laws or exempt it from the payment of
the inheritance tax. The corresponding inheritance tax should have been paid on
or before March 10, 1924, to escape the penalties of the laws. This is so for the
reason already stated that the delivery of the estate to the trustee was in
esse delivery of the same estate to the cestui que trust, the beneficiary in this
case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs.
King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possesson of the trust estate he thereby admitted
that the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug,
39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial
interest in the estate. He took such legal estate only as the proper execution of
the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of
the testator's wishes. The estate then vested absolutely in the beneficiary (65 C.
J., p. 542).

The highest considerations of public policy also justify the conclusion we have
reached. Were we to hold that the payment of the tax could be postponed or
delayed by the creation of a trust of the type at hand, the result would be plainly
disastrous. Testators may provide, as Thomas Hanley has provided, that their
estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust
may last for fifty years, or for a longer period which does not offend the rule
against petuities. The collection of the tax would then be left to the will of a
private individual. The mere suggestion of this result is a sufficient warning
against the accpetance of the essential to the very exeistence of government.
(Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs.
Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall.,
71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S.,
194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon
the privileges enjoyed by, or the protection afforded to, a citizen by the
government but upon the necessity of money for the support of the state
(Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to
or resist the payment of taxes solely because no personal benefit to him can be
pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law.
ed., 740.) While courts will not enlarge, by construction, the government's power
of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup.
Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to
permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts,
1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed.
Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18
Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co.
vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty,
39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a
tax statute should be construed to avoid the possibilities of tax evasion.
Construed this way, the statute, without resulting in injustice to the taxpayer,
becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax
system. Thus, no court is allowed to grant injunction to restrain the collection of
any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs.
Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461),
this court had occassion to demonstrate trenchment adherence to this policy of
the law. It held that "the fact that on account of riots directed against the Chinese
on October 18, 19, and 20, 1924, they were prevented from praying their internal
revenue taxes on time and by mutual agreement closed their homes and stores
and remained therein, does not authorize the Collector of Internal Revenue to
extend the time prescribed for the payment of the taxes or to accept them without
the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States,
". . . that the modes adopted to enforce the taxes levied should be interfered with
as little as possible. Any delay in the proceedings of the officers, upon whom the
duty is developed of collecting the taxes, may derange the operations of
government, and thereby, cause serious detriment to the public." (Dows vs.
Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32
Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the payment of interest and
surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore
became trustee. The interest due should be computed from that date and it is
error on the part of the defendant to compute it one month later. The provisions
cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither
the Collector of Internal Revenuen or this court may remit or decrease such
interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice
and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-
five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised
Administrative Code). Demand was made by the Deputy Collector of Internal
Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29).
The date fixed for the payment of the tax and interest was November 30, 1931.
November 30 being an official holiday, the tenth day fell on December 1, 1931.
As the tax and interest due were not paid on that date, the estate became liable
for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error
assigned by the plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from
the estate of Thomas Hanley inaccordance with the conclusions we have
reached.

At the time of his death, the deceased left real properties valued at P27,920 and
personal properties worth P1,465, or a total of P29,385. Deducting from this
amount the sum of P480.81, representing allowable deductions under secftion
1539 of the Revised Administrative Code, we have P28,904.19 as the net value
of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised
Administrative Code, should be imposed at the rate of one per centum upon the
first ten thousand pesos and two per centum upon the amount by which the
share exceed thirty thousand pesos, plus an additional two hundred per centum.
One per centum of ten thousand pesos is P100. Two per centum of P18,904.19
is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum
of P1,434.24.

To the primary tax thus computed should be added the sums collectible under
section 1544 of the Revised Administrative Code. First should be added
P1,465.31 which stands for interest at the rate of twelve per centum per annum
from March 10, 1924, the date of delinquency, to September 15, 1932, the date
of payment under protest, a period covering 8 years, 6 months and 5 days. To
the tax and interest thus computed should be added the sum of P724.88,
representing a surhcarge of 25 per cent on both the tax and interest, and also
P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total
of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of
P1,581.69 is legally due from the estate. This last sum is P390.42 more than the
amount demanded by the defendant in his counterclaim. But, as we cannot give
the defendant more than what he claims, we must hold that the plaintiff is liable
only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the
plaintiff in both instances. So ordered.

[G. R. No. 123968. April 24, 2003]

URSULINA GANUELAS, METODIO GANUELAS and ANTONIO

GANUELAS, v. HON. ROBERT T. CAWED, Judge of the Regional
Trial Court of San Fernando, La Union (Branch 29),
LEOCADIA G. FLORES, FELICITACION G. AGTARAP, CORAZON
G. SIPALAY and ESTATE OF ROMANA GANUELAS DE LA ROSA,
represented by GREGORIO DELA ROSA,
Administrator, respondent.

DECISION

CARPIO-MORALES, J.:

The present petition for review under Rule 45 of the Rules of Court
assails, on a question of law, the February 22, 1996 decision1 of the
Regional Trial Court of San Fernando, La Union, Branch 29, in Civil
Case No. 3947, an action for declaration of nullity of a deed of
donation.

The facts, as culled from the records of the case, are as follows:

On April 11, 1958, Celestina Ganuelas Vda. de Valin (Celestina)

executed a Deed of Donation of Real Property2 covering seven
parcels of land in favor of her niece Ursulina Ganuelas (Ursulina),
one of herein petitioners.
The pertinent provision of the deed of donation reads,
quoted verbatim:

xxx

That, for and in consideration of the love and affection which the
DONOR has for the DONEE, and of the faithful services the latter
has rendered in the past to the former, the said DONOR does by
these presents transfer and convey, by way of DONATION, unto the
DONEE the property above, described, to become effective upon the
death of the DONOR; but in the event that the DONEE should die
before the DONOR, the present donation shall be deemed rescinded
and of no further force and effect.

x x x.3 cräläwvirtuali brä ry

On June 10, 1967, Celestina executed a document denominated as

Revocation of Donation4 purporting to set aside the deed of
donation. More than a month later or on August 18, 1967, Celestina
died without issue and any surviving ascendants and siblings.

After Celestinas death, Ursulina had been sharing the produce of the
donated properties with private respondents Leocadia G. Flores, et
al., nieces of Celestina.

In 1982, or twenty-four years after the execution of the Deed of

Donation, Ursulina secured the corresponding tax declarations, in
her name, over the donated properties, to wit: Tax Declarations
Nos. 18108, 18109, 18110, 18111, 18112, 18113 and 18114, and
since then, she refused to give private respondents any share in the
produce of the properties despite repeated demands.

Private respondents were thus prompted to file on May 26, 1986

with the RTC of San Fernando, La Union a complaint5 against
Ursulina, along with Metodio Ganuelas and Antonio Ganuelas who
were alleged to be unwilling plaintiffs. The complaint alleged that
the Deed of Donation executed by Celestina in favor of Ursulina was
void for lack of acknowledgment by the attesting witnesses thereto
before notary public Atty. Henry Valmonte, and the donation was a
disposition mortis causa which failed to comply with the provisions
of the Civil Code regarding formalities of wills and testaments,
hence, it was void. The plaintiffs-herein private respondents thus
prayed that judgment be rendered ordering Ursulina to return to
them as intestate heirs the possession and ownership of the
properties. They likewise prayed for the cancellation of the tax
declarations secured in the name of Ursulina, the partition of the
properties among the intestate heirs of Celestina, and the rendering
by Ursulina of an accounting of all the fruits of the properties since
1982 and for her to return or pay the value of their shares.

The defendants-herein petitioners alleged in their Answer6 that the

donation in favor of Ursulina was inter vivos as contemplated under
Article 729 of the Civil Code,7 hence, the deed did not have to
comply with the requirements for the execution of a valid will; the
Revocation of Donation is null and void as the ground mentioned
therein is not among those provided by law to be the basis thereof;
and at any rate, the revocation could only be legally enforced upon
filing of the appropriate complaint in court within the prescriptive
period provided by law, which period had, at the time the complaint
was filed, already lapsed.

By Decision of February 22, 1996, the trial court, holding that the
provision in the Deed of Donation that in the event that the DONEE
should predecease the DONOR, the donation shall be deemed
rescinded and of no further force and effect is an explicit indication
that the deed is a donation mortis causa,8 found for the plaintiffs-
herein private respondents, thus:

WHEREFORE the Court renders judgment declaring null and void the
Deed of Donation of Real Property executed by Celestina Ganuelas,
and orders the partition of the estate of Celestina among the
intestate heirs.

SO ORDERED.9 cräläwvirt ualib rä ry

The trial court also held that the absence of a reservation clause in
the deed implied that Celestina retained complete dominion over
her properties, thus supporting the conclusion that the donation
is mortis causa,10 and that while the deed contained an attestation
clause and an acknowledgment showing the intent of the donor to
effect a postmortem disposition, the acknowledgment was defective
as only the donor and donee appear to have acknowledged the deed
before the notary public, thereby rendering the entire document
void.11
cräläwvirtua lib räry

Lastly, the trial court held that the subsequent execution by

Celestina of the Revocation of Donation showed that the donor
intended the revocability of the donation ad nutum, thus sustaining
its finding that the conveyance was mortis causa.12 cräläwvirt ualib räry

On herein petitioners argument that the Revocation of Donation was

void as the ground mentioned therein is not one of those allowed by
law to be a basis for revocation, the trial court held that the legal
grounds for such revocation as provided under the Civil Code arise
only in cases of donations inter vivos, but not in donations mortis
causa which are revocable at will during the lifetime of the donor.
The trial court held, in any event, that given the nullity of the
disposition mortis causa in view of a failure to comply with the
formalities required therefor, the Deed of Revocation was a
superfluity.13 cräläwvirtual ibrä ry

Hence, the instant petition for review, petitioners contending that

the trial court erred:

I. . . . WHEN IT DECLARED NULL AND VOID THE DONATION

EXECUTED BY CELESTINA GANUELAS;

II. . . . WHEN IT UPHELD THE REVOCATION OF DONATION;

III. . . . IN RENDERING ITS DECISION ADVERSE TO

PETITIONER URSULINA GANUELAS.14 cräläwvirt ualib rä ry

Petitioners argue that the donation contained in the deed is inter

vivos as the main consideration for its execution was the donors
affection for the donee rather than the donors death;15 that the
provision on the effectivity of the donationafter the donors
deathsimply meant that absolute ownership would pertain to the
donee on the donors death;16 and that since the donation is inter
vivos, it may be revoked only for the reasons provided in Articles
760,17 76418 and 76519 of the Civil Code.
In a letter of March 16, 1998,20 private respondent Corazon Sipalay,
reacting to this Courts January 28, 1998 Resolution requiring
private respondents to SHOW CAUSE why they should not be
disciplinarily dealt with or held in contempt for failure to submit the
name and address of their new counsel, explains that they are no
longer interested in pursuing the case and are willing and ready to
waive whatever rights they have over the properties subject of the
donation. Petitioners, who were required to comment on the letter,
by Comment of October 28, 1998,21 welcome private respondents
gesture but pray that for the sake of enriching jurisprudence, their
[p]etition be given due course and resolved.

The issue is thus whether the donation is inter vivos or mortis

causa.

Crucial in the resolution of the issue is the determination of whether

the donor intended to transfer the ownership over the properties
upon the execution of the deed.22 cräläwvirtual ibrä ry

Donation inter vivos differs from donation mortis causa in that in

the former, the act is immediately operative even if the actual
execution may be deferred until the death of the donor, while in the
latter, nothing is conveyed to or acquired by the donee until the
death of the donor-testator.23 The following ruling of this Court
in Alejandro v. Geraldez is illuminating:24 cräläwvirtual ibrä ry

If the donation is made in contemplation of the donors death,

meaning that the full or naked ownership of the donated properties
will pass to the donee only because of the donors death, then it is at
that time that the donation takes effect, and it is a donation mortis
causa which should be embodied in a last will and testament.

But if the donation takes effect during the donors lifetime or

independently of the donors death, meaning that the full or naked
ownership (nuda proprietas) of the donated properties passes to the
donee during the donors lifetime, not by reason of his death but
because of the deed of donation, then the donation is inter vivos.

The distinction between a transfer inter vivos and mortis causa is

important as the validity or revocation of the donation depends
upon its nature. If the donation is inter vivos, it must be executed
and accepted with the formalities prescribed by Articles 74825 and
74926 of the Civil Code, except when it is onerous in which case the
rules on contracts will apply. If it is mortis causa, the donation must
be in the form of a will, with all the formalities for the validity of
wills, otherwise it is void and cannot transfer ownership.27 cräläwvirtua lib räry

The distinguishing characteristics of a donation mortis causa are the

following:

1. It conveys no title or ownership to the transferee before the

death of the transferor; or, what amounts to the same thing, that
the transferor should retain the ownership (full or naked) and
control of the property while alive;

2. That before his death, the transfer should be revocable by the

transferor at will, ad nutum; but revocability may be provided for
indirectly by means of a reserved power in the donor to dispose of
the properties conveyed;

3. That the transfer should be void if the transferor should survive

the transferee.28cräläwvirtual ibrä ry

In the donation subject of the present case, there is nothing therein

which indicates that any right, title or interest in the donated
properties was to be transferred to Ursulina prior to the death of
Celestina.

The phrase to become effective upon the death of the DONOR

admits of no other interpretation but that Celestina intended to
transfer the ownership of the properties to Ursulina on her death,
not during her lifetime.29 cräläwvirtua lib räry

More importantly, the provision in the deed stating that if the donee
should die before the donor, the donation shall be deemed
rescinded and of no further force and effect shows that the donation
is a postmortem disposition.
As stated in a long line of cases, one of the decisive characteristics
of a donation mortis causa is that the transfer should be considered
void if the donor should survive the donee.30 cräläwvirtuali brä ry

More. The deed contains an attestation clause expressly confirming

the donation as mortis causa:

SIGNED by the above-named donor, Celestina Ganuelas, at the foot

of this deed of donation mortis causa, consisting of two (2)
pages and on the left margin of each and every page thereof in the
joint presence of all of us who at her request and in her presence
and that of each other have in like manner subscribed our names as
witnesses.31 (Emphasis supplied)

To classify the donation as inter vivos simply because it is founded

on considerations of love and affection is erroneous. That the
donation was prompted by the affection of the donor for the donee
and the services rendered by the latter is of no particular
significance in determining whether the deed constitutes a
transfer inter vivos or not, because a legacy may have an identical
motivation.32 In other words, love and affection may also underline
transfers mortis causa.33cräläwvirt ualib räry

In Maglasang v. Heirs of Cabatingan,34 the deeds of donation

contained provisions almost identical to those found in the deed
subject of the present case:

That for and in consideration of the love and affection of the DONOR
for the DONEE, x x x the DONOR does hereby, by these presents,
transfer, convey, by way of donation, unto the DONEE the above-
described property, together with the buildings and all
improvements existing thereon, to become effective upon the death
of the DONOR; PROVIDED, HOWEVER, that in the event that the
DONEE should die before the DONOR, the present donation shall be
deemed automatically rescinded and of no further force and
effect. (Underscoring supplied)

In that case, this Court held that the donations were mortis causa,
for the above-quoted provision conclusively establishes the donors
intention to transfer the ownership and possession of the donated
property to the donee only after the formers death. Like in the
present case, the deeds therein did not contain any clear provision
that purports to pass proprietary rights to the donee prior to the
donors death.

As the subject deed then is in the nature of a mortis

causa disposition, the formalities of a will under Article 728 of the
Civil Code should have been complied with, failing which the
donation is void and produces no effect.35 cräläwvirtual ibräry

As noted by the trial court, the attesting witnesses failed to

acknowledge the deed before the notary public, thus violating
Article 806 of the Civil Code which provides:

Art. 806. Every will must be acknowledged before a notary public by

the testator and the witnesses. The notary public shall not be
required to retain a copy of the will, or file another with the office of
the Clerk of Court. (Emphasis supplied)

The trial court did not thus commit any reversible error in declaring
the Deed of Donation to be mortis causa.

WHEREFORE, the petition is hereby DENIED for lack of merit.

SO ORDERED.

G.R. No. L-33849 August 18, 1977

TEODORICO ALEJANDRO, IRENEO POLICARPIO, VIRGINIA ALEJANDRO,

MARIA ALEJANDRO, SALUD ALEJANDRO, EMILIA ALEJANDRO,
FLORENCIO ALEJANDRO and DIONISIA ALEJANDRO, petitioners,
vs.
HON. AMBROSIO M. GERALDEZ, Presiding Judge, Court of First Instance
of Bulacan, Branch V, Sta. Maria, ANDREA DIAZ and ANGEL
DIAZ, respondents.
G.R. No. L-33968 August 18, 1977

ANDREA DIAZ, petitioner,

vs.

HON. AMBROSIO M. GERALDEZ, in his capacity as Presiding Judge of the

Court of First Instance of Bulacan, Branch V, TEODORICO ALEJANDRO,
IRENEO POLICARPIO, VIRGINIA ALEJANDRO, MARIA ALEJANDRO,
EMILIA ALEJANDRO, FLORENCIO ALEJANDRO and DIONISIA
ALEJANDRO, respondents.

Ponciano G. Hernandez for Teodorico Alejandro, et al.

Porfirio Villaroman for Andrea Diaz and Angel Diaz.

AQUINO. J.

This is a case about donations inter vivos and mortis causa . The bone of
contention is Lot No. 2502 of the Lolomboy Friar Lands Estate with an area of
5,678 square meters, situated in Sta. Maria, Bulacan and covered by Transfer
Certificate of Title No. 7336. The facts are as follows: On January 20, 1949 the
spouses Gabino (Gavino) Diaz and Severa Mendoza, their daughter-in-law
Regina Fernando and their three children, Olimpia Diaz, Angel Diaz and Andrea
Diaz, executed a deed of donation covering eight lots of the Lolomboy Friar
Lands Estate, owned by the Diaz spouses, located at Barrio Parada, Sta. Maria,
Bulacan. The deed reads as follows:

KASULATAN NG PAGKAKALOOB (A DEED OF DONATION)

ALAMIN NG LAHAT NG MAKATUTUNGHAY NITO:

Ang pagkakaloob (donation) na ito, ginawa at pinagtibay dito sa

municipio ng Sta. Maria, lalawigan ng Bulacan, Pilipinas, ngayong
ika 20 ng Enero, 1949, ng mag-asawang GABINO DIAZ at SEVERA
MENDOZA, filipinos, may mga sapat na gulang, naninirahan sa
nayon ng Parada, Sta. Maria, Bulacan na dito'y kinikilalang
NAGKALOOB (DONORS), sa kapakanan nila REGINA
FERNANDO, filipina, may sapat na gulang, viuda; OLIMPIA DIAZ,
filipina, may sapat na gulang, kasal kay Teodorico Alejandro,
ANGEL DIAZ, filipino, may sapat na gulang, kasal kay Catalina
Marcelo, at ANDREA DIAZ, filipina, may sapat na gulang, kasal kay
Perfecto Marcelo, mga naninirahan sa nayon ng Parada, Sta. Maria,
Bulacan, na dito'y kinikilalang PINAGKALOOBAN (DONEES).

PAGPAPATUNAY:

Na ang Nagkaloob (DONORS) ay siyang mayari, at kamayari at

namomosision sa kasalukuyan ng mga parcelang lupa kasama ang
mga kagalingan na nasa lugar ng Parada, Sta. Maria, Bulacan,
mapagkikilala sa paraang mga sumusunod (description and
statements as to registration are omitted):

1. TCT No. 7336, Lot No. 2502, 5,678 square meters.

2. TCT No. 10998, Lot No. 2485, 640 square meters.

3. TCT No. 10840, Lot No. 2377,16,600 square meters.

4. TCT No. 10997, Lot No. 2448,12,478 square meters.

5. TCT No. 2051, Lot No. 4168, 1,522 square meters.

6. TCT No. 17960, Lot No. 2522, 3,418 square meters.

7. TCT No. 17961, Lot No. 2521, 715 square meters.

8. TCT No. 21453, Lot No. 2634, 8,162 square meters.

Na dahil at alang-alang sa pagmamahal at masuyong pagtingin na

taglay ng NAGKAKALOOB (DONORS) sa Pinagkakalooban
(DONEES) gayun din sa tapat at mahalagang paglilingkod noong
mga lumipas na panahon na ginawa ng huli sa una, ang nabanggit
na nagkakaloob sa pamamagitan ng kasulatang ito ng pagkakaloob
(Donation) ay buong pusong inililipat at lubos na ibinibigay sa
nasabing pinagkakalooban ang lupang binabanggit at makikilala sa
unahan nito, laya sa ano mang sagutin at pagkakautang, katulad
nito:

(a) — Na ang lupang sinasaysay sa Lote No. 2502 o Titulo No.

7336, (No. 1) sa unahan nito ay hinati sa dalawang parte ang unang
parte (1/2) na nasa bandang Kanluran (West) ay ipinagkakaloob ng
mag-asawang Gabino Diaz at Severa Mendoza sa kanilang anak na
si Angel Diaz, kasal kay Catalina Marcelo; at ang ikalawang parte
(1/2) na nasa 'bandang silangan (East) ay ipinagkakaloob ng mag-
asawang Gabino Diaz at Severa Mendoza sa kanilang anak na si
Andrea Diaz, kasal kay Perfecto Marcelo."

(Note — Some dispositions are not reproduced verbatim but are

merely summarized because they are not involved in this case.
Paragraph (a) above is the one involved herein).

(b) — Lot No. 2485, TCT No.10998, to Regina Fernando (daughter-

in-law of the donors and widow of their deceased son, Miguel Diaz)
and Olimpia Diaz in equal shares.

(c) — Lot No. 2377, TCT No. 10840, 1/3 to Angel Diaz, 1/3 to
Andrea Diaz, and 1/3 "ay inilalaan o inihahanda ng mag-asawang
Gabino Diaz at Severa Mendoza sa kanilang sariling kapakanan o
mga gastos nila.

(d) — Lot No. 2448, TCT No. 10997 to Olimpia Diaz sa condicion na
pagkakalooban ni Olimpia Diaz si Crisanta de la Cruz, asawa ni
Alejandro - - - - - (sic) sakaling si Crisanta ay mamatay ng halagang
isang daang piso (P100), bilang gastos sa libing."

(e) — Na ang lupang-solar na sinasaysay sa Lote No. 4168 o Titulo

No. 2051 (No. 5); lupang-bukid na sinasaysay sa Lote No. 25?2 o
Titulo No. 17960 (No. 6); at lupang-bukid na sinasaysay sa Lote No.
2521 o Titulo No. 17961 (No. 7) sa unahan nito ay inilalaan o
inihahanda ng mag-asawang Gabino Diaz at Severa Mendoza sa
kanilang sariling kapakanan o mga gastos nila.

(f) — Lot No. 2643, TCT No. 21453, to Regina Fernando and her
children with the deceased Miguel Diaz in whose name the said Lot
was already registered.

Na kaming mga pinagkakalooban (DONEES) na sila Regina

Fernando, Olimpia Diaz, Angel Diaz at Andrea Diaz ay tinatanggap
namin ng buong kasiyahang loob ang pagkakaloob (Donation.) na
ito, at sa pamamagitan nito ay kinikilala, pinahahalagahan, at lubos
na pinasasalamatan namin ang kagandahang loob at paglingap na
ipinakita at ginawa ng nagkakaloob (Donors).

AT SA WAKAS, ang pagkakaloob na ito (DONATION), ay

sumasailalim sa paraang mga sumusunod:
 1. Ang mga Pinagkakalooban (Donatarios) na sila Regina Fernando,
Olimpia Diaz, Angel Diaz, at Andrea Diaz, siyang nakaaalam sa mga
gastos sa pagkakasakit at sa libing ng NAGKALOOB (DONANTE);

2. Na ang mga Pinagkalooban (DONATARIOS) ay hindi maaaring

makapagbili sa pangatlong tao ng nasabing mga pagaari
samantalang ang nagkaloob (Donante) ay buhay Datapwa't kung
ang pagbibiling gagawin ay upang malunasan ang mga gastos at
menitencion ng Nagkaloob (Donante) samakatuwid ang nasabing
pagbibili ay matuwid;

3. Gayun din, samantalang kaming mag-asawang Gabino Diaz at

Severa Mendoza ay buhay, patuloy ang aming pamamahala,
karapatan, at pagkamay-ari sa mga nasabing pagaari na sinasaysay
sa unahan nito na pag-aari namin; ngunit sakaling kami ay bawian
ng buhay ng Panginoong Dios at mamatay na ang mga karapatan at
pagkamay-ari ng bawa't Pinagkalooban (Donatarios) sa bawa't pag-
aari na nauukol sa bawa't isa ay may lubos na kapangyarihan."

SA KATUNAYAN NG LAHAT, linagdaan namin ang kasulatang ito,

dito sa Sta. Maria, Bulacan, ngayon ika 20 ng Enero, 1949, sa
patibay ng dalawang sacsing
kaharap. Signature Thumbmark Signature GABINO DIAZ SEVERA
MENDOZA REGINA
FERNANDO Thumbmark Signature Signature OLIMPIA DIAZ
ANGEL DIAZ ANDREA DIAZ

(Acknowledgment signed by Notary Celedonio Reyes is omitted)

Gabino Diaz died in 1962. On October 20, 1964 Severa Mendoza and her two
children, Andrea Diaz and Angel Diaz, executed a deed of donation denominated
as "Kasulatan ng Pagbibigay na Magkakabisa Pagkamatay (Donation Mortis
causa )" over one-half of Lot No. 2377-A, which is a portion of Lot No. 2377 of
the Lolomboy Friar Lands Estate (which in turn is item 3 or [c] in the 1949 deed
of donation already mentioned).

In that deed of donation, Severa Mendoza donated to Andrea Diaz her one-half
share in Lot 2377-A, which one-half share is Identified as Lot 2377-A-1, on
condition that Andrea Diaz would bear the funeral expenses to be incurred after
the donor's death. She died in 1964.
It should be noted that the other one-half share in Lot 2377-A or Lot No. 2377-A-
2 was previously adjudicated to Angel Diaz because he defrayed the funeral
expenses on the occasion of the death of Gabino Diaz.

On May 12, 1970 Andrea Diaz sued her brother, Angel Diaz, in the Court of First
Instance of Bulacan, Sta. Maria Branch V for the partition of Lots Nos. 2377-A
and 2502 (Civil Case No. SM-357). Teodorico Alejandro, the surviving spouse of
Olimpia Diaz, and their children intervened in the said case. They claimed one-
third of Lot No. 2502. Angel Diaz alleged in his answer that he had. been
occupying his share of Lot No. 2502 "for more than twenty years". The
intervenors claimed that the 1949 donation was a void mortis causa disposition.

On March 15, 1971 the lower court rendered a partial decision with respect to Lot
No. 2377-A. The case was continued with respect to Lot No. 2502 which is item
No. 1 or (a) in the 1949 deed of donation. The record does not show what
happened to the other six lots mentioned in the deed of donation.

The trial court in its decision of June 30, 1971 held that the said deed of donation
was a donation mortis causa because the ownership of the properties donated
did not pass to the donees during the donors' lifetime but was transmitted to the
donees only "upon the death of the donors".

However, it sustained the division of Lot No. 2502 into two equal parts between
Angel Diaz and Andrea Diaz on the theory that the said deed of donation was
effective "as an extra-judicial partition among the parents and their children.
Consequently, the Alejandro intervenors were not given any share in Lot No.
2502. Angel Diaz and the intervenors were ordered to pay Andrea Diaz
"attorney's fees of P1,000 each or a total of P2,000".

The Alejandro intervenors filed a motion for reconsideration, On July 16, 1971
the trial court denied that motion but eliminated the attorney's fees.

Andrea Diaz and the Alejandro intervenors filed separate appeals to this Court
under Republic Act No. 5440. Andrea Diaz contends that the 1949 deed of
donation is a valid donation inter vivos and that the trial court erred in deleting the
award for attorney's fees. The Alejandro intervenors contend that the said
donation is mortis causa ; that they are entitled to a one-third share in Lot No,
2502, and that the trial court erred in characterizing the deed as a valid partition.
In the ultimate analysis, the appeal involves the issue of whether the Alejandro
intervenors should be awarded one-third of Lot No. 2502, or 1,892 square meters
thereof, as intestate heirs of the Diaz spouses.
To resolve that issue, it is necessary to determine whether the deed of donation
is inter vivos or mortis causa. A brief exposition on the nature of donation inter
vivos and mortis causa may facilitate the resolution of that issue. Many legal
battles have been fought on the question of whether a particular deed is an inter
vivos or mortis causa donation. The copious jurisprudence on that point sheds
light on that vexed question. The Civil Code provides:

ART. 728. Donations which are to take effect upon the death of the
donor partake of the nature of testamentary provisions, and shall be
governed by the rules established in the Title on Succession. (620).

ART. 729. When the donor intends that the donation shall take effect
during the lifetime of the donor, though the property shall not be
delivered till after the donor's death, this shall be a donation inter
vivos. The fruits of the property from the time of the acceptance of
the donation, shall pertain to the donee, unless the donor provides
otherwise. (n)

ART. 730. The fixing of an event or the imposition of a suspensive

condition, which may take place beyond the natural expectation of
life of the donor, does not destroy the nature of the act as a
donation inter vivos unless a contrary intention appears. (n)

ART. 731. When a person donates something subject to the

resolutory condition of the donor's survival, there is a donation inter
vivos. (n)

ART. 732. Donations which are to take effect inter vivos shall be
governed by the general provisions on contracts and obligations in
all that is not determined in this Title. (621)."

Nature of donations inter vivos and mortis causa transfers. — Before tackling the
issues raised in this appeal, it is necessary to have some familiarization with the
distinctions between donations inter vivos and mortis causa because the Code
prescribes different formalities for the two kinds of donations. An utter vivos
donation of real property must be evidenced by a public document and should be
accepted by the donee in the same deed of donation or in a separate instrument.
In the latter case, the donor should be notified of the acceptance in an authentic
form and that step should be noted in both instruments. (Art. 749, Civil Code. As
to inter vivos donation of personal property, see art. 748).

On the other hand, a transfer mortis causa should be embodied in a last will and
testament (Art. 728, supra). It should not be called donation mortis causa . It is in
reality a legacy (5 Manresa, Codigo Civil, 6th Ed., p. 107). If not embodied in a
valid will, the donation is void (Narag vs. Cecilio, 109 Phil. 299; Aznar vs. Sucilla
102 Phil. 902; Tuazon vs. Posadas, 54 Phil. 289; Serrano vs. Solomon, 105 Phil.
998, 1002).

This Court advised notaries to apprise donors of the necessity of clearly

specifying whether, notwithstanding the donation, they wish to retain the right to
control and dispose at will of the property before their death, without the consent
or intervention of the beneficiary, since the reservation of such right would be a
conclusive indication that the transfer' would be effective only at the donor's
death, and, therefore, the formalities of testaments should be observed; while, a
converso, the express waiver of the right of free disposition would place the inter
vivos character of the donation beyond dispute (Cuevas vs. Cuevas, 98 Phil.
68,72).

From the aforequoted articles 728 to 732, it is evident that it is the time of
effectivity (aside from the form) which distinguishes a donation inter vivos from a
donation mortis causa . And the effectivity is determined by the time when the full
or naked ownership (dominum plenum or dominium directum) of the donated
properties is transmitted to the donees. (See Lopez vs. Olbes, 15 Phil. 540;
Gonzales and Fuster Fabra vs. Gonzales Mondragon, 35 Phil. 105). The
execution of a public instrument is a mode of delivery or tradition (Ortiz vs. Court
of Appeals, 97 Phil. 46).

If the donation is made in contemplation of the donor's death, meaning that the
full or naked ownership of the donated properties will pass to the donee only
because of the donor's death, then it is at that time that the donation takes effect,
and it is a donation mortis causa which should be embodied in a last will and
testament (Bonsato vs. Court of Appeals, 95 Phil. 481).

But if the donation takes effect during the donor's lifetime or independently of the
donor's death, meaning that the full or naked ownership (nuda proprietas) ) of the
donated properties passes to the donee during the donor's lifetime, not by reason
of his death but because of the deed of donation, then the donation is inter
vivos (Castro vs. Court of Appeals, L-20122, April 28, 1969, 27 SCRA 1076).

The effectivity of the donation should be ascertained from the deed of donation
and the circumstances surrounding its execution. Where, for example, it is
apparent from the document of trust that the donee's acquisition of the property
or right accrued immediately upon the effectivity of the instrument and not upon
the donor's death, the donation is inter vivos (Kiene vs. Collector of Internal
Revenue, 97 Phil. 352).
There used to be a prevailing notion, spawned by a study of Roman Law, that the
Civil Code recognizes a donation mortis as a juridical act in contraposition to a
donation inter vivos. That impression persisted because the implications of article
620 of the Spanish Civil Code, now article 728, that "las donaciones que hayan
de producir sus efectos pro muerte del donante participan de la naturaleza de las
disposiciones de ultima voluntad, y se regiran por las reglas establecidas en el
capitulo de la sucesion testamentaria" had not been fully expounded in the law
schools. Notaries assumed that the donation mortis causa of the Roman Law
was incorporated into the Civil Code.

As explained by Justice J. B. L. Reyes in the Bonsato case, supra, article 620

broke away from the Roman Law tradition and followed the French doctrine that
no one may both donate and retain. Article 620 merged donations mortis
causa with testamentary dispositions and thus suppressed the said donations as
an independent legal concept. Castan Tobenas says:

(b) Subsisten hoy en nuestro Derecho las donaciones mortis

causa ? — De lo que acabamos de decir se desprende que las
donaciones mortis causa han perdido en el Codigo civil su caracter
distintivo y su naturaleza, y hay que considerarlas hoy como una
institucion suspirimida, refundida en la del legado. ...

La tesis de la desaparicion de las donaciones mortis causa en

nuestro Codigo Civil, acusada ya precedentemente por el projecto
de 1851, puede decirse que constituye una communis opinio entre
nuestros expositores, incluso los mas recientes. ...

Garcia Goyena, comentando dicho proyecto, decia que la Comision

se habia adherido al acuerdo de suprimir las donaciones mortis
causa , seguido por casi todos los Codigos modernos. Las
donaciones mortis causa — añ;adia-eran una especie
de montsruo entre los contratos y ultimas voluntades; las algarabia
del Derecho romano y patrio sobre los puntos de semenjanza y
disparidad de estas donaciones con los pactos y legados no podia
producir sino dudas, confusion y pleitos en los rarisimos casos que
ocurriesen por la dificuldad de apreciar y fijar sus verdaderos
caracteres' "(4 Derecho Civil Espanol, Comun y Foral, 8th Ed., 1956,
pp. 182-3).

Manresa is more explicit. He says that "la disposicion del articulo 620 significa,
por lo tanto: (1) que han desaperacido las llamadas antes donaciones mortis
causa , por lo que el Codigo no se ocupa de ellas en absoluto; (2) que toda
disposicion de bienes para despues de la muerte sigue las reglas establecidas
para la sucesion testamentaria" (5 Comentarios al Codigo Civil Espanol, 6th Ed.,
p.107). Note that the Civil Code does not use the term donation mortis causa . (
Section 1536 of the Revised Administrative Code in imposing the inheritance tax
uses the term "gift mortis causa ").
lwphl@itç

What are the distinguishing characteristics of a donation mortis causa? Justice

Reyes in the Bonsato case says that in a disposition post mortem (1) the transfer
conveys no title or ownership to the transferee before the death of the tansferor,
or the transferor (meaning testator) retains the ownership, full or naked (domino
absoluto or nuda proprietas) (Vidal vs. Posadas, 58 Phil. 108; De Guzman vs.
Ibea, 67 Phil. 633; (2) the transfer is revocable before the transferor's death and
revocabllity may be provided for indirectly by means of a reserved power in the
donor to dispose of the properties conveyed (Bautista vs. Sabiniano, 92 Phil.
244), and (3) the transfer would be void if the transferor survived the transferee.

In other words, in a donation mortis causa it is the donor's death that determines
that acquisition of, or the right to, the property donated, and the donation is
revocable at the donor's will, Where the donation took effect immediately upon
the donee's acceptance thereof and it was subject to the resolutory condition that
the donation would be revoked if the donee did not give the donor a certain
quantity of rice or a sum of money, the donation is inter vivos (Zapanta vs.
Posadas, Jr., 52 Phil. 557).

Justice Reyes in the subsequent cast of Puig vs. Penaflorida, L-15939,

November 29, 1965, 15 SCRA 276, synthesized the rules as follows:

1. That the Civil Code recognizes only gratuitous transfers of

property which are effected by means of donations inter vivos or by
last will and testament executed with the requisite legal formalities.

2. That in inter vivos donations the act is immediately operative even

if the material or physical deliver (execution) of the property may be
deferred until the donor's death, whereas, in a testamentary
disposition, nothing is conveyed to the grantee and nothing is
acquired by him until the death of the grantortestator. The
disposition is ambulatory and not final.

3. That in a mortis causa disposition the conveyance or alienation

should be (expressly or by necessary implication) revocable ad
nutum or at the discretion of the grantor or so called donor if he
changes his mind (Bautista vs. Saniniano, 92 Phil. 244).
 4. That, consequently, the specification in the deed of the cases
whereby the act may be revoked by the donor indicates that the
donation is inter vivos and not a mortis causa disposition (Zapanta
vs. Posadas, 52 Phil. 557).

5. That the designation of the donation as mortis causa , or a

provision in the deed to the effect the donation "is to take effect at
the death of the donor", is not a controlling criterion because those
statements are to be construed together with the rest of the
instrument in order to give effect to the real intent of the transferor
(Laureta vs. Mata and Mango, 44 Phil. 668; Concepcion vs.
Concepcion, 91 Phil. 823; Cuevas vs. Cuevas, 98 Phil. 68).

6. That a conveyance for an onerous consideration is governed by

the rules of contracts and not by those of donations or testaments
(Carlos vs. Ramil, 20 Phil. 183; Manalo vs. De Mesa, 29 Phil. 495).

7. That in case of doubt the conveyance should be deemed a

donation inter vivos rather than mortis causa , in order to avoid
uncertainty as to the ownership of the property subject of the deed.

It may be added that the fact that the donation is given in consideration of love
and affection or past or future services is not a characteristic of donations inter
vivos because transfers mortis causa may be made also for those reasons.
There is difficulty in applying the distinctions to controversial cases because it is
not easy sometimes to ascertain when the donation takes effect or when the full
or naked title passes to the transferee. As Manresa observes, "when the time
fixed for the commencement of the enjoyment of the property donated be at the
death of the donor, or when the suspensive condition is related to his death,
confusion might arise" (5 Codigo Civil, 6th Ed., p. 108).

The existence in the deed of donation of conflicting stipulations as to its effectivity

may generate doubt as to the donor's intention and as to the nature of the
donation (Concepcion vs. Concepcion, 91 Phil. 823).

Where the donor declared in the deed that the conveyance was mortis causa and
forbade the registration of the deed before her death, the clear inference is that
the conveyance was not intended to produce any definitive effect nor to pass any
interest to the grantee except after her death. In such a case, the grantor's
reservation of the right to dispose of the property during her lifetime means that
the transfer is not binding on her until she dies. It does not mean that the title
passed to the grantee during her lifetime. (Ubalde Puig vs. Magbanua
Penaflorida, L-15939, Resolution of January 31, 1966, 16 SCRA 136).
In the following cases, the conveyance was considered a void mortis
causa transfer because it was not cast in the form of a last will and testament as
required in article 728, formerly article 620:

(a) Where it was stated in the deed of donation that the donor wanted to give the
donee something "to take effect after his death" and that "this donation shall
produce effect only by and because of the death of the donor, the property herein
donated to pass title after the donor's death" (Howard vs. Padilla, 96 Phil. 983).
In the Padilla case the donation was regarded as mortis causa although the
donated property was delivered to the donee upon the execution of the deed and
although the donation was accepted in the same deed.

(b) Where it was provided that the donated properties would be given to the
donees after the expiration of thirty days from the donor's death, the grant was
made in the future tense, and the word "inherit" was used (Carino vs. Abaya, 70
Phil. 182).

(c) Where the donor has the right to dispose of all the donated properties and the
products thereof. Such reservation is tantamount to a reservation of the right to
revoke the donation (Bautista vs. Sabiniano 92 Phil. 244).

(d) Where the circumstances surrounding the execution of the deed of donation
reveal that the donation could not have taken effect before the donor's death and
the rights to dispose of the donated properties and to enjoy the fruits remained
with the donor during her lifetime (David vs. Sison, 76 Phil. 418).

But if the deed of donation makes an actual conveyance of the property to the
donee, subject to a life estate in the donors, the donation is is inter vivos (Guarin
vs. De Vera, 100 Phil. 1100).

Articles 729, 730 and 731 have to some extent dissipated the confusion
surrounding the two kinds of donation. The rule in article 729 is a crystallization
of the doctrine announced in decided cases.

A clear instance where the donor made an inter vivos donation is found in De
Guzman vs. Ibea 67 Phil. 633. In that case, it was provided in the deed that the
donor donated to the donee certain properties so that the donee "may hold the
same as her own and always" and that the donee would administer the lands
donated and deliver the fruits thereof to the donor, as long as the donor was
alive, but upon the donor's death the said fruits would belong to the donee. It was
held that the naked ownership was conveyed to the donee upon the execution of
the deed of donation and, therefore, the donation became effective during the
donor's lifetime.
In Sambaan vs. Villanueva, 71 Phil. 303, the deed of donation, as in Balaqui vs.
Dongso, 53 Phil. 673, contained conflicting provision. It was provided in the deed
that the donation was made "en consideracion al afecto y carino" of the donor for
the donee but that the donation "surtira efectos despues de ocurrida mi muerte
(donor's death).

That donation was held to be inter vivos because death was not the
consideration for the donation but rather the donor's love and affection for the
donee. The stipulation that the properties would be delivered only after the
donor's death was regarded as a mere modality of the contract which did not
change its inter vivos character. The donor had stated in the deed that he was
donating, ceding and transferring the donated properties to the donee. (See Joya
vs. Tiongco, 71 Phil. 379).

In Laureta vs. Mata and Magno, 44 Phil. 668 the deed of donation provided that
the donor was donating mortis causa certain properties as a reward for the
donee's services to the donor and as a token of the donor's affection for him. The
donation was made under the condition that "the donee cannot take possession
of the properties donated before the death of the donor"; that the ' donee should
cause to be held annually masses for the repose of the donor's soul, and that he
should defray the expenses for the donor's funeral.

It was held that the said donation was inter vivos despite the statement in the
deed that it was mortis causa . The donation was construed as a conveyance
in praesenti ("a present grant of a future interest") because it conveyed to the
donee the title to the properties donated "subject only to the life estate of the
donor" and because the conveyance took effect upon the making and delivery of
the deed. The acceptance of the donation was a circumstance which was taken
into account in characterizing the donation as inter vivos.

In Balacui vs. Dongso, supra, the deed of donation involved was more confusing
than that found in the Laureta case. In the Balaqui case, it was provided in the
deed that the donation was made in consideration of the services rendered to the
donor by the donee; that "title" to the donated properties would not pass to the
donee during the donor's lifetime, and that it would be only upon the donor's
death that the donee would become the "true owner" of the donated properties.
However, there was the stipulation that the donor bound herself to answer to the
donee for the property donated and that she warranted that nobody would disturb
or question the donee's right.

Notwithstanding the provision in the deed that it was only after the donor's death
when the 'title' to the donated properties would pass to the donee and when the
donee would become the owner thereof, it was held in the Balaqui case that the
donation was inter vivos.

It was noted in that case that the donor, in making a warranty, implied that the
title had already been conveyed to the donee upon the execution of the deed and
that the donor merely reserved to herself the "possesion and usufruct" of the
donated properties.

In Concepcion vs. Concepcion, 91 Phil. 823, it was provided in the deed of

donation, which was also styled as mortis causa , that the donation was made in
consideration of the services rendered by the donee to the donor and of the
donor's affection for the donee; that the donor had reserved what was necessary
for his maintenance, and that the donation "ha de producir efectos solamente por
muerte de la donante".

It was ruled that the donation was inter vivos because the stipulation that the
donation would take effect only after the donor's death "simply meant that the
possession and enjoyment, of the fruits of the properties donated' should take
effect only after the donor's death and not before".

Resolution of the instant case. — The donation in the instant case is inter
vivos because it took effect during the lifetime of the donors. It was already
effective during the donors' lifetime, or immediately after the execution of the
deed, as shown by the granting, habendum and warranty clause of the deed
(quoted below).

In that clause it is stated that, in consideration of the affection and esteem of the
donors for the donees and the valuable services rendered by the donees to the
donors, the latter, by means of the deed of donation, wholeheartedly transfer and
unconditionally give to the donees the lots mentioned and described in the early
part of the deed, free from any kind of liens and debts:

Na dahil at alang-alang sa pagmamahal at masuyong

pagtingin na taglay ng NAGKAKALOOB (DONORS) sa
Pinagkakalooban (DONEES) gayun din sa tapat at
mahalagang paglilingkod noong mga lumipas na
panahon na ginawa ng huli sa una ang nabanggit na
nagkakaloob sa pamagitan ng kasulatang ito ng
pagkakaloob (Donation) ay buong pusong inililipat at
lubos na ibinibigay sa nasabing pinagkakalooban ang
lupang binabanggit at makikilala sa unahan nito, laya sa
ano mang sagutin at pagkakautang, katulad nito:
Following the above-ousted granting, habendum and warranty clause is the
donors' declaration that they donate (ipinagkakaloob) Lot No. 2502, the property
in litigation, in equal shares to their children Angel Diaz and Andrea Diaz, the
western part to Angel and the eastern part to Andrea.

The acceptance clause is another indication that the donation is inter vivos.
Donations mortis causa , being in the form of a will, are never accepted by the
donees during the donors' lifetime. Acceptance is a requirement for donations
inter vivos.

In the acceptance clause herein, the donees declare that they accept the
donation to their entire satisfaction and, by means of the deed, they acknowledge
and give importance to the generosity and solicitude shown by the donors and
sincerely thank them.

In the reddendum or reservation clause of the deed of donation, it is stipulated

that the donees would shoulder the expenses for the illness and the funeral of
the donors and that the donees cannot sell to a third person the donated
properties during the donors' lifetime but if the sale is necessary to defray the
expenses and support of the donors, then the sale is valid.

The limited right to dispose of the donated lots, which the deed gives to the
donees, implies that ownership had passed to them by means of' the donation
and that, therefore, the donation was already effective during the donors' lifetime.
That is a characteristic of a donation inter vivos.

However, paragraph 3 of the reddendum in or reservation clause provides that

"also, while we, the spouses Gabino Diaz and Severa Mendoza, are alive, our
administration, right, and ownership of the lots mentioned earlier as our
properties shall continue but, upon our death, the right and ownership of the
donees to each of the properties allocated to each of them shall be fully
effective." The foregoing is the translation of the last paragraph of the deed of
donation which reads:

(3) Gayun din samantalang kaming mag-asawang Gabino Diaz at

Severa Mendoza ay buhay, patuloy and aming pamamahala,
karapatan, at pagkamayari sa mga nasabing pagaari na sinasaysay
sa unahan nito na pagaari namin; ngunit sakaling kami ay bawian ng
buhay ng Panginoong Dios at mamatay na, ang mga karapatan at
pagkamayari ng bawa't pinagkalooban (Donatorios) sa bawa't
pagaari nauukol sa bawa't isa ay may lubos na kapangyarihan.
Evidently, the draftsman of the deed did not realize the discordant and
ambivalent provisions thereof. The habendum clause indicates the transfer of the
ownership over the donated properties to the donees upon the execution of the
deed. But the reddendum clause seems to imply that the ownership was retained
by the donors and would be transferred to the donees only after their death.

We have reflected on the meaning of the said contradictory clauses. All the
provisions of the deed, like those of a statute and testament, should be construed
together in order to ascertain the intention of the parties. That task would have
been rendered easier if the record shows the conduct of the donors and the
donees after the execution of the deed of donation.

But the record is silent on that point, except for the allegation of Angel Diaz in his
answer (already mentioned) that he received his share of the disputed lot long
before the donors' death and that he had been "openly and adversely occupying"
his share "for more than twenty years". (Andrea Diaz on page 17 of her brief in L-
33849 states that the donees took possession of their respective shares as
stipulated in the deed of donation. Pages 3,4,18 and 19, tsn March, 1971).

Our conclusion is that the aforequoted paragraph 3 of the reddendum or

reservation clause refers to the beneficial ownership (dominium utile) and not to
the naked title and that what the donors reserved to themselves, by means of
that clause, was the management of the donated lots and the fruits thereof. But,
notwithstanding that reservation, the donation, as shown in
the habendum clause, was already effective during their lifetime and was not
made in contemplation of their death because the deed transferred to the donees
the naked ownership of the donated properties.

That conclusion is further supported by the fact that in the deed of donation, out
of the eight lots owned by the donors, only five were donated. Three lots, Lots
Nos. 4168, 2522 and 2521 were superflously reserved for the spouses or donors
in addition to one- third of Lot No. 2377. If the deed of donation in question was
intended to be a mortis causa disposition, then all the eight lots would have been
donated or devised to the three children and daughter-in-law of the donors.

The trial court's conclusion that the said deed of donation, although void as a
donation inter vivos is valid "as an extrajudicial partition among the parents and
their children" is not well-taken. Article 1080 of the Civil Code provides that 46
should a person make a partition of his estate by an act inter vivos or by will,
such partition shall be respected, insofar as it does not prejudice the legitime of
the compulsory heirs."
We have already observed that the said donation was not a partition of the entire
estate of the Diaz spouses since, actually, only five of the eight lots, constituting
their estate, were partitioned. Hence, that partition is not the one contemplated in
article 1080.

There is another circumstance which strengthens ' the view that the 1949 deed of
donation in question took effect during the donors' lifetime. It may he noted that in
that deed Lot No. 2377 (items 3 and [c]) was divided into three equal parts: one-
third was donated to Andrea Diaz and one-third to Angel Diaz. The remaining
one-third was reserved and retained by the donors, the spouses Gabino Diaz
and Severo Mendoza, for their support. That reserved one-third portion came to
be known as Lot No. 2377-A.

In 1964 or after the death of Gabino Diaz, his surviving spouse Severa Mendoza
executed a donation mortis causa wherein she conveyed to her daughter,
Andrea Diaz (plaintiff-appellant herein), her one-half share in Lot No. 2377-A,
which one-half share is known as Lot No. 2377-A-1, the other half or Lot No.
2377-A-2 having been already conveyed to Angel Diaz.

That disposition of Lot No. 2377-A-2 clearly implies that the conveyance in the
1949 deed of donation as to Lot No. 2377 took effect during the lifetime of the
donors, Gabino Diaz and Severa Mendoza, and proves that the 1949 donation
was inter vivos.

The instant case has a close similarity to the pre-war cases already cited and to
three post-liberation cases. In the Bonsato case, the deed of donation also
contained contradictory dispositions which rendered the deed susceptible of
being construed as a donation inter vivos or as a donation causa.

It was stated in one part of the deed that the donor was executing "una donacion
perfects e irrevocable consumada" in favor of the donee in consideration of his
past services to the donor; that at the time of the execution of the deed, the
donor "ha entregado" to the donee "dichos terrenos donados'; that while the
donor was alive, he would receive the share of the fruits corresponding to the
owner; and "que en vista de la vejez del donante, el donatario Felipe Bonsato
tomara posesion inmediatamente de dichos terrenos a su favor". These
provisions indicate that the donation in question was inter vivos

However, in the last clause of the deed in the Bonsato case (as in the instant
case), it was provided 'que despues de la muerte del donante entrara en vigor
dicha donacion y el donatario Felipe Bonsato tendra todos log derechos de
dichos terrernos en concepto de dueno absolute de la propriedad libre de toda
responsabilidad y gravemen y pueda ejercitar su derecho que crea conveniente".
These provisions would seem to show that the donation was mortis causa .

Nevertheless, it was held in the Bonsato case that the donation was inter
vivos because (1) the ownership of the things donated passed to the donee; (2) it
was not provided that the transfer was revocable before the donor's death, and
(3) it was not stated that the transfer would be void if the transferor should
survive the transferee.

It was further held in the Bonsato case that the stipulation "que despues de la
muerte del donante entrara en vigor dicha donacion", should be interpreted
together with the prior provision regarding its irrevocable and consummated
character, and that would mean that the charge or condition as to the donor's
share of the fruits would be terminated upon the donor's death.

The Puig case, supra, is even more doubtful and controversial than the instant
case. In the Puig case, the donor, Carmen Ubalde Vda. de Parcon, in a deed
entitled "Donacion Mortis causa dated November 24, 1948 cede y transfiere en
concepto de donacion mortis causa to the donee, Estela Magbanua Penaflorida
three parcels of land in consideration of the donee's past services and the
donor's love and affection for the latter.

It was stipulated in the deed that the donor could alienate or mortgage the
donated properties "cuando y si necesita fondos para satisfacer sus proprias
necesidades sin que para ello tega que intervener la Donataria, pues su
consentimiento se sobre entiende aqui parte de que la donacion que aqui se
hace es mortis causa , es decir que la donacion surtira sus efectos a la muerte
de la donante". It was repeated in another clause of the deed "que lacesion y
transferencia aqui provista surtira efecto al fallecer la Donante".

It was further stipulated that the donee would defray the medical and funeral
expen of the donor unless the donor had funds in the bank or "haya cosecho
levantada or recogida en cual caso dichos recursos responderan portales gastos
a disposicion y direccion de la donataria". Another provision of the deed was that
it would be registered only after the donor's death. In the same deed the donee
accepted the donation.

In the Puig case the donor in another deed entitled Escritura de Donacion mortis
causa " dated December 28, 1949 donated to the same donee, Estela Magbanua
Penaflorida three parcels of land en concepto de una donacion mortis causa " in
consideration of past services. It was provided in the deed "que antes de su
nuerte la donante, podra enajenar vender traspasar o hipotecar a cualesquiera
persona o entidades los bienes aqui donados a favor de la donataria en
concepto de una donacion mortis causa ". The donee accepted the donation in
the same deed.

After the donor's death both deeds were recorded in the registry of deeds. In the
donor's will dated March 26, 1951, which was duly probated, the donation of a
parcel of land in the second deed of donation was confirmed.

Under these facts, it was held that the 1948 deed of donation mortis
causa was inter vivos in character in spite of repeated expressions therein that it
was a mortis causa donation and that it would take effect only upon the donor's
death. Those expressions were not regarded as controlling because they were
contradicted by the provisions that the donee would defray the donor's expenses
even if not connected with her illness and that the donee's husband would
assume her obligations under the deed, should the donee predecease the donor.
Moreover, the donor did not reserve in the deed the absolute right to revoke the
donation.

But the 1949 deed of donation was declared void because it was a true
conveyance mortis causa which was not embodied in a last will and testament.
The mortis causa character of the disposition is shown by the donor's reservation
of the right to alienate or encumber the donated properties to any person or
entity.

In the Cuevas case, supra, one Antonina Cuevas executed on September 18,
1950 a notarial conveyance styled as "Donacion Mortis causa " where she ceded
to her nephew Crispulo Cuevas a parcel of unregistered land. Crispulo accepted
the donation in the same instrument. Subsequently, or on May 26, 1952, the
donor revoked the donation.

The deed of donation in the Cuevas case contained the following provisions
which, as in similar cases, are susceptible of being construed as making the
conveyance an inter vivos or a mortis causa transfer:

"Dapat maalaman ni Crispulo Cuevas na samantalang ako ay nabubuhay, ang

lupa na ipinagkakaloob ko sa kaniya ay ako pa rin ang patuloy na
mamomosecion, makapagpapatrabajo, makikinabang at ang iba pang karapatan
sa pagmamayari ay sa akin pa rin hanggang hindi ako binabawian ng buhay ng
Maykapal at ito naman ay hindi ko nga iyaalis pagkat kung ako ay mamatay na
ay inilalaan ko sa kaniya."

Translation
"Crispulo Cuevas should know that while I am alive, the land which I donated to
him will still be under my continued possession; I will be the one to have it
cultivated; I will enjoy its fruits and all the other rights of ownership until
Providence deprives me of life and I cannot take away the property from him
because when I die I reserve the property for him." (sic)

It was held that the donation was inter vivos because the phrase "hindi ko nga
iyaalis (I will not take away the property") meant that the donor expressly
renounced the right to freely dispose of the property in favor of another person
and thereby manifested the irrevocability of the conveyance of the naked title to
the donee. The donor retained the beneficial ownership or dominium utile Being
an inter vivos donation, it could be revoked by the donor only on the grounds
specified by law. No such grounds existed. The donee was not guilty of
ingratitude. The other point to be disposed of is the matter of the claim for
attorney's fees of Andrea Diaz against the Alejandro intervenors.

The other point to be disposed of is the matter of the claim for attorney's fees of
Andrea Diaz against the Alejandro intervenors.

After a careful consideration of the facts and circumstances of the case,

particularly the apparent good faith of the Alejandro intervenors in asserting a
one-third interest in the disputed lot and their close relationship to Andrea Diaz,
we find that it is not proper to require them to pay attorney's fees (Salao vs.
Salao, L-26699, March 16, 1976, 70 SCRA 65). (Andrea Diaz did not implead
Angel Diaz as a respondent in her petition for review.)

WHEREFORE, the trial court's amended decision is reversed insofar as it

pronounces that the deed of donation is void. That donation is declared valid as a
donation inter vivos.

The disputed lot should be partitioned in accordance with that deed between
Andrea Diaz and Angel Diaz.

The decision is affirmed insofar as it does not require the Alejandro intervenors to
pay attorney's fees to Andrea Diaz. No costs. SO ORDERED.

G.R. No. L-20122 April 28, 1969

FELICIANO A. CASTRO, petitioner,

vs.
THE COURT OF APPEALS, EUGENIA SORIANO DE GOMEZ, SOCORRO A.
CASTRO and THE HEIRS OF THE LATE ANTONIO VENTENILLA, JUSTO V.
SISON, SUSANA V. SISON, JOSE V. SISON, SOCORRO V. SISON DE VERA,
ELIAS VENTENILLA, MARIA VENTENILLA, JUAN VENTENILLA, NIEVA
VENTENILLA, GUADALUPE VENTENILLA, VICENTE VENTENILLA,
ROSARIO VENTENILLA, MANUEL SORIANO, JOSE SORIANO, JR., CESAR
SORIANO, OLIVA SORIANO, SOLEDAD SORIANO, CARMEN SORIANO,
ANGELES SORIANO, BENJAMIN S. VlLORIA and PAZ S.
VILORIA, respondents.

Brigido G. Estrada for petitioner.

Primicias and Castillo for respondents.

MAKALINTAL, J.:

Before us for review is the decision of the Court of Appeals in CA-G.R. No.
25234-R, dismissing the appeal from and in effect affirming the judgment of the
Court of First Instance of Pangasinan in Registration Case No. 805, G.L.R.O.
Record No. 1176.

The original application for registration and confirmation of title was filed by
Alejandra Austria on June 6, 1948, covering 10 parcels of land situated in the
barrios of Punglo Grande and Caviernesan, as well as in the poblacion of
Mangatarem, Pangasinan. Socorro A. Castro submitted an opposition, alleging
that the lands applied for had been donated to her by the applicant in 1939. On
March 2, 1950 the Court rendered judgment finding that Alejandra Austria had
been in possession of the lands in concept of owner since 1894, and
consequently, by virtue of the donation, ordered the registration thereof in the
name of the donee, Socorro A. Castro, subject only to the usufruct reserved by
the donor in herself for the rest of her lifetime.

Alejandra Austria was the widow of the deceased Antonio Ventenilla. On March
31, 1950 a number of persons, claiming to be his heirs 2 (nephews and nieces)
appeared and filed a petition to set aside the decision and the order of general
default previously entered, and to have their opposition to the application
admitted. Their petition was granted and the case was set for trial anew.
Meanwhile, Alejandra Austria died and Socorro A. Castro was substituted in her
place.

The averment of the oppositors was that the lands applied for were owned by
Antonio Ventenilla; that when he died he left a will bequeathing them in usufruct
to his wife Alejandra; and that upon her death they passed to the said oppositors
as his heirs.
The trial court, in its decision rendered on April 4, 1959, rejected both the claims
of Socorro A. Castro and of the oppositors without deciding the question of title
for purposes of registration. From that decision only Socorro A. Castro appealed
to the Court of Appeals. The appellees did not even file a brief. On July 19, 1962
the appellate court rendered its decision dismissing the appeal, and the case was
thereafter elevated to us on petition for review.

The ten parcels of land applied for may be classified into two groups. Parcels
Nos. 1, 2, 3 and 10, by agreement of the parties at the trial, "passed into the
possession of Alejandra Austria after the death of Antonio Ventenilla 3 by virtue
of the will left by the deceased Antonio Ventenilla and probated in Special
Proceeding No. 237." With respect to the six other parcels (Nos. 4, 5, 6, 7, 8 and
9) the parties reached no agreement. The oppositors contended that they
belonged to the said deceased, while the petitioner insists that Alejandra Austria
acquired them by purchase.

The issue in regard to parcels Nos. 1, 2, 3 and 10 is whether Alejandra Austria

was a mere life usufructuary thereof, the naked ownership being in the
oppositors, as collateral heirs of Antonio Ventenilla, or was the owner in fee
simple, as residuary legatee under his will. The Court of Appeals did not make
any categorical finding one way or the other on this issue, and disposed of it with
this equivocal observation: "But, to say that a parcel of land passed into the
possession of a person does not necessarily mean that said parcel of land
formed part of the residuary legacy of said person, for it may mean that said
person had usufructuary right over said parcel of land."

The question, it appears, has already been passed upon by this Court in a
previous case. A brief reference to antecedent facts is necessary, as they are set
forth in its decision in G.R. No. 10018, Austria v. Heirs of Antonio Ventenilla,
September 19, 1956. It is there stated that the will of this deceased was admitted
to probate in 1909, in Special Proceeding No. 237 of the Court of First Instance
of Pangasinan. The widow, Alejandra Austria was appointed administratrix of the
estate. In 1910 the collateral heirs, now oppositors, filed a petition for the
annulment of the will, which petition was denied by the Court below. In the order
of denial, dated October 5, 1910, it was declared: "que heredera Alejandra
Austria tiene derecho al remanente de todos los bienes dejados por el finado,
despues so deducir de ellos la pension que corresponde a cada una de sus
coherederos ..." That order was affirmed by this Court on appeal on January 11,
1912, G.R. No. 6620, 21 Phil. 180.

The next incident took place thirty-eight years later when, on April 22, 1950
herein oppositors filed a motion in the same testate proceeding claiming, among
other things, that Alejandra Austria was merely the life usufructuary of the estate
of the deceased, the naked ownership belonging to the movants; that she was no
longer able to administer the properties; and that she had been disposing of them
in violation of her trust; and praying that said Alejandra Austria be removed as
administratrix and another appointed in her place. The trial Court denied the
motion and ruled that the estate case had long since been closed. On appeal to
this Court the order was affirmed (G.R. No. 10018 supra). The decision, penned
by Justice J.B.L. Reyes, ruled as follows on the issue that is pertinent to the case
now before us:

We find no merit in the appeal. We agree with the lower Court that the
proceedings for the settlement of the testate estate of the deceased
Antonio Ventenilla had long been terminated and closed, and that the
issues now raised by appellants had been settled and decided by the
court's order of October 5, 1910, approving the final accounts of the
administratrix Alejandra Austria declaring said administratrix the residuary
legatee of all the movable and immovable properties of the estate after the
payment of the shares of the oilier heirs (sister and nephews and nieces of
the deceased) in the proportion of P17.52 per stripes, conditioned upon
their putting up of the bond required by law (Sec. 754, Act 190).

.... Appellants also insist that appellee Alejandra Austria is not the
residuary legatee of the estate of Antonio Ventenilla but only its life
usufructuary. This stand has long been proven false and untenable when
the Supreme Court found unmeritorious the appeal of appellants'
predecessors from that portion of the Lower Courts order of October 5,
1910 denying their petition to annul the will of Antonio Ventenilla and
declaring appellee entitled to all the remaining properties of the state. That
appellee Alejandra Austria was the residuary legatee of the estate of the
deceased is, therefore, res adjudicata and can no longer be relitigated by
appellants after thirty-eight years. And as appellee had been in the
possession and enjoyment of said properties all these years in the concept
of owner, being the residuary legatee thereof, there is no reason nor
justification for the reopening of these proceedings, the appointment of a
new administrator, and the reconstitution of the last will and testament of
the deceased Antonio Ventenilla.

The foregoing, considered together with the agreement of the parties at the trial
of this case that the four parcels (Nos. 1, 2, 3 and 10) passed into the possession
of Alejandra Austria by virtue of the will of the deceased Antonio Ventenilla, as
well as with the testimonial evidence concerning Alejandra's continuous
possession as owner thereafter, is sufficient proof of title for purposes of
registration.
Both the trial court and the Court of Appeals side stepped the issue of ownership
concerning the six other parcels (Nos. 4, 5, 6, 7, 8 and 9). The documentary
evidence for the appellant is that these six parcels were acquired by Alejandra
Austria through purchase: Nos. 6 and 7 on January 20, 1912 (Exh. M); Nos. 5
and 8 on February 21, 1911 (Exh. N); No. 4 by virtue of the deed of sale Exh. P;
and No. 9 by virtue of the deeds of sale Exh. 0, dated January 18, 1920; Exh. 0-
1, dated May 3, 1924; Exh. 0-2 dated March 6, 1917; Exh. 0-3, dated Feb. 3,
1917; Exh. 0-4, dated July 13, 1913; Exh. 0-5, dated April 16, 1911; and Exh. 0-
6, dated Nov. 16, 1928. The testimonial evidence confirms the long possession
of those, parcels by Alejandra Austria, and after her death by Socorro A. Castro.
The receipts showing the corresponding tax payments have been submitted and
form part of the record.

The contention of the oppositors below is that these parcels also belonged to the
deceased Antonio Ventenilla. Even assuming this to be so, they would have
passed to widow, Alejandra Austria, as the residuary heir under his will; and as
stated by this Court in Case G.R. No. L-10018, supra, "she had been in
possession and on payment of said properties all these years in concept of
owner, being the residuary legatee thereof." In any event whether, as purchaser
or as residuary legatee, such possession in concept of owner constituted
sufficient registrable title.

The next issue relates to the donation of all the ten parcels, executed by
Alejandra Austria in favor of Socorro A. Castro. The Court of Appeals affirmed
the trial courts ruling that said donation was mortis causa and consequently void
because it did not follow the formalities required of a will, pursuant to Article 620
of the old Civil Code, 4 the law in force when the donation was made on
September 22, 1939.

Whether a donation is inter vivos or mortis causa depends upon the nature of the
disposition made. "Did the donor intend to transfer the ownership of the property
donated upon the execution of the donation ? If this is so, as reflected from the
provisions contained: in the donation, then it is inter vivos; otherwise, it is
merely mortis causa, or made to take effect after death." 5 Sometimes the nature
of the donation becomes controversial when the donee's enjoyment of the
property donated is postponed until after the donor's death. Manresa comments
on this situation as follows:6

When the time fixed for the commencement of the enjoyment of the
property donated be at the death of the donor, or when the suspensive
condition is related to his death, confusion might arise. To avoid it we must
distinguish between the actual donation and the execution thereof. That
the donation is to have effect during the lifetime of the donor or at his death
 does not mean the delivery of the property must be made during his life or
after his death. From the moment that the donor disposes freely of his
property and such disposal is accepted by the donee, the donation exists,
perfectly and irrevocably (articles 618 and 623). Until the day arrives or
until the condition is fulfilled, the donation, although valid when made,
cannot be realized. Thus, he who makes the donation effective upon a
certain date, even though to take place at his death, disposes of that which
he donated and he cannot afterwards revoke the donation nor dispose of
the said property in favor of another.
law phi1.nêt

The donation at issue in the present case opens with the following disposition:

QUE YO ALEJANDRA AUSTRIA, la primera parte, en consideracion a los

meritorios servicios y buenas atenciones que me haya prestado desde su
nina y de los que todavia me esta prestando y seguira prestandome hasta
mi muerte la senorita SOCORRO A. CASTRO, hija Iegitima de mi primo
de Segundo grado, Sergio Castro, hago constar por la presente que
expontaneamente y sin influencia de nadie cedo y traspaso en concepto
de DONATION ONEROSA e intervivos a la mencionada senorita
SOCORRO A. CASTRO, en compensacion a sus ya expresados
SERVICIOS, los bienes que a continuacion se describen a saber.

After enumerating the properties donated, the deed of donation recites further:

Tambien hago constar que es nuestro convenio con la citada Donataria

que esta Donacion se ha hecho con las condiciones siguientes, a saber:

(a) Que durante el tiempo en que todavia viviere, la donataria Socorro A.

Castro, no tendra ninguna intervencion ni derecho sobre los productos de
los terrenos cedidos en concepts de donacion a su favor;

(b) A mi fallecimiento la donataria pagara todos los gastos que se

incurriesen por me intierro de acuerdo con mi posicion social; y

(c) Despues de mi fallecimiento la nuda propiedad y el derecho de

Usufructo de todos los citados bienes arriba descritos, se consolidaran
inmediatamente a favor de la Donataria Socorro A. Castro con la
obligacion de destination anualmente cierta cantidad justa y suficiente de
los productos de los terrenos aqui donados sitos en el barrio Caviernesan
para el Sufragio de mi alma y el de mi finado esposo Dn. Antonio
Ventenilla.
It is quite clear from the terms of the donation that the donor intended to and did
dispose of her properties irrevocably in favor of the donee, subject only to the
conditions therein expressed, one of which was that the latter would have no
right to the products during the donor's lifetime. This merely indicates a
reservation in herself of the usufruct over said properties, which usufruct would
be consolidated with the naked ownership of the donee upon the former's death.
The use of the words "se consolidaran" implied transfer of the naked ownership,
with which the beneficial title would be consolidated upon arrival of the term thus
fixed. In the case of Concepcion vs. Concepcion, August 25, 1952, 91 Phil. 823,
this Court, construing a deed captioned as a donation mortis causa, held:

It is not sufficient to make a donation one mortis causa, requiring execution

of the instrument of gift in the form and manner required for a will, that the
instrument of donation states that it is mortis causa, if it can be gathered
from the body of the instrument that the main consideration is not death of
the donor but rather services rendered to him by the donee, or his affection
for the latter, and title is transferred immediately to the donee, even though
the gift is conditioned to take effect after death of the donor insofar as
possession and enjoyment of the property is concerned.

By virtue of the donation executed by the original owner and applicant in favor of
Socorro A. Castro the latter succeeded to the properties applied for, and hence
registration in the name of her Intestate Estate, represented in this case by the
petitioner as administrator, is in order.

WHEREFORE, the decision appealed from is reversed, and the lands described
in the original application for registration are ordered registered as indicated
above, pursuant to the provisions of the Land Registration Act. No costs.

G.R. No. 111904 October 5, 2000

SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA, petitioners,

vs.
COURT OF APPEALS and MERCEDES DANLAG y PILAPIL, respondents.

DECISION

QUISUMBING, J.:

This petition for review,1 under Rule 45 of the Rules of Court, assails the
decision2 of the Court of Appeals dated August 31, 1993, in CA-G.R. CV No.
38266, which reversed the judgment3 of the Regional Trial Court of Cebu City,
Branch 5.
The facts, as culled from the records, are as follows:

Spouses Diego and Catalina Danlag were the owners of six parcels of
unregistered lands. They executed three deeds of donation mortis causa, two of
which are dated March 4, 1965 and another dated October 13, 1966, in favor of
private respondent Mercedes Danlag-Pilapil.4 The first deed pertained to parcels
1 & 2 with Tax Declaration Nos. 11345 and 11347, respectively. The second
deed pertained to parcel 3, with TD No. 018613. The last deed pertained to
parcel 4 with TD No. 016821. All deeds contained the reservation of the rights of
the donors (1) to amend, cancel or revoke the donation during their lifetime, and
(2) to sell, mortgage, or encumber the properties donated during the donors'
lifetime, if deemed necessary.

On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina
Danlag, executed a deed of donation inter vivos5 covering the aforementioned
parcels of land plus two other parcels with TD Nos. 11351 and 11343,
respectively, again in favor of private respondent Mercedes. This contained two
conditions, that (1) the Danlag spouses shall continue to enjoy the fruits of the
land during their lifetime, and that (2) the donee can not sell or dispose of the
land during the lifetime of the said spouses, without their prior consent and
approval. Mercedes caused the transfer of the parcels' tax declaration to her
name and paid the taxes on them.

On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold parcels
3 and 4 to herein petitioners, Mr. and Mrs. Agripino Gestopa. On September 29,
1979, the Danlags executed a deed of revocation6 recovering the six parcels of
land subject of the aforecited deed of donation inter vivos.

On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with the
RTC a petition against the Gestopas and the Danlags, for quieting of title7 over
the above parcels of land. She alleged that she was an illegitimate daughter of
Diego Danlag; that she lived and rendered incalculable beneficial services to
Diego and his mother, Maura Danlag, when the latter was still alive. In
recognition of the services she rendered, Diego executed a Deed of Donation on
March 20, 1973, conveying to her the six (6) parcels of land. She accepted the
donation in the same instrument, openly and publicly exercised rights of
ownership over the donated properties, and caused the transfer of the tax
declarations to her name. Through machination, intimidation and undue
influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil, to buy two
of the six parcels covered by the deed of donation. Said donation inter vivos was
coupled with conditions and, according to Mercedes, since its perfection, she had
complied with all of them; that she had not been guilty of any act of ingratitude;
and that respondent Diego had no legal basis in revoking the subject donation
and then in selling the two parcels of land to the Gestopas.

In their opposition, the Gestopas and the Danlags averred that the deed of
donation dated January 16, 1973 was null and void because it was obtained by
Mercedes through machinations and undue influence. Even assuming it was
validly executed, the intention was for the donation to take effect upon the death
of the donor. Further, the donation was void for it left the donor, Diego Danlag,
without any property at all.

On December 27, 1991, the trial court rendered its decision, thus:

"WHEREFORE, the foregoing considered, the Court hereby renders judgment in

favor of the defendants and against the plaintiff:

1. Declaring the Donations Mortis Causa and Inter Vivos as revoked, and,
therefore, has (sic) no legal effect and force of law.

2. Declaring Diego Danlag the absolute and exclusive owner of the six (6)
parcels of land mentioned in the Deed of revocation (Exh. P-plaintiff, Exh.
6-defendant Diego Danlag).

3. Declaring the Deeds of Sale executed by Diego Danlag in favor of

spouses Agripino Gestopa and Isabel Gestopa dated June 28, 1979 (Exh.
S-plaintiff; Exh. 18-defendant); Deed of Sale dated December 18, 1979
(Exh. T plaintiff; Exh. 9-defendant); Deed of Sale dated September 14,
1979 (Exh. 8); Deed of Sale dated June 30, 1975 (Exh. U); Deed of Sale
dated March 13, 1978 (Exh. X) as valid and enforceable duly executed in
accordance with the formalities required by law.

4. Ordering all tax declaration issued in the name of Mercedes Danlag Y

Pilapil covering the parcel of land donated cancelled and further restoring
all the tax declarations previously cancelled, except parcels nos. 1 and 5
described, in the Deed of Donation Inter Vivos (Exh. "1") and Deed of Sale
(Exh. "2") executed by defendant in favor of plaintiff and her husband.

[5.] With respect to the contract of sale of abovestated parcels of land,

vendor Diego Danlag and spouse or their estate have the alternative
remedies of demanding the balance of the agreed price with legal interest,
or rescission of the contract of sale.

SO ORDERED."8
In rendering the above decision, the trial court found that the reservation clause
in all the deeds of donation indicated that Diego Danlag did not make any
donation; that the purchase by Mercedes of the two parcels of land covered by
the Deed of Donation Inter Vivos bolstered this conclusion; that Mercedes failed
to rebut the allegations of ingratitude she committed against Diego Danlag; and
that Mercedes committed fraud and machination in preparing all the deeds of
donation without explaining to Diego Danlag their contents.

Mercedes appealed to the Court of Appeals and argued that the trial court erred
in (1) declaring the donation dated January 16, 1973 as mortis causa and that
the same was already revoked on the ground of ingratitude; (2) finding that
Mercedes purchased from Diego Danlag the two parcels of land already covered
by the above donation and that she was only able to pay three thousand pesos,
out of the total amount of twenty thousand pesos; (3) failing to declare that
Mercedes was an acknowledged natural child of Diego Danlag.

On August 31, 1993, the appellate court reversed the trial court. It ruled:

"PREMISES CONSIDERED, the decision appealed from is REVERSED and a

new judgment is hereby rendered as follows:

1. Declaring the deed of donation inter vivos dated January 16, 1973 as
not having been revoked and consequently the same remains in full force
and effect;

2. Declaring the Revocation of Donation dated June 4, 1979 to be null and

void and therefore of no force and effect;

3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner

of the six (6) parcels of land specified in the above-cited deed of
donation inter vivos;

4. Declaring the Deed of Sale executed by Diego Danlag in favor of

spouses Agripino and Isabel Gestopa dated June 28, 1979 (Exhibits S and
18), Deed of Sale dated December 18, 1979 (Exhibits T and 19), Deed of
Sale dated September 14, 1979 (Exhibit 8), Deed of Sale dated June 30,
1975 (Exhibit U), Deed of Sale dated March 13, 1978 (Exhibit X) as well as
the Deed of Sale in favor of Eulalio Danlag dated December 27, 1978
(Exhibit 2) not to have been validly executed;

5. Declaring the above-mentioned deeds of sale to be null and void and

therefore of no force and effect;
 6. Ordering spouses Agripino Gestopa and Isabel Silerio Gestopa to
reconvey within thirty (30) days from the finality of the instant judgment to
Mercedes Danlag Pilapil the parcels of land above-specified, regarding
which titles have been subsequently fraudulently secured, namely those
covered by O.C.T. T-17836 and O.C.T. No. 17523.

7. Failing to do so, ordering the Branch Clerk of Court of the Regional Trial
Court (Branch V) at Cebu City to effect such reconveyance of the parcels
of land covered by O.C.T. T-17836 and 17523.

SO ORDERED."9

The Court of Appeals held that the reservation by the donor of lifetime usufruct
indicated that he transferred to Mercedes the ownership over the donated
properties; that the right to sell belonged to the donee, and the donor's right
referred to that of merely giving consent; that the donor changed his intention by
donating inter vivos properties already donated mortis causa; that the transfer to
Mercedes' name of the tax declarations pertaining to the donated properties
implied that the donation was inter vivos; and that Mercedes did not purchase
two of the six parcels of land donated to her.

Hence, this instant petition for review filed by the Gestopa spouses, asserting
that:

"THE HONORABLE COURT OF APPEALS, TWELFTH DIVISION, HAS

GRAVELY ERRED IN REVERSING THE DECISION OF THE COURT A QUO."10

Before us, petitioners allege that the appellate court overlooked the fact that the
donor did not only reserve the right to enjoy the fruits of the properties, but also
prohibited the donee from selling or disposing the land without the consent and
approval of the Danlag spouses. This implied that the donor still had control and
ownership over the donated properties. Hence, the donation was post mortem.

Crucial in resolving whether the donation was inter vivos or mortis causa is the
determination of whether the donor intended to transfer the ownership over the
properties upon the execution of the deed.11

In ascertaining the intention of the donor, all of the deed's provisions must be
read together.12 The deed of donation dated January 16, 1973, in favor of
Mercedes contained the following:

"That for and in consideration of the love and affection which the Donor inspires
in the Donee and as an act of liberality and generosity, the Donor hereby gives,
donates, transfer and conveys by way of donation unto the herein Donee, her
heirs, assigns and successors, the above-described parcels of land;

That it is the condition of this donation that the Donor shall continue to enjoy all
the fruits of the land during his lifetime and that of his spouse and that the donee
cannot sell or otherwise, dispose of the lands without the prior consent and
approval by the Donor and her spouse during their lifetime.

xxx

That for the same purpose as hereinbefore stated, the Donor further states that
he has reserved for himself sufficient properties in full ownership or in usufruct
enough for his maintenance of a decent livelihood in consonance with his
standing in society.

That the Donee hereby accepts the donation and expresses her thanks and
gratitude for the kindness and generosity of the Donor."13

Note first that the granting clause shows that Diego donated the properties out of
love and affection for the donee. This is a mark of a donation inter
vivos.14 Second, the reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the properties. As correctly posed
by the Court of Appeals, what was the need for such reservation if the donor and
his spouse remained the owners of the properties? Third, the donor reserved
sufficient properties for his maintenance in accordance with his standing in
society, indicating that the donor intended to part with the six parcels of
land.15 Lastly, the donee accepted the donation. In the case of Alejandro vs.
Geraldez, 78 SCRA 245 (1977), we said that an acceptance clause is a mark
that the donation is inter vivos. Acceptance is a requirement for donations inter
vivos. Donations mortis causa, being in the form of a will, are not required to be
accepted by the donees during the donors' lifetime.

Consequently, the Court of Appeals did not err in concluding that the right to
dispose of the properties belonged to the donee. The donor's right to give
consent was merely intended to protect his usufructuary interests. In Alejandro,
we ruled that a limitation on the right to sell during the donors' lifetime implied
that ownership had passed to the donees and donation was already effective
during the donors' lifetime.

The attending circumstances in the execution of the subject donation also

demonstrated the real intent of the donor to transfer the ownership over the
subject properties upon its execution.16 Prior to the execution of donation inter
vivos, the Danlag spouses already executed three donations mortis causa. As
correctly observed by the Court of Appeals, the Danlag spouses were aware of
the difference between the two donations. If they did not intend to donate inter
vivos, they would not again donate the four lots already donated mortis causa.
Petitioners' counter argument that this proposition was erroneous because six
years after, the spouses changed their intention with the deed of revocation, is
not only disingenious but also fallacious. Petitioners cannot use the deed of
revocation to show the spouses' intent because its validity is one of the issues in
this case.

Petitioners aver that Mercedes' tax declarations in her name can not be a basis
in determining the donor's intent. They claim that it is easy to get tax declarations
from the government offices such that tax declarations are not considered proofs
of ownership. However, unless proven otherwise, there is a presumption of
regularity in the performance of official duties.17 We find that petitioners did not
overcome this presumption of regularity in the issuance of the tax declarations.
We also note that the Court of Appeals did not refer to the tax declarations as
proofs of ownership but only as evidence of the intent by the donor to transfer
ownership.

Petitioners assert that since private respondent purchased two of the six parcels
of land from the donor, she herself did not believe the donation was inter vivos.
As aptly noted by the Court of Appeals, however, it was private respondent's
husband who purchased the two parcels of land.

As a rule, a finding of fact by the appellate court, especially when it is supported

by evidence on record, is binding on us.18 On the alleged purchase by her
husband of two parcels, it is reasonable to infer that the purchase was without
private respondent's consent. Purchase by her husband would make the
properties conjugal to her own disadvantage. That the purchase is against her
self-interest, weighs strongly in her favor and gives credence to her claim that her
husband was manipulated and unduly influenced to make the purchase, in the
first place.
1âw phi 1

Was the revocation valid? A valid donation, once accepted, becomes irrevocable,
except on account of officiousness, failure by the donee to comply with the
charges imposed in the donation, or ingratitude.19 The donor-spouses did not
invoke any of these reasons in the deed of revocation. The deed merely stated:

"WHEREAS, while the said donation was a donation Inter Vivos, our intention
thereof is that of Mortis Causa so as we could be sure that in case of our death,
the above-described properties will be inherited and/or succeeded by Mercedes
Danlag de Pilapil; and that said intention is clearly shown in paragraph 3 of said
donation to the effect that the Donee cannot dispose and/or sell the properties
donated during our life-time, and that we are the one enjoying all the fruits
thereof."20

Petitioners cited Mercedes' vehemence in prohibiting the donor to gather coconut

trees and her filing of instant petition for quieting of title. There is nothing on
record, however, showing that private respondent prohibited the donors from
gathering coconuts. Even assuming that Mercedes prevented the donor from
gathering coconuts, this could hardly be considered an act covered by Article 765
of the Civil Code.21 Nor does this Article cover respondent's filing of the petition for
quieting of title, where she merely asserted what she believed was her right
under the law.

Finally, the records do not show that the donor-spouses instituted any action to
revoke the donation in accordance with Article 769 of the Civil
Code.22 Consequently, the supposed revocation on September 29, 1979, had no
legal effect.

WHEREFORE, the instant petition for review is DENIED. The assailed decision
of the Court of Appeals dated August 31, 1993, is AFFIRMED.

Costs against petitioners.

SO ORDERED.

G.R. No. 158261 December 18, 2006

IN RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE RURAL

BANK OF BOKOD (BENGUET), INC., PHILIPPINE DEPOSIT INSURANCE
CORPORATION, petitioner,
vs.
BUREAU OF INTERNAL REVENUE, respondent.

DECISION
CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the revised Rules of
Court, praying that this Court set aside the Orders, dated 17 January 20032 and
13 May 2003,3 of the Regional Trial Court (RTC) of La Trinidad, Benguet, sitting
as the Liquidation Court of the closed Rural Bank of Bokod (Benguet), Inc.
(RBBI), in Spec. Proc. No. 91-SP-0060.

There is no dispute as to the antecedent facts of the case, recounted as follows:

In 1986, a special examination of RBBI was conducted by the Supervision and

Examination Sector (SES) Department III of what is now the Bangko Sentral ng
Pilipinas (BSP),4 wherein various loan irregularities were uncovered. In a letter,
dated 20 May 1986, the SES Department III required the RBBI management to
infuse fresh capital into the bank, within 30 days from date of the advice, and to
correct all the exceptions noted. However, up to the termination of the
subsequent general examination conducted by the SES Department III, no
concrete action was taken by the RBBI management. In view of the irregularities
noted and the insolvent condition of RBBI, the members of the RBBI Board of
Directors were called for a conference at the BSP on 4 August 1986. Only one
RBBI Director, a certain Mr. Wakit, attended the conference, and the examination
findings and related recommendations were discussed with him. In a letter, dated
4 August 1986, receipt of which was acknowledged by Mr. Wakit, the SES
Department III warned the RBBI Board of Directors that, unless substantial
remedial measures are taken to rehabilitate the bank, it will recommend that the
bank be placed under receivership. In a subsequent letter, dated 17 November
1986, a copy of which was sent to every member of the RBBI Board of
Directors via registered mail, the SES Department III reiterated its warning that it
would recommend the closure of the bank, unless the needed fresh capital was
immediately infused. Despite these notices, the SES Department III received no
word from RBBI or from any of its Directors as of 28 November 1986.5

In a meeting held on 9 January 1987, the Monetary Board of the BSP decided to
take the following action –

Rural Bank of Bokod (Benguet), Inc. – Report on its examination as of

June 16, 1986, its placement under receivership

ACTION TAKEN

Finding to be true the statements of the Special Assistant to the Governor

and Head, Supervision and Examination Sector (SES) Department III, in
her memorandum dated 28 November 1986 submitting a report on the
 general examination of the Rural Bank of Bokod (Benguet), Inc. as of 16
June 1986, that the financial condition of the rural bank is one of
insolvency and its continuance in business would involve further losses to
its depositors and creditors, x x x

xxxx

[T]he Board decided as follows:

a. To forbid the bank to do business in the Philippines and place its

assets and affairs under receivership in accordance with Section 29
of R.A. No. 265, as amended.

b. To designate the Special Assistant to the Governor and Head,

SES Department III, as Receiver of the bank;

c. To refer the cases of irregularities/frauds to the Office of Special

Investigation for further investigation and possible filing of
appropriate charges against the following present/former officers and
employees of the bank:

xxxx

d. To include the names of the above-mentioned present and former

officers and employees of the bank in the list of persons barred from
employment in any financial institution under the supervision of the
Central Bank without prior clearance from the Central Bank.6

A memorandum and report, dated 28 August 1990, were submitted by the

Director of the SES Department III concluding that the RBBI remained in
insolvent financial condition and it can no longer safely resume business with the
depositors, creditors, and the general public. On 7 September 1990, the
Monetary Board, after determining and confirming the said memorandum and
report, ordered the liquidation of the bank and designated the Director of the SES
Department III as liquidator.7

On 10 April 1991, the designated BSP liquidator of RBBI caused the filing with
the RTC of a Petition for Assistance in the Liquidation of RBBI, docketed as
Spec. Proc. No. 91-SP-0060.8 Subsequently, on 2 June 1992, the Monetary
Board transferred to herein petitioner Philippine Deposit Insurance Corporation
(PDIC) the receivership/liquidation of RBBI.9
PDIC then filed, on 11 September 2002, a Motion for Approval of Project of
Distribution10 of the assets of RBBI, in accordance with Section 31, in relation to
Section 30, of Republic Act No. 7653, otherwise known as the New Central Bank
Act. During the hearing held on 17 January 2003, the respondent Bureau of
Internal Revenue (BIR), through Atty. Justo Reginaldo, manifested that PDIC
should secure a tax clearance certificate from the appropriate BIR Regional
Office, pursuant to Section 52(C) of Republic Act No. 8424, or the Tax Code of
1997, before it could proceed with the dissolution of RBBI. On even date, the
RTC issued one of the assailed Orders,11 directing PDIC to comply with Section
52(C) of the Tax Code of 1997 within 30 days from receipt of a copy of the said
order. Pending compliance therewith, the RTC held in abeyance the Motion for
Approval of Project of Distribution. On 13 May 2003, the second assailed
Order12 was issued, in which the RTC, in resolving the Motion for
Reconsideration filed by PDIC, ruled as follows –

ORDER

Submitted for resolution is petitioner’s motion for reconsideration of the

order of this court dated January 17, 2003 holding in abeyance the motion
for approval of the project of distribution pending their compliance with a
tax clearance from the Bureau of Internal Revenue.

Petitioner in their motion state that Section 52-C of Republic Act 8424 does
not cover closed banking institutions like the Rural Bank of Bokod as the
law that covers liquidation of closed banks is Section 30 of Republic Act
No. 7653 otherwise known as the new Central Bank Law.

Commenting on the motion for reconsideration the Bureau of Internal

Revenue states that the only logic why the Bureau is requesting for a tax
clearance is to determine how much taxes, if there be any, is due the
government.

The court believes and so holds that petitioner should still secure the
necessary tax clearance in order for it to be cleared of all its tax liabilities
as regardless of what law covers the liquidation of closed banks, still these
banks are subject to payment of taxes mandated by law. Also in its motion
for approval of the project of distribution, paragraph 2, item 2.2 states that
there are unremitted withholding taxes in the amount of P8,767.32.

This shows that indeed there are still taxes to be paid. In order therefore
that all taxes due the government should be paid, petitioner should secure
a tax clearance from the Bureau of Internal Revenue.
 Wherefore, based on the foregoing premises, the motion for
reconsideration filed by petitioner is hereby DENIED for lack of merit.13

Hence, PDIC filed the present Petition for Review on Certiorari, under Rule 45 of
the revised Rules of Court, raising pure questions of law. It made a lone
assignment of error, alleging that –

THE COURT A QUO ERRED IN APPLYING THE PROVISION OF

SECTION 52-C OF REPUBLIC ACT NO. 8424 DIRECTING THE
SUBMISSION OF TAX CLEARANCE FOR CORPORATIONS
CONTEMPLATING DISSOLUTION ON A BANK ORDERED CLOSED
AND PLACED UNDER RECEIVERSHIP AND, THEREAFTER, UNDER
LIQUIDATION, BY THE MONETARY BOARD PURSUANT TO SECTION
30 OF REPUBLIC ACT NO. 7653.14

PDIC argues that the closure of banks under Section 30 of the New Central Bank
Act is summary in nature and procurement of tax clearance as required under
Section 52(C) of the Tax Code of 1997 is not a condition precedent thereto; that
under Section 30, in relation to Section 31, of the New Central Bank Act, asset
distribution of a closed bank requires only the approval of the liquidation court;
and that the BIR is not without recourse since, subject to the applicable
provisions of the Tax Code of 1997, it may therefore assess the closed RBBI for
tax liabilities, if any.

In its Comment, the BIR countered with the following arguments: that the present
Petition for Review on Certiorari under Rule 45 of the revised Rules of Court is
not the proper remedy to question the Order, dated 17 January 2003, of the RTC
because said order is interlocutory and cannot be the subject of an appeal; that
Section 52(C) of the Tax Code of 1997 applies to all corporations, including
banks ordered closed by the Monetary Board pursuant to Section 30 of the New
Central Bank Act; that the RTC may order the PDIC to obtain a tax clearance
before proceeding to rule on the Motion for Approval of Project of Distribution of
the assets of RBBI; and that the present controversy should not have been
elevated to this Court since the parties are both government agencies who
should have administratively settled the dispute.

This Court finds that there are only two primary issues for the resolution of the
Petition at bar, one being procedural, and the other substantive. The procedural
issue involves the question of whether the Petition for Review on Certiorari under
Rule 45 of the revised Rules of Court is the proper remedy from the assailed
Orders of the RTC. The substantive issue deals with the determination of
whether a bank ordered closed and placed under receivership by the Monetary
Board of the BSP still needs to secure a tax clearance certificate from the BIR
before the liquidation court approves the project of distribution of the assets of
the bank.

This Court shall first proceed with the procedural issue on the appropriateness of
the remedy taken by PDIC from the assailed RTC Orders.

The differences between an appeal by certiorari under Rule 4515 of the revised
Rules of Court and an original action for certiorari under Rule 6516 of the same
Rules have been laid down by this Court in the case of Atty. Paa v. Court of
Appeals,17 to wit –

a. In appeal by certiorari, the petition is based on questions of law which

the appellant desires the appellate court to resolve. In certiorari as an
original action, the petition raises the issue as to whether the lower court
acted without or in excess of jurisdiction or with grave abuse of discretion.

b. Certiorari, as a mode of appeal, involves the review of the judgment,

award or final order on the merits. The original action for certiorari may be
directed against an interlocutory order of the court prior to appeal from the
judgment or where there is no appeal or any other plain, speedy or
adequate remedy.

c. Appeal by certiorari must be made within the reglementary period for

appeal. An original action for certiorari may be filed not later than sixty (60)
days from notice of the judgment, order or resolution sought to be assailed.

d. Appeal by certiorari stays the judgment, award or order appealed from.

An original action for certiorari, unless a writ of preliminary injunction or a
temporary restraining order shall have been issued, does not stay the
challenged proceeding.

e. In appeal by certiorari, the petitioner and respondent are the original

parties to the action, and the lower court or quasi-judicial agency is not to
be impleaded. In certiorari as an original action, the parties are the
aggrieved party against the lower court or quasi-judicial agency and the
prevailing parties, who thereby respectively become the petitioner and
respondents.

f. In certiorari for purposes of appeal, the prior filing of a motion for

reconsideration is not required (Sec. 1, Rule 45); while in certiorari as an
original action, a motion for reconsideration is a condition precedent (Villa-
 Rey Transit vs. Bello, L-18957, April 23, 1963), subject to certain
exceptions.

g. In appeal by certiorari, the appellate court is in the exercise of its

appellate jurisdiction and power of review, while in certiorari as an original
action, the higher court exercises original jurisdiction under its power of
control and supervision over the proccedings of lower courts.

Guided by the foregoing distinctions, this Court, in perusing the assailed RTC
Orders, dated 17 January 2003 and 13 May 2003, reaches the conclusion that
these are merely interlocutory in nature and are not the proper subjects of an
appeal by certiorari under Rule 45 of the revised Rules of Court.

This Court has repeatedly and uniformly held that a judgment or order may be
appealed only when it is final, meaning that it completely disposes of the case
and definitively adjudicates the respective rights of the parties, leaving thereafter
no substantial proceeding to be had in connection with the case except the
proper execution of the judgment or order. Conversely, an interlocutory order or
judgment is not appealable for it does not decide the action with finality and
leaves substantial proceedings still to be had.18

The RTC Orders presently questioned before this Court has not disposed of the
case nor has it adjudicated definitively the rights of the parties in Spec. Proc. No.
91-SP-0060. They only held in abeyance the approval of the Project of
Distribution of the assets of RBBI until PDIC, as liquidator, acquires a tax
clearance from the BIR. Indubitably, there are still substantial proceedings to be
had after PDIC presents the required tax clearance to the trial court, since the
Project of Distribution of assets still has to be finalized and approved.

PDIC avers that the RTC Orders of 17 January 2003 and 13 May 2003 are final
because, as this Court pronounced in the case of Pacific Banking Corporation
Employees’ Organization (PaBCEO) v. Court of Appeals,19 an order of the
liquidation court allowing or disallowing a claim is a final order and may be the
subject of an appeal. It further asserts that the legal issue of whether RBBI
should secure a tax clearance is a "disputed claim," which was already allowed
by the RTC in its assailed Orders, thus, making the latter final.

This Court is unconvinced. The foregoing arguments of PDIC result from a

strained interpretation of law and jurisprudence, and are raised in an apparent
attempt to justify a very obvious faux pas on its part. While it is true that in
liquidation proceedings, the settlement of disputed or contentious claims may
require a full-dress hearing and the resolution of legal issues,20 it does not follow
that all legal issues resolved in the course of the liquidation proceedings would
automatically be tantamount to an allowance or disallowance of a disputed or
contentious claim. In Spec. Proc. No. 91-SP-0060 pending before the RTC, there
can be no doubt that the claim of the BIR against RBBI consists of the unpaid tax
liabilities of the latter. The BIR contends that it could only determine the
existence and correct amount of the tax liabilities of RBBI if PDIC, as liquidator of
the bank, secures a tax clearance from the appropriate BIR Regional Office. The
acquirement of a tax clearance is not the claim of the BIR against RBBI, it is only
the means by which to ascertain such claim. Whatever tax liabilities the BIR may
claim against RBBI can still be disputed before the RTC by the PDIC, as
liquidator of the bank, whether as to the existence or computation of the said tax
liabilities, and it is the ruling of the RTC on such matters that may constitute a
final order which definitively settles the claim of the BIR. The mere grant by the
RTC of the motion requiring PDIC, as liquidator of RBBI, to secure a tax
clearance, does not yet constitute an adjudication of the claim of the BIR. Hence,
the assailed RTC Orders, dated 17 January 2003 and 13 May 2003, are clearly
interlocutory in nature.

As a general rule, an interlocutory order is not appealable until after the rendition
of the judgment on the merits, given that a contrary rule would delay the
administration of justice and unduly burden the courts. This Court, however, has
also held that an original action for certiorari under Rule 65 of the revised Rules
of Court is an appropriate remedy to assail an interlocutory order when (1) the
tribunal issued such order without or in excess of jurisdiction or with grave abuse
of discretion, and (2) the assailed interlocutory order is patently erroneous and
the remedy of appeal would not afford adequate and expeditious relief.21 Thus,
despite this Court’s finding that PDIC, as the liquidator of RBBI, availed itself of
the wrong remedy by filing an appeal by certiorari under Rule 45 of the revised
Rules of Court, We shall adopt a positive and pragmatic approach, and, instead
of dismissing the instant Petition outright, it shall treat the same as an original
action for certiorari under Rule 65 of the same Rules, in consideration of the
crucial issues and substantial arguments already presented by the concerned
parties before this Court.22

II

Having disposed of the procedural issue, this Court now addresses the
substantive issue of whether RBBI, as represented by its liquidator, PDIC, still
needs to secure a tax clearance from the BIR before the RTC could approve the
Project of Distribution of the assets of RBBI.

The BIR anchors its position that a tax clearance is necessary on Section 52(C)
of the Tax Code of 1997, which provides –
 SEC. 52. Corporation Returns. –

xxxx

(C) Return of Corporation Contemplating Dissolution or Reorganization. –

Every corporation shall, within thirty days (30) after the adoption by the
corporation of a resolution or plan for its dissolution, or for the liquidation of
the whole or any part of its capital stock, including a corporation which has
been notified of possible involuntary dissolution by the Securities and
Exchange Commission, or for its reorganization, render a correct return to
the Commissioner, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Secretary of Finance,
upon recommendation of the Commissioner, shall, by rules and
regulations, prescribe.

The dissolving or reorganizing corporation shall, prior to the issuance by the

Securities and Exchange Commission of the Certificate of Dissolution or
Reorganization, as may be defined by rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the Commissioner, secure a
certificate of tax clearance from the Bureau of Internal Revenue which certificate
shall be submitted to the Securities and Exchange Commission.

To implement the foregoing provision, the BIR still relies on the regulations it
jointly issued with the Securities and Exchange Commission (SEC) in 1985,
when the Tax Code of 1977 was still in effect and a similar provision could be
found in Section 46(C) thereof. The full text of the regulations is reproduced
below –

BIR-SEC REGULATIONS NO. 1

SUBJECT: Regulations to Implement the Provisions of Executive Order

No. 1026, Amending Section 46(c) of the National Internal Revenue Code
of 1977, as amended, Requiring Dissolving Corporations to File
Information Returns and Secure Tax Clearance from the Commissioner of
Internal Revenue, and Providing Adequate Penalties for Violations
Thereof.

TO: All Internal Revenue Officers and Others Concerned.

Pursuant to the provisions of Section 277, in relation to Section 4 of the

National Revenue Code of 1977, as amended, the following regulations
are hereby promulgated.
Section 1. Scope. – These regulations shall govern the procedure for the
issuance of tax clearance certificates to dissolving corporations. This shall
include corporations intending to dissolve or liquidate the whole or any part
of its capital stocks, as well as, corporations which have been notified of
possible involuntary dissolution by the Securities and Exchange
Commission.

Section 2. Requirements in case of dissolution. – a) Every Corporation

shall, within thirty (30) days after

- the adoption by the corporation of a resolution or plan for the dissolution

of the corporation, or for the liquidation of the whole or any part of its
capital stock, or

- the receipt of an order of suspension by the Securities and Exchange

Commission in case of involuntary dissolution,

file their income tax returns covering the income earned by them from the
beginning of the taxable year up to date of such dissolution.

In addition thereto, they shall submit within the same period and verified
under oath, the following documents:

1. a copy of the articles of incorporation and by-laws;

2. a copy of the resolution authorizing dissolution; and

3. balance sheet as of the date of dissolution and a profit and loss

statement covering the period from the beginning of the taxable year
to the date of dissolution.

b) The Securities and Exchange Commission whenever it issues an order

of involuntary dissolution or suspension of the primary franchise or
certificate of registration of a corporation, shall at the same time furnish the
Commissioner of Internal Revenue a copy of such order.

Section 3. Tax clearance certificate. – a) Within thirty (30) days from

receipt of the documents mentioned in the preceding Section, the
Commissioner of Internal Revenue, or his duly authorized representative,
shall issue the corresponding tax clearance certificate (BIR Form No.
17.61) for the corporation which will be dissolved.

b) The Securities and Exchange Commission shall issue the final order of
dissolution only after a certificate of tax clearance has been submitted by
 the dissolving corporation: Provided, that in case of involuntary dissolution,
the Securities and Exchange Commission may nevertheless proceed with
the dissolution if thirty (30) days after receipt of the suspension order no
tax clearance has yet been issued.

Section 4. Penalty. – Failure to render the return and secure the certificate
of tax clearance as above-mentioned shall subject the officer(s) of the
corporation required by law to file the return under Section 46(a) of the
National Internal Revenue Code of 1977, as amended, to a fine of not less
than P5,000.00 or imprisonment of not less than two (2) years, and shall
make them liable for all outstanding or unpaid tax liabilities of the
dissolving corporation.

Section 5. Effectivity. – These regulations shall apply to all corporate

dissolution taking place on or after May 14, 1985.

Section 6. Repealing Clause. – All revenue regulations, orders and

circulars which are inconsistent herewith are hereby modified accordingly.

The afore-quoted Tax Code provision and regulations refer to a voluntary

dissolution and/or liquidation of a corporation through its adoption of a resolution
or plan to that effect, or an involuntary dissolution of a corporation by order of the
SEC. They make no reference at all to a situation similar to the one at bar in
which a banking corporation is ordered closed and placed under receivership by
the BSP and its assets judicially liquidated. Now, the determining question is,
whether Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1
could be made to apply to the present case.

This Court rules in the negative.

First, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1
regulate the relations only as between the SEC and the BIR, making a certificate
of tax clearance a prior requirement before the SEC could approve the
dissolution of a corporation. In Spec. Proc. No. 91-SP-0060 pending before the
RTC, RBBI was placed under receivership and ordered liquidated by the BSP,
not the SEC; and the SEC is not even a party in the said case, although the BIR
is. This Court cannot find any basis to extend the SEC requirements for
dissolution of a corporation to the liquidation proceedings of RBBI before the
RTC when the SEC is not even involved therein.

It is conceded that the SEC has the authority to order the dissolution of a
corporation pursuant to Section 121 of Batas Pambansa Blg. 68, otherwise
known as the Corporation Code of the Philippines, which reads –
 Sec. 121. Involuntary dissolution. – A corporation may be dissolved by the
Securities and Exchange Commission upon filing of a verified complaint
and after proper notice and hearing on the grounds provided by existing
laws, rules and regulations.

The Corporation Code, however, is a general law applying to all types of

corporations, while the New Central Bank Act regulates specifically banks and
other financial institutions, including the dissolution and liquidation thereof. As
between a general and special law, the latter shall prevail – generalia specialibus
non derogant.23

The liquidation of RBBI is undertaken according to Sections 30 of the New

Central Bank Act, viz –

Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon

report of the head of the supervising or examining department, the
Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course
of business: Provided, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking
community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral,

to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its

depositors or creditors; or

(d) has wilfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking
institution.

For a quasi-bank, any person of recognized competence in banking or

finance may be designated as receiver.

The receiver shall immediately gather and take charge of all the assets
and liabilities of the institution, administer the same for the benefit of its
creditors, and exercise the general powers of a receiver under the Revised
Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver may
deposit or place the funds of the institution in non-speculative investments.
The receiver shall determine as soon as possible, but not later than ninety
(90) days from take over, whether the institution may be rehabilitated or
otherwise placed in such a condition that it may be permitted to resume
business with safety to its depositors and creditors and the general
public: Provided, That any determination for the resumption of business of
the institution shall be subject to prior approval of the Monetary Board.

If the receiver determines that the institution cannot be rehabilitated or

permitted to resume business in accordance with the next preceding
paragraph, the Monetary Board shall notify in writing the board of directors
of its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:

(1) file ex parte with the proper regional trial court, and without requirement
of prior notice or any other action, a petition for assistance in the liquidation
of the institution pursuant to a liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general application to all closed banks.
In case of quasi-banks, the liquidation plan shall be adopted by the
Monetary Board. Upon acquiring jurisdiction, the court shall, upon motion
by the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the
stockholders, directors and officers, and decide on other issues as may be
material to implement the liquidation plan adopted. The receiver shall pay
the cost of the proceedings from the assets of the institution.

(2) convert the assets of the institution to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of
the institution, and with the assistance of counsel as he may retain,
institute such actions as may be necessary to collect and recover accounts
and assets of, or defend any action against, the institution. The assets of
an institution under receivership or liquidation shall be deemed in custodia
legis in the hands of the receiver and shall, from the moment the institution
was placed under such receivership or liquidation, be exempt from any
order of garnishment, levy, attachment, or execution.

The actions of the Monetary Board taken under this section or under
Section 29 of this Act shall be final and executory, and may not be
 restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of jurisdiction.
The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.

The designation of a conservator under Section 29 of this Act or the

appointment of a receiver under this section shall be vested exclusively
with the Monetary Board. Furthermore, the designation of a conservator is
not a precondition to the designation of a receiver.

Section 30 of the New Central Bank Act lays down the proceedings for
receivership and liquidation of a bank. The said provision is silent as regards the
securing of a tax clearance from the BIR. The omission, nonetheless, cannot
compel this Court to apply by analogy the tax clearance requirement of the SEC,
as stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations
No. 1, since, again, the dissolution of a corporation by the SEC is a totally
different proceeding from the receivership and liquidation of a bank by the BSP.
This Court cannot simply replace any reference by Section 52(C) of the Tax
Code of 1997 and the provisions of the BIR-SEC Regulations No. 1 to the "SEC"
with the "BSP." To do so would be to read into the law and the regulations
something that is simply not there, and would be tantamount to judicial
legislation.

It should be noted that there are substantial differences in the procedure for
involuntary dissolution and liquidation of a corporation under the Corporation
Code, and that of a banking corporation under the New Central Bank Act, so that
the requirements in one cannot simply be imposed in the other.

Under the Corporation Code, the SEC may dissolve a corporation, upon the filing
of a verified complaint and after proper notice and hearing, on grounds provided
by existing laws, rules, and regulations.24 Upon receipt by the corporation of
the order of suspension from the SEC, it is required to notify and submit a copy
of the said order, together with its final tax return, to the BIR. The SEC is also
required to furnish the BIR a copy of its order of suspension. The BIR is
supposed to issue a tax clearance to the corporation within 30 days from receipt
of the foregoing documentary requirements. The SEC shall issue the final order
of dissolution only after the corporation has submitted its tax clearance; or in
case of involuntary dissolution, the SEC may proceed with the dissolution after
30 days from receipt by the BIR of the documentary requirements without a tax
clearance having been issued.25 The corporation is allowed to continue as a body
corporate for three years after its dissolution, for the purpose of prosecuting and
defending suits by or against it, to settle and close its affairs, and to dispose of
and convey its property and distribute its assets, but not for the purpose of
continuing its business. The corporation may undertake its own liquidation, or at
any time during the said three years, it may convey all of its property to
trustees for the benefit of its stockholders, members, creditors, and other persons
in interest.26

In contrast, the Monetary Board may summarily and without need for prior
hearing, forbid the banking corporation from doing business in the Philippines, for
causes enumerated in Section 30 of the New Central Bank Act; and appoint the
PDIC as receiver of the bank. PDIC shall immediately gather and take charge of
all the assets and liabilities of the closed bank and administer the same for the
benefit of its creditors. The summary nature of the procedure for the involuntary
closure of a bank is especially stressed in Section 30 of the New Central Bank
Act, which explicitly states that the actions of the Monetary Board under the said
Section or Section 29 shall be final and executory, and may not be restrained or
set aside by the court except on a Petition for Certiorari filed by the stockholders
of record of the bank representing a majority of the capital stock. PDIC, as the
appointed receiver, shall file ex parte with the proper RTC, and without
requirement of prior notice or any other action, a petition for assistance in the
liquidation of the bank. The bank is not given the option to undertake its own
liquidation.

Second, the alleged purpose of the BIR in requiring the liquidator PDIC to secure
a tax clearance is to enable it to determine the tax liabilities of the closed bank. It
raised the point that since the PDIC, as receiver and liquidator, failed to file the
final return of RBBI for the year its operations were stopped, the BIR had no way
of determining whether the bank still had outstanding tax liabilities.

To our mind, what the BIR should have requested from the RTC, and what was
within the discretion of the RTC to grant, is not an order for PDIC, as liquidator of
RBBI, to secure a tax clearance; but, rather, for it to submit the final return of
RBBI. The first paragraph of Section 30(C) of the Tax Code of 1997, read in
conjunction with Section 54 of the same Code, clearly imposes upon PDIC, as
the receiver and liquidator of RBBI, the duty to file such a return. The pertinent
provisions are reproduced below for reference –

SEC. 52. Corporation Returns. –

xxxx
 (C) Return of Corporation Contemplating Dissolution or Reorganization. –
Every corporation shall, within thirty days (30) after the adoption by the
corporation of a resolution or plan for its dissolution, or for the liquidation of
the whole or any part of its capital stock, including a corporation which has
been notified of possible involuntary dissolution by the Securities and
Exchange Commission, or for its reorganization, render a correct return to
the Commissioner, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Secretary of Finance,
upon recommendation of the Commissioner, shall, by rules and
regulations, prescribe.

xxxx

SEC. 54. Returns of receivers, Trustees in Bankruptcy or Assignees. – In

cases wherein receivers, trustees in bankruptcy or assignees are operating
the property or business of a corporation, subject to the tax imposed by
this Title, such receivers, trustees or assignees shall make returns of net
income as and for such corporation, in the same manner and form as such
an organization is hereinbefore required to make returns, and any tax due
on the income as returned by receivers, trustees or assignees shall be
assessed and collected in the same manner as if assessed directly against
the organizations of whose businesses or properties they have custody or
control.

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers,
trustees in bankruptcy, and assignees, who operate and preserve the assets of a
corporation, regardless of the circumstances or the law by which they came to
hold their positions, to file the necessary returns on behalf of the corporation
under their care.

The filing by PDIC of a final tax return, on behalf of RBBI, should already address
the supposed concern of the BIR and would already enable the latter to
determine if RBBI still had outstanding tax liabilities.

The unreasonableness and impossibility of requiring a tax clearance before the

approval by the RTC of the Project of Distribution of the assets of the RBBI
becomes apparent when the timeline of the proceedings is considered.

The BIR can only issue a certificate of tax clearance when the taxpayer had
completely paid off his tax liabilities. The certificate of tax clearance attests that
the taxpayer no longer has any outstanding tax obligations to the Government.
Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be
able to pay the same because the Project of Distribution of the assets of RBBI
remains unapproved by the RTC; and, if RBBI still had outstanding tax liabilities,
the BIR will not issue a tax clearance; but, without the tax clearance, the Project
of Distribution of assets, which allocates the payment for the tax liabilities, will not
be approved by the RTC. It will be a chicken-and-egg dilemma.

The Government, in this case, cannot generally claim preference of credit, and
receive payment ahead of the other creditors of RBBI. Duties, taxes, and fees
due the Government enjoy priority only when they are with reference to a specific
movable property, under Article 2241(1) of the Civil Code, or immovable
property, under Article 2242(1) of the same Code. However, with reference to the
other real and personal property of the debtor, sometimes referred to as "free
property," the taxes and assessments due the National Government, other than
those in Articles 2241(1) and 2242(1) of the Civil Code, will come only in ninth
place in the order of preference.27

Thus, the recourse of the BIR, after assessing the final return and examining all
other pertinent documents of RBBI, and making a determination of the latter’s
outstanding tax liabilities, is to present its claim, on behalf of the National
Government, before the RTC during the liquidation proceedings. The BIR is
expected to prove and substantiate its claim, in the same manner as the other
creditors. It is only after the RTC allows the claim of the BIR, together with the
claims of the other creditors, can a Project for Distribution of the assets of RBBI
be finalized and approved. PDIC, then, as liquidator, may proceed with the
disposition of the assets of RBBI and pay the latter’s financial obligations,
including its outstanding tax liabilities. And, finally, only after such payment, can
the BIR issue a certificate of tax clearance in the name of RBBI.

Third, the evident void in current statutes and regulations as to the relations
among the BIR, as tax collector of the National Government; the BSP, as
regulator of the banks; and the PDIC, as the receiver and liquidator of banks
ordered closed by the BSP, is not for this Court to fill in. It is up to the legislature
to address the matter through appropriate legislation, and to the executive to
provide the regulations for its implementation.

It is for these reasons that the RTC committed grave abuse of discretion, and
committed patent error, in ordering the PDIC, as the liquidator of RBBI, to first
secure a tax clearance from the appropriate BIR Regional Office, and holding in
abeyance the approval of the Project of Distribution of the assets of the RBBI by
virtue thereof.
Although this Court rules in favor of PDIC, in the sense that a tax clearance is not
a prerequisite to the approval of the Project of Distribution of the assets of RBBI,
it cannot uphold its argument that the Spec. Proc. No. 91-SP-0060 is summary in
nature.

Section 30(d) of the New Central Bank Act gives the Monetary Board of the BSP
the power to, summarily and without need for prior hearing, forbid a bank or
quasi-bank from doing business in the Philippines and designating the PDIC as
receiver of the banking institution. It bears to emphasize that: (1) the power is
granted to the Monetary Board of the BSP; and (2) what is summary in nature is
the power of the Monetary Board of the BSP to forbid or stop a bank or quasi-
bank from doing further business.

Once liquidation proceedings are instituted before the appropriate trial court, and
the trial court assumes jurisdiction over the Petition, then the proceedings take a
different character. Spec. Proc. No. 91-SP-0600 is the liquidation proceedings
initiated by the PDIC before the RTC. Liquidation proceedings have been
described in detail in the case of Pacific Banking Corporation Employees’
Organization (PaBCEO) v. Court of Appeals,28 to wit –

[A] liquidation proceeding resembles the proceeding for the settlement of

estate of deceased persons under Rules 73 to 91 of the Rules of Court.
The two have a common purpose: the determination of all the assets and
the payment of all the debts and liabilities of the insolvent corporation or
the estate. The Liquidator and the administrator or executor are both
charged with the assets for the benefit of the claimants. In both instances,
the liability of the corporation and the estate is not disputed. The court's
concern is with the declaration of creditors and their rights and the
determination of their order of payment

xxxx

A liquidation proceeding is a single proceeding which consists of a number

of cases properly classified as "claims." It is basically a two-phased
proceeding. The first phase is concerned with the approval and
disapproval of claims. Upon the approval of the petition seeking the
assistance of the proper court in the liquidation of a closed entity, all
money claims against the bank are required to be filed with the liquidation
court. This phase may end with the declaration by the liquidation court that
the claim is not proper or without basis. On the other hand, it may also end
with the liquidation court allowing the claim. In the latter case, the claim
shall be classified whether it is ordinary or preferred, and thereafter
included Liquidator. In either case, the order allowing or disallowing a
 particular claim is final order, and may be appealed by the party aggrieved
thereby.

The second phase involves the approval by the Court of the distribution
plan prepared by the duly appointed liquidator. The distribution plan
specifies in detail the total amount available for distribution to creditors
whose claim were earlier allowed. The Order finally disposes of the issue
of how much property is available for disposal. Moreover, it ushers in the
final phase of the liquidation proceeding - payment of all allowed claims in
accordance with the order of legal priority and the approved distribution
plan.

xxxx

A liquidation proceeding is commenced by the filing of a single petition by

the Solicitor General with a court of competent jurisdiction entitled,
"Petition for Assistance in the Liquidation of e.g., Pacific Banking
Corporation." All claims against the insolvent are required to be filed with
the liquidation court. Although the claims are litigated in the same
proceeding, the treatment is individual. Each claim is heard separately.
And the Order issued relative to a particular claim applies only to said
claim, leaving the other claims unaffected, as each claim is considered
separate and distinct from the others. x x x [Emphases supplied.]

Irrefragably, liquidation proceedings cannot be summary in nature. It requires the

holding of hearings and presentation of evidence of the parties
concerned, i.e., creditors who must prove and substantiate their claims, and the
liquidator disputing the same. It also allows for multiple appeals, so that each
creditor may appeal a final order rendered against its claim. Hence, liquidation
proceedings may very well be highly-contested and drawn-out, because, at the
end of it all, all claims against the corporation undergoing litigation must be
settled definitively and its assets properly disposed off.

WHEREFORE, in view of the foregoing, this Court rules as follows –

(a) The instant Petition is GRANTED and the Orders, dated 17 January 2003 and
13 May 2003, of the RTC, sitting as the Liquidation Court of the closed RBBI, in
Spec. Proc. No. 91-SP-0060, are NULLIFIED and SET ASIDE for having been
rendered with grave abuse of discretion;

(b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return
of RBBI, in accordance with the first paragraph of Section 52(C), in connection
with Section 54, of the Tax Code of 1997; and
(c) The RTC is ORDERED to resume the liquidation proceedings in Spec. Proc.
No. 91-SP-0060 in order to determine all the claims of the creditors, including
that of the National Government, as determined and presented by the BIR; and,
pursuant to such determination, and guided accordingly by the provisions of the
Civil Code on preference of credit, to review and approve the Project of
Distribution of the assets of RBBI.

SO ORDERED.

G.R. No. L-11622 January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX
APPEALS, respondents.

x---------------------------------------------------------x

G.R. No. L-11668 January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX
APPEALS, respondents.

BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left
by the deceased Walter G. Stevenson, and the laws applicable thereto. Walter G.
Stevenson (born in the Philippines on August 9, 1874 of British parents and
married in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson
another British subject) died on February 22, 1951 in San Francisco, California,
U.S.A. whereto he and his wife moved and established their permanent
residence since May 10, 1945. In his will executed in San Francisco on May 22,
1947, and which was duly probated in the Superior Court of California on April
11, 1951, Stevenson instituted his wife Beatrice as his sole heiress to the
following real and personal properties acquired by the spouses while residing in
the Philippines, described and preliminary assessed as follows:
 Gross Estate
Real Property — 2 parcels of
land in Baguio, covered by T.C.T.
Nos. 378 and 379 P43,500.00
Personal Property
(1) 177 shares of stock of
Canacao Estate at P10.00 each 1,770.00
(2) 210,000 shares of stock of
Mindanao Mother Lode Mines,
Inc. at P0.38 per share 79,800.00
(3) Cash credit with Canacao
Estate Inc. 4,870.88
(4) Cash, with the Chartered
Bank of India, Australia & China 851.97
Total Gross Assets P130,792.85

On May 22, 1951, ancillary administration proceedings were instituted in the

Court of First Instance of Manila for the settlement of the estate in the
Philippines. In due time Stevenson's will was duly admitted to probate by our
court and Ian Murray Statt was appointed ancillary administrator of the estate,
who on July 11, 1951, filed a preliminary estate and inheritance tax return with
the reservation of having the properties declared therein finally appraised at their
values six months after the death of Stevenson. Preliminary return was made by
the ancillary administrator in order to secure the waiver of the Collector of
Internal Revenue on the inheritance tax due on the 210,000 shares of stock in
the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in
the United States. Acting upon said return, the Collector of Internal Revenue
accepted the valuation of the personal properties declared therein, but increased
the appraisal of the two parcels of land located in Baguio City by fixing their fair
market value in the amount of P52.200.00, instead of P43,500.00. After allowing
the deductions claimed by the ancillary administrator for funeral expenses in the
amount of P2,000.00 and for judicial and administration expenses in the sum of
P5,500.00, the Collector assessed the state the amount of P5,147.98 for estate
tax and P10,875,26 or inheritance tax, or a total of P16,023.23. Both of these
assessments were paid by the estate on June 6, 1952.

On September 27, 1952, the ancillary administrator filed in amended estate and
inheritance tax return in pursuance f his reservation made at the time of filing of
the preliminary return and for the purpose of availing of the right granted by
section 91 of the National Internal Revenue Code.
In this amended return the valuation of the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. was reduced from 0.38 per share, as
originally declared, to P0.20 per share, or from a total valuation of P79,800.00 to
P42,000.00. This change in price per share of stock was based by the ancillary
administrator on the market notation of the stock obtaining at the San Francisco
California) Stock Exchange six months from the death of Stevenson, that is, As
of August 22, 1931. In addition, the ancillary administrator made claim for the
following deductions:

Funeral expenses ($1,04326) P2,086.52

Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and
Administration expenses as
of August 9, 1952 1,400.05
8,604.39
Real Estate Tax for 1951 on
Baguio real properties (O.R.
No. B-1 686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb.
2 to 22, 1951 22.47 10,022.47
Sub-Total P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned

all her rights and interests in the estate to the spouses, Douglas and Bettina
Fisher, respondents herein.

On September 7, 1953, the ancillary administrator filed a second amended estate

and inheritance tax return (Exh. "M-N"). This return declared the same assets of
the estate stated in the amended return of September 22, 1952, except that it
contained new claims for additional exemption and deduction to wit: (1)
deduction in the amount of P4,000.00 from the gross estate of the decedent as
provided for in Section 861 (4) of the U.S. Federal Internal Revenue Code which
the ancillary administrator averred was allowable by way of the reciprocity
granted by Section 122 of the National Internal Revenue Code, as then held by
the Board of Tax Appeals in case No. 71 entitled "Housman vs. Collector,"
August 14, 1952; and (2) exemption from the imposition of estate and inheritance
taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.
also pursuant to the reciprocity proviso of Section 122 of the National Internal
Revenue Code. In this last return, the estate claimed that it was liable only for the
amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a
consequence, it had overpaid the government. The refund of the amount of
P15,259.83, allegedly overpaid, was accordingly requested by the estate. The
Collector denied the claim. For this reason, action was commenced in the Court
of First Instance of Manila by respondents, as assignees of Beatrice Mauricia
Stevenson, for the recovery of said amount. Pursuant to Republic Act No. 1125,
the case was forwarded to the Court of Tax Appeals which court, after hearing,
rendered decision the dispositive portion of which reads as follows:

In fine, we are of the opinion and so hold that: (a) the one-half (½) share of
the surviving spouse in the conjugal partnership property as diminished by
the obligations properly chargeable to such property should be deducted
from the net estate of the deceased Walter G. Stevenson, pursuant to
Section 89-C of the National Internal Revenue Code; (b) the intangible
personal property belonging to the estate of said Stevenson is exempt
from inheritance tax, pursuant to the provision of section 122 of the
National Internal Revenue Code in relation to the California Inheritance
Tax Law but decedent's estate is not entitled to an exemption of P4,000.00
in the computation of the estate tax; (c) for purposes of estate and
inheritance taxation the Baguio real estate of the spouses should be
valued at P52,200.00, and 210,000 shares of stock in the Mindanao
Mother Lode Mines, Inc. should be appraised at P0.38 per share; and (d)
the estate shall be entitled to a deduction of P2,000.00 for funeral
expenses and judicial expenses of P8,604.39.

From this decision, both parties appealed.

The Collector of Internal Revenue, hereinafter called petitioner assigned four

errors allegedly committed by the trial court, while the assignees, Douglas and
Bettina Fisher hereinafter called respondents, made six assignments of error.
Together, the assigned errors raise the following main issues for resolution by
this Court:

(1) Whether or not, in determining the taxable net estate of the decedent, one-
half (½) of the net estate should be deducted therefrom as the share of tile
surviving spouse in accordance with our law on conjugal partnership and in
relation to section 89 (c) of the National Internal revenue Code;

(2) Whether or not the estate can avail itself of the reciprocity proviso embodied
in Section 122 of the National Internal Revenue Code granting exemption from
the payment of estate and inheritance taxes on the 210,000 shares of stock in
the Mindanao Mother Lode Mines Inc.;

(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by
Section 861, U.S. Internal Revenue Code in relation to section 122 of the
National Internal Revenue Code;

(4) Whether or not the real estate properties of the decedent located in Baguio
City and the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.,
were correctly appraised by the lower court;

(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for
judicial and administration expenses; P2,086.52 for funeral expenses; P652.50
for real estate taxes; and P10,0,22.47 representing the amount of indebtedness
allegedly incurred by the decedent during his lifetime; and

(6) Whether or not the estate is entitled to the payment of interest on the amount
it claims to have overpaid the government and to be refundable to it.

In deciding the first issue, the lower court applied a well-known doctrine in our
civil law that in the absence of any ante-nuptial agreement, the contracting
parties are presumed to have adopted the system of conjugal partnership as to
the properties acquired during their marriage. The application of this doctrine to
the instant case is being disputed, however, by petitioner Collector of Internal
Revenue, who contends that pursuant to Article 124 of the New Civil Code, the
property relation of the spouses Stevensons ought not to be determined by the
Philippine law, but by the national law of the decedent husband, in this case, the
law of England. It is alleged by petitioner that English laws do not recognize legal
partnership between spouses, and that what obtains in that jurisdiction is another
regime of property relation, wherein all properties acquired during the marriage
pertain and belong Exclusively to the husband. In further support of his stand,
petitioner cites Article 16 of the New Civil Code (Art. 10 of the old) to the effect
that in testate and intestate proceedings, the amount of successional rights,
among others, is to be determined by the national law of the decedent.

In this connection, let it be noted that since the mariage of the Stevensons in the
Philippines took place in 1909, the applicable law is Article 1325 of the old Civil
Code and not Article 124 of the New Civil Code which became effective only in
1950. It is true that both articles adhere to the so-called nationality theory of
determining the property relation of spouses where one of them is a foreigner
and they have made no prior agreement as to the administration disposition, and
ownership of their conjugal properties. In such a case, the national law of the
husband becomes the dominant law in determining the property relation of the
spouses. There is, however, a difference between the two articles in that Article
1241 of the new Civil Code expressly provides that it shall be applicable
regardless of whether the marriage was celebrated in the Philippines or abroad
while Article 13252 of the old Civil Code is limited to marriages contracted in a
foreign land.

It must be noted, however, that what has just been said refers to mixed
marriages between a Filipino citizen and a foreigner. In the instant case, both
spouses are foreigners who married in the Philippines. Manresa,3 in his
Commentaries, has this to say on this point:

La regla establecida en el art. 1.315, se refiere a las capitulaciones

otorgadas en Espana y entre espanoles. El 1.325, a las celebradas en el
extranjero cuando alguno de los conyuges es espanol. En cuanto a la
regla procedente cuando dos extranjeros se casan en Espana, o dos
espanoles en el extranjero hay que atender en el primer caso a la
legislacion de pais a que aquellos pertenezean, y en el segundo, a las
reglas generales consignadas en los articulos 9 y 10 de nuestro Codigo.
(Emphasis supplied.)

If we adopt the view of Manresa, the law determinative of the property relation of
the Stevensons, married in 1909, would be the English law even if the marriage
was celebrated in the Philippines, both of them being foreigners. But, as correctly
observed by the Tax Court, the pertinent English law that allegedly vests in the
decedent husband full ownership of the properties acquired during the marriage
has not been proven by petitioner. Except for a mere allegation in his answer,
which is not sufficient, the record is bereft of any evidence as to what English law
says on the matter. In the absence of proof, the Court is justified, therefore, in
indulging in what Wharton calls "processual presumption," in presuming that the
law of England on this matter is the same as our law.4

Nor do we believe petitioner can make use of Article 16 of the New Civil Code
(art. 10, old Civil Code) to bolster his stand. A reading of Article 10 of the old Civil
Code, which incidentally is the one applicable, shows that it does not encompass
or contemplate to govern the question of property relation between spouses.
Said article distinctly speaks of amount of successional rights and this term, in
speaks in our opinion, properly refers to the extent or amount of property that
each heir is legally entitled to inherit from the estate available for distribution. It
needs to be pointed out that the property relation of spouses, as distinguished
from their successional rights, is governed differently by the specific and express
provisions of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the
old Civil Code.) We, therefore, find that the lower court correctly deducted the
half of the conjugal property in determining the hereditary estate left by the
deceased Stevenson.

On the second issue, petitioner disputes the action of the Tax Court in the
exempting the respondents from paying inheritance tax on the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity proviso
of Section 122 of the National Internal Revenue Code, in relation to Section
13851 of the California Revenue and Taxation Code, on the ground that: (1) the
said proviso of the California Revenue and Taxation Code has not been duly
proven by the respondents; (2) the reciprocity exemptions granted by section 122
of the National Internal Revenue Code can only be availed of by residents of
foreign countries and not of residents of a state in the United States; and (3)
there is no "total" reciprocity between the Philippines and the state of California in
that while the former exempts payment of both estate and inheritance taxes on
intangible personal properties, the latter only exempts the payment of inheritance
tax..

To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein
respondents, testified that as an active member of the California Bar since 1931,
he is familiar with the revenue and taxation laws of the State of California. When
asked by the lower court to state the pertinent California law as regards
exemption of intangible personal properties, the witness cited article 4, section
13851 (a) and (b) of the California Internal and Revenue Code as published in
Derring's California Code, a publication of the Bancroft-Whitney Company inc.
And as part of his testimony, a full quotation of the cited section was offered in
evidence as Exhibits "V-2" by the respondents.

It is well-settled that foreign laws do not prove themselves in our jurisdiction and
our courts are not authorized to take judicial notice of them.5 Like any other fact,
they must be alleged and proved.6

Section 41, Rule 123 of our Rules of Court prescribes the manner of proving
foreign laws before our tribunals. However, although we believe it desirable that
these laws be proved in accordance with said rule, we held in the case
of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of
sections 300 and 301 of our Code of Civil Procedure (now section 41, Rule 123)
will convince one that these sections do not exclude the presentation of other
competent evidence to prove the existence of a foreign law." In that case, we
considered the testimony of an attorney-at-law of San Francisco, California who
quoted verbatim a section of California Civil Code and who stated that the same
was in force at the time the obligations were contracted, as sufficient evidence to
establish the existence of said law. In line with this view, we find no error,
therefore, on the part of the Tax Court in considering the pertinent California law
as proved by respondents' witness.

We now take up the question of reciprocity in exemption from transfer or death

taxes, between the State of California and the Philippines.F

Section 122 of our National Internal Revenue Code, in pertinent part, provides:

... And, provided, further, That no tax shall be collected under this Title in
respect of intangible personal property (a) if the decedent at the time of his
death was a resident of a foreign country which at the time of his death did
not impose a transfer of tax or death tax of any character in respect of
intangible personal property of citizens of the Philippines not residing in
that foreign country, or (b) if the laws of the foreign country of which the
decedent was a resident at the time of his death allow a similar exemption
from transfer taxes or death taxes of every character in respect of
intangible personal property owned by citizens of the Philippines not
residing in that foreign country." (Emphasis supplied).

On the other hand, Section 13851 of the California Inheritance Tax Law, insofar
as pertinent, reads:.

"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal

property is exempt from the tax imposed by this part if the decedent at the
time of his death was a resident of a territory or another State of the United
States or of a foreign state or country which then imposed a legacy,
succession, or death tax in respect to intangible personal property of its
own residents, but either:.

(a) Did not impose a legacy, succession, or death tax of any character in
respect to intangible personal property of residents of this State, or

(b) Had in its laws a reciprocal provision under which intangible personal
property of a non-resident was exempt from legacy, succession, or death
taxes of every character if the Territory or other State of the United States
or foreign state or country in which the nonresident resided allowed a
similar exemption in respect to intangible personal property of residents of
the Territory or State of the United States or foreign state or country of
residence of the decedent." (Id.)

It is clear from both these quoted provisions that the reciprocity must be total,
that is, with respect to transfer or death taxes of any and every character, in the
case of the Philippine law, and to legacy, succession, or death taxes of any and
every character, in the case of the California law. Therefore, if any of the two
states collects or imposes and does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does not work. This is the
underlying principle of the reciprocity clauses in both laws.

In the Philippines, upon the death of any citizen or resident, or non-resident with
properties therein, there are imposed upon his estate and its settlement, both an
estate and an inheritance tax. Under the laws of California, only inheritance tax is
imposed. On the other hand, the Federal Internal Revenue Code imposes an
estate tax on non-residents not citizens of the United States,7 but does not
provide for any exemption on the basis of reciprocity. Applying these laws in the
manner the Court of Tax Appeals did in the instant case, we will have a situation
where a Californian, who is non-resident in the Philippines but has intangible
personal properties here, will the subject to the payment of an estate tax,
although exempt from the payment of the inheritance tax. This being the case,
will a Filipino, non-resident of California, but with intangible personal properties
there, be entitled to the exemption clause of the California law, since the
Californian has not been exempted from every character of legacy, succession,
or death tax because he is, under our law, under obligation to pay an estate tax?
Upon the other hand, if we exempt the Californian from paying the estate tax, we
do not thereby entitle a Filipino to be exempt from a similar estate tax in
California because under the Federal Law, which is equally enforceable in
California he is bound to pay the same, there being no reciprocity recognized in
respect thereto. In both instances, the Filipino citizen is always at a
disadvantage. We do not believe that our legislature has intended such an unfair
situation to the detriment of our own government and people. We, therefore, find
and declare that the lower court erred in exempting the estate in question from
payment of the inheritance tax.

We are not unaware of our ruling in the case of Collector of Internal Revenue vs.
Lara (G.R. Nos. L-9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881)
exempting the estate of the deceased Hugo H. Miller from payment of the
inheritance tax imposed by the Collector of Internal Revenue. It will be noted,
however, that the issue of reciprocity between the pertinent provisions of our tax
law and that of the State of California was not there squarely raised, and the
ruling therein cannot control the determination of the case at bar. Be that as it
may, we now declare that in view of the express provisions of both the Philippine
and California laws that the exemption would apply only if the law of the other
grants an exemption from legacy, succession, or death taxes of every character,
there could not be partial reciprocity. It would have to be total or none at all.

With respect to the question of deduction or reduction in the amount of P4,000.00

based on the U.S. Federal Estate Tax Law which is also being claimed by
respondents, we uphold and adhere to our ruling in the Lara case (supra) that the
amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature
of a deduction and not of an exemption regarding which reciprocity cannot be
claimed under the provision of Section 122 of our National Internal Revenue
Code. Nor is reciprocity authorized under the Federal Law. .

On the issue of the correctness of the appraisal of the two parcels of land
situated in Baguio City, it is contended that their assessed values, as appearing
in the tax rolls 6 months after the death of Stevenson, ought to have been
considered by petitioner as their fair market value, pursuant to section 91 of the
National Internal Revenue Code. It should be pointed out, however, that in
accordance with said proviso the properties are required to be appraised at their
fair market value and the assessed value thereof shall be considered as the fair
market value only when evidence to the contrary has not been shown. After all
review of the record, we are satisfied that such evidence exists to justify the
valuation made by petitioner which was sustained by the tax court, for as the tax
court aptly observed:

"The two parcels of land containing 36,264 square meters were valued by
the administrator of the estate in the Estate and Inheritance tax returns
filed by him at P43,500.00 which is the assessed value of said properties.
On the other hand, defendant appraised the same at P52,200.00. It is of
common knowledge, and this Court can take judicial notice of it, that
assessments for real estate taxation purposes are very much lower than
the true and fair market value of the properties at a given time and place.
In fact one year after decedent's death or in 1952 the said properties were
sold for a price of P72,000.00 and there is no showing that special or
extraordinary circumstances caused the sudden increase from the price of
P43,500.00, if we were to accept this value as a fair and reasonable one
as of 1951. Even more, the counsel for plaintiffs himself admitted in open
court that he was willing to purchase the said properties at P2.00 per
square meter. In the light of these facts we believe and therefore hold that
the valuation of P52,200.00 of the real estate in Baguio made by defendant
is fair, reasonable and justified in the premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc., (a domestic corporation), respondents contend that their value
should be fixed on the basis of the market quotation obtaining at the San
Francisco (California) Stock Exchange, on the theory that the certificates of
stocks were then held in that place and registered with the said stock exchange.
We cannot agree with respondents' argument. The situs of the shares of stock,
for purposes of taxation, being located here in the Philippines, as respondents
themselves concede and considering that they are sought to be taxed in this
jurisdiction, consistent with the exercise of our government's taxing authority,
their fair market value should be taxed on the basis of the price prevailing in our
country.

Upon the other hand, we find merit in respondents' other contention that the said
shares of stock commanded a lesser value at the Manila Stock Exchange six
months after the death of Stevenson. Through Atty. Allison Gibbs, respondents
have shown that at that time a share of said stock was bid for at only P.325 (p.
103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never
been questioned nor refuted by petitioner either before this court or in the court
below. In the absence of evidence to the contrary, we are, therefore, constrained
to reverse the Tax Court on this point and to hold that the value of a share in the
said mining company on August 22, 1951 in the Philippine market was P.325 as
claimed by respondents..

It should be noted that the petitioner and the Tax Court valued each share of
stock of P.38 on the basis of the declaration made by the estate in its preliminary
return. Patently, this should not have been the case, in view of the fact that the
ancillary administrator had reserved and availed of his legal right to have the
properties of the estate declared at their fair market value as of six months from
the time the decedent died..

On the fifth issue, we shall consider the various deductions, from the allowance
or disallowance of which by the Tax Court, both petitioner and respondents have
appealed..

Petitioner, in this regard, contends that no evidence of record exists to support

the allowance of the sum of P8,604.39 for the following expenses:.

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administrative 2,052.55
expenses
Total Deductions P8,604.39

An examination of the record discloses, however, that the foregoing items were
considered deductible by the Tax Court on the basis of their approval by the
probate court to which said expenses, we may presume, had also been
presented for consideration. It is to be supposed that the probate court would not
have approved said items were they not supported by evidence presented by the
estate. In allowing the items in question, the Tax Court had before it the pertinent
order of the probate court which was submitted in evidence by respondents.
(Exh. "AA-2", p. 100, record). As the Tax Court said, it found no basis for
departing from the findings of the probate court, as it must have been satisfied
that those expenses were actually incurred. Under the circumstances, we see no
ground to reverse this finding of fact which, under Republic Act of California
National Association, which it would appear, that while still living, Walter G.
Stevenson obtained we are not inclined to pass upon the claim of respondents in
respect to the additional amount of P86.52 for funeral expenses which was
disapproved by the court a quo for lack of evidence.

In connection with the deduction of P652.50 representing the amount of realty

taxes paid in 1951 on the decedent's two parcels of land in Baguio City, which
respondents claim was disallowed by the Tax Court, we find that this claim has in
fact been allowed. What happened here, which a careful review of the record will
reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administration expenses
as of August 9, 1952 2,052.55
Total P9,256.89

added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for
judicial and administration expenses approved by the court, making a total of
P2,052.55, exactly the same figure which was arrived at by the Tax Court for
judicial and administration expenses. Hence, the difference between the total of
P9,256.98 allowed by the Tax Court as deductions, and the P8,604.39 as found
by the probate court, which is P652.50, the same amount allowed for realty
taxes. An evident oversight has involuntarily been made in omitting the
P2,000.00 for funeral expenses in the final computation. This amount has been
expressly allowed by the lower court and there is no reason why it should not be.
.

We come now to the other claim of respondents that pursuant to section 89(b) (1)
in relation to section 89(a) (1) (E) and section 89(d), National Internal Revenue
Code, the amount of P10,022.47 should have been allowed the estate as a
deduction, because it represented an indebtedness of the decedent incurred
during his lifetime. In support thereof, they offered in evidence a duly certified
claim, presented to the probate court in California by the Bank of California
National Association, which it would appear, that while still living, Walter G.
Stevenson obtained a loan of $5,000.00 secured by pledge on 140,000 of his
shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-
59, record). The Tax Court disallowed this item on the ground that the local
probate court had not approved the same as a valid claim against the estate and
because it constituted an indebtedness in respect to intangible personal property
which the Tax Court held to be exempt from inheritance tax.

For two reasons, we uphold the action of the lower court in disallowing the
deduction.

Firstly, we believe that the approval of the Philippine probate court of this
particular indebtedness of the decedent is necessary. This is so although the
same, it is averred has been already admitted and approved by the
corresponding probate court in California, situs of the principal or domiciliary
administration. It is true that we have here in the Philippines only an ancillary
administration in this case, but, it has been held, the distinction between
domiciliary or principal administration and ancillary administration serves only to
distinguish one administration from the other, for the two proceedings are
separate and independent.8 The reason for the ancillary administration is that, a
grant of administration does not ex proprio vigore, have any effect beyond the
limits of the country in which it was granted. Hence, we have the requirement that
before a will duly probated outside of the Philippines can have effect here, it must
first be proved and allowed before our courts, in much the same manner as wills
originally presented for allowance therein.9 And the estate shall be administered
under letters testamentary, or letters of administration granted by the court, and
disposed of according to the will as probated, after payment of just debts and
expenses of administration.10 In other words, there is a regular administration
under the control of the court, where claims must be presented and approved,
and expenses of administration allowed before deductions from the estate can be
authorized. Otherwise, we would have the actuations of our own probate court, in
the settlement and distribution of the estate situated here, subject to the
proceedings before the foreign court over which our courts have no control. We
do not believe such a procedure is countenanced or contemplated in the Rules of
Court.

Another reason for the disallowance of this indebtedness as a deduction, springs

from the provisions of Section 89, letter (d), number (1), of the National Internal
Revenue Code which reads:

(d) Miscellaneous provisions — (1) No deductions shall be allowed in the

case of a non-resident not a citizen of the Philippines unless the executor,
administrator or anyone of the heirs, as the case may be, includes in the
return required to be filed under section ninety-three the value at the time
of his death of that part of the gross estate of the non-resident not situated
in the Philippines."
In the case at bar, no such statement of the gross estate of the non-resident
Stevenson not situated in the Philippines appears in the three returns submitted
to the court or to the office of the petitioner Collector of Internal Revenue. The
purpose of this requirement is to enable the revenue officer to determine how
much of the indebtedness may be allowed to be deducted, pursuant to (b),
number (1) of the same section 89 of the Internal Revenue Code which provides:

(b) Deductions allowed to non-resident estates. — In the case of a non-

resident not a citizen of the Philippines, by deducting from the value of that
part of his gross estate which at the time of his death is situated in the
Philippines —

(1) Expenses, losses, indebtedness, and taxes. — That proportion of the

deductions specified in paragraph (1) of subjection (a) of this
section11 which the value of such part bears the value of his entire gross
estate wherever situated;"

In other words, the allowable deduction is only to the extent of the portion of the
indebtedness which is equivalent to the proportion that the estate in the
Philippines bears to the total estate wherever situated. Stated differently, if the
properties in the Philippines constitute but 1/5 of the entire assets wherever
situated, then only 1/5 of the indebtedness may be deducted. But since, as
heretofore adverted to, there is no statement of the value of the estate situated
outside the Philippines, no part of the indebtedness can be allowed to be
deducted, pursuant to Section 89, letter (d), number (1) of the Internal Revenue
Code.

For the reasons thus stated, we affirm the ruling of the lower court disallowing the
deduction of the alleged indebtedness in the sum of P10,022.47.

In recapitulation, we hold and declare that:

(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal
partnership property constitutes his hereditary estate subject to the estate
and inheritance taxes;

(b) the intangible personal property is not exempt from inheritance tax,
there existing no complete total reciprocity as required in section 122 of the
National Internal Revenue Code, nor is the decedent's estate entitled to an
exemption of P4,000.00 in the computation of the estate tax;
 (c) for the purpose of the estate and inheritance taxes, the 210,000 shares
of stock in the Mindanao Mother Lode Mines, Inc. are to be appraised at
P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the

determination of the net asset of the deceased Stevenson.

In all other respects, the decision of the Court of Tax Appeals is affirmed.

Respondent's claim for interest on the amount allegedly overpaid, if any actually
results after a recomputation on the basis of this decision is hereby denied in line
with our recent decision in Collector of Internal Revenue v. St. Paul's
Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the absence
of a statutory provision clearly or expressly directing or authorizing such
payment, and none has been cited by respondents, the National Government
cannot be required to pay interest."

WHEREFORE, as modified in the manner heretofore indicated, the judgment of

the lower court is hereby affirmed in all other respects not inconsistent herewith.
No costs. So ordered.

G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley,

deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the
estate of Thomas Hanley, deceased, brought this action in the Court of First
Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the
Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by
the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from
September 15, 1932, the date when the aforesaid tax was [paid under protest.
The defendant set up a counterclaim for P1,191.27 alleged to be interest due on
the tax in question and which was not included in the original assessment. From
the decision of the Court of First Instance of Zamboanga dismissing both the
plaintiff's complaint and the defendant's counterclaim, both parties appealed to
this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga,
Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and
personal properties. On june 14, 1922, proceedings for the probate of his will and
the settlement and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew

Hanley.

5. I direct that all real estate owned by me at the time of my death be not
sold or otherwise disposed of for a period of ten (10) years after my death,
and that the same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he
be directed that the same be used only for the education of my brother's
children and their descendants.

6. I direct that ten (10) years after my death my property be given to the
above mentioned Matthew Hanley to be disposed of in the way he thinks
most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and
that my nephew, Matthew Hanley, is a son of my said brother, Malachi
Hanley.

The Court of First Instance of Zamboanga considered it proper for the best
interests of ther estate to appoint a trustee to administer the real properties
which, under the will, were to pass to Matthew Hanley ten years after the two
executors named in the will, was, on March 8, 1924, appointed trustee. Moore
took his oath of office and gave bond on March 10, 1924. He acted as trustee
until February 29, 1932, when he resigned and the plaintiff herein was appointed
in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue, alleging that the estate left by the deceased at the time of his
death consisted of realty valued at P27,920 and personalty valued at P1,465,
and allowing a deduction of P480.81, assessed against the estate an inheritance
tax in the amount of P1,434.24 which, together with the penalties for deliquency
in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the
date of payment and a surcharge of 25 per cent on the tax, amounted to
P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary
proceedings pending before the Court of First Instance of Zamboanga (Special
proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay
to the Government the said sum of P2,052.74. The motion was granted. On
September 15, 1932, the plaintiff paid said amount under protest, notifying the
defendant at the same time that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant overruled the plaintiff's protest
and refused to refund the said amount hausted, plaintiff went to court with the
result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to

his instituted heir, Matthew Hanley, from the moment of the death of the
former, and that from the time, the latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of

inheritance tax due on the estate of said deceased.

III. In holding that the inheritance tax in question be based upon the value
of the estate upon the death of the testator, and not, as it should have
been held, upon the value thereof at the expiration of the period of ten
years after which, according to the testator's will, the property could be and
was to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net

amount of the estate subject to said tax, the amounts allowed by the court
as compensation to the "trustees" and paid to them from the decedent's
estate.

V. In not rendering judgment in favor of the plaintiff and in denying his

motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the
following error besides:
 The lower court erred in not ordering the plaintiff to pay to the defendant
the sum of P1,191.27, representing part of the interest at the rate of 1 per
cent per month from April 10, 1924, to June 30, 1931, which the plaintiff
had failed to pay on the inheritance tax assessed by the defendant against
the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this
appeal: (a) When does the inheritance tax accrue and when must it be satisfied?
(b) Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator's death, or on its value ten years later? (c) In
determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at bar? Should the
provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect?
(e) Has there been deliquency in the payment of the inheritance tax? If so,
should the additional interest claimed by the defendant in his appeal be paid by
the estate? Other points of incidental importance, raised by the parties in their
briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the
same. Section 1536 as amended, of the Administrative Code, imposes the tax
upon "every transmission by virtue of inheritance, devise, bequest, gift mortis
causa, or advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an
excise or privilege tax imposed on the right to succeed to, receive, or take
property by or under a will or the intestacy law, or deed, grant, or gift to become
operative at or after death. Acording to article 657 of the Civil Code, "the rights to
the succession of a person are transmitted from the moment of his death." "In
other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the
property of the deceased ancestor. The property belongs to the heirs at the
moment of the death of the ancestor as completely as if the ancestor had
executed and delivered to them a deed for the same before his death." (Bondad
vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co.,
vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras
Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones,
38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs.
Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun
vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657
of the Civil Code is applicable to testate as well as intestate succession, it
operates only in so far as forced heirs are concerned. But the language of article
657 of the Civil Code is broad and makes no distinction between different classes
of heirs. That article does not speak of forced heirs; it does not even use the
word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil
Procedure regarding the authentication and probate of a will as a necessary
condition to effect transmission of property does not affect the general rule laid
down in article 657 of the Civil Code. The authentication of a will implies its due
execution but once probated and allowed the transmission is effective as of the
death of the testator in accordance with article 657 of the Civil Code. Whatever
may be the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the decedent's death. The
time when the heirs legally succeed to the inheritance may differ from the time
when the heirs actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del
causante, hasta que el heredero o legatario entre en posesion de los bienes de
la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha
de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que
debe considerarse como complemento del presente." (5 Manresa, 305; see also,
art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the
inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not
follow that the obligation to pay the tax arose as of the date. The time for the
payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of
the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The

following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the

fiduciary heir or legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor.

In the last two cases, if the scale of taxation appropriate to the new
beneficiary is greater than that paid by the first, the former must pay the
difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be
paid:
 (a) In the second and third cases of the next preceding section,
before entrance into possession of the property.

(b) In other cases, within the six months subsequent to the death of
the predecessor; but if judicial testamentary or intestate proceedings
shall be instituted prior to the expiration of said period, the payment
shall be made by the executor or administrator before delivering to
each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the
rate of twelve per centum per annum shall be added as part of the tax; and
to the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the collector, there shall be further added a
surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished

the Collector of Internal Revenue by the Clerk of Court within thirty days
after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection

(b) of section 1543, should read "fideicommissary" or "cestui que trust". There
was an obvious mistake in translation from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of
section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee
or donee. Under the subsection, the tax should have been paid before the
delivery of the properties in question to P. J. M. Moore as trustee on March 10,
1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real
properties are concerned, did not and could not legally pass to the instituted heir,
Matthew Hanley, until after the expiration of ten years from the death of the
testator on May 27, 1922 and, that the inheritance tax should be based on the
value of the estate in 1932, or ten years after the testator's death. The plaintiff
introduced evidence tending to show that in 1932 the real properties in question
had a reasonable value of only P5,787. This amount added to the value of the
personal property left by the deceased, which the plaintiff admits is P1,465,
would generate an inheritance tax which, excluding deductions, interest and
surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose
inheritance taxes takes its being and if, upon the death of the decedent,
succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the vlaue of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any
subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L.,
p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton
vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of
the state to an inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that time of such
property as passes to him. Subsequent appreciation or depriciation is
immaterial." (Ross, Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and
Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders,
taxation is postponed until the estate vests in possession or the contingency is
settled. This rule was formerly followed in New York and has been adopted in
Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule,
horever, is by no means entirely satisfactory either to the estate or to those
interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of
its anterior system, we find upon examination of cases and authorities that New
York has varied and now requires the immediate appraisal of the postponed
estate at its clear market value and the payment forthwith of the tax on its out of
the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E.,
782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy,
179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958;
Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs.
Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas.,
888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission
by inheritance is taxable at the time of the predecessor's death, notwithstanding
the postponement of the actual possession or enjoyment of the estate by the
beneficiary, and the tax measured by the value of the property transmitted at that
time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in
arriving at the net value of the estate on which the inheritance tax is to be
computed (sec. 1539, Revised Administrative Code). In the case at bar, the
defendant and the trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until March 10,
1924, among which were their fees and the proven debts of the deceased. The
plaintiff contends that the compensation and fees of the trustees, which
aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also
be deducted under section 1539 of the Revised Administrative Code which
provides, in part, as follows: "In order to determine the net sum which must bear
the tax, when an inheritance is concerned, there shall be deducted, in case of a
resident, . . . the judicial expenses of the testamentary or intestate proceedings, .
. . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services

(Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not
follow that the compensation due him may lawfully be deducted in arriving at the
net value of the estate subject to tax. There is no statute in the Philippines which
requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a
testamentary trust has been created, it does not appear that the testator intended
that the duties of his executors and trustees should be separated. (Ibid.; In
re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's
Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his
executors until the expiration of the period of ten years therein provided. Judicial
expenses are expenses of administration (61 C. J., p. 1705) but, in State vs.
Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". .
. The compensation of a trustee, earned, not in the administration of the estate,
but in the management thereof for the benefit of the legatees or devises, does
not come properly within the class or reason for exempting administration
expenses. . . . Service rendered in that behalf have no reference to closing the
estate for the purpose of a distribution thereof to those entitled to it, and are not
required or essential to the perfection of the rights of the heirs or legatees. . . .
Trusts . . . of the character of that here before the court, are created for the the
benefit of those to whom the property ultimately passes, are of voluntary
creation, and intended for the preservation of the estate. No sound reason is
given to support the contention that such expenses should be taken into
consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of
Thomas Hanley under the provisions of section 1544 of the Revised
Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606
went into effect on January 1, 1930. It, therefore, was not the law in force when
the testator died on May 27, 1922. The law at the time was section 1544 above-
mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the

time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th
ed., p. 3461). The taxpayer can not foresee and ought not to be required to
guess the outcome of pending measures. Of course, a tax statute may be made
retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49
Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should
operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct.
Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale
vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends,
or repeals an inheritance tax, unless the language of the statute clearly demands
or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.)
Though the last paragraph of section 5 of Regulations No. 65 of the Department
of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due
from which have not been paid, Act No. 3606 itself contains no provisions
indicating legislative intent to give it retroactive effect. No such effect can begiven
the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain

provisions of Act No. 3606 are more favorable to the taxpayer than those of Act
No. 3031, that said provisions are penal in nature and, therefore, should operate
retroactively in conformity with the provisions of article 22 of the Revised Penal
Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax
only, instead of on both the tax and the interest, as provided for in Act No. 3031,
and (2) the taxpayer is allowed twenty days from notice and demand by rthe
Collector of Internal Revenue within which to pay the tax, instead of ten days only
as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense

committed against the state which, under the Constitution, the Executive has the
power to pardon. In common use, however, this sense has been enlarged to
include within the term "penal statutes" all status which command or prohibit
certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their
commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes
collected by the means ordinarily resorted to for the collection of taxes are not
classed as penal laws, although there are authorities to the contrary.
(See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U.
S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs.
Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.)
Article 22 of the Revised Penal Code is not applicable to the case at bar, and in
the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive
effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain
time and the tax may be paid within another given time. As stated by this court,
"the mere failure to pay one's tax does not render one delinqent until and unless
the entire period has eplased within which the taxpayer is authorized by law to
make such payment without being subjected to the payment of penalties for
fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26
Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent's property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the meaning of
the first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is sustained. The
appointment of P. J. M. Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true that
the word "trust" is not mentioned or used in the will but the intention to create one
is clear. No particular or technical words are required to create a testamentary
trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the
purpose, are not necessary. In fact, the use of these two words is not conclusive
on the question that a trust is created (69 C. J., p. 714). "To create a trust by will
the testator must indicate in the will his intention so to do by using language
sufficient to separate the legal from the equitable estate, and with sufficient
certainty designate the beneficiaries, their interest in the ttrust, the purpose or
object of the trust, and the property or subject matter thereof. Stated otherwise,
to constitute a valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a
certain or ascertain object; statutes in some jurisdictions expressly or in effect so
providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to
create a trust. He ordered in his will that certain of his properties be kept together
undisposed during a fixed period, for a stated purpose. The probate court
certainly exercised sound judgment in appointment a trustee to carry into effect
the provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate
vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The
mere fact that the estate of the deceased was placed in trust did not remove it
from the operation of our inheritance tax laws or exempt it from the payment of
the inheritance tax. The corresponding inheritance tax should have been paid on
or before March 10, 1924, to escape the penalties of the laws. This is so for the
reason already stated that the delivery of the estate to the trustee was in
esse delivery of the same estate to the cestui que trust, the beneficiary in this
case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs.
King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possesson of the trust estate he thereby admitted
that the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug,
39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial
interest in the estate. He took such legal estate only as the proper execution of
the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of
the testator's wishes. The estate then vested absolutely in the beneficiary (65 C.
J., p. 542).

The highest considerations of public policy also justify the conclusion we have
reached. Were we to hold that the payment of the tax could be postponed or
delayed by the creation of a trust of the type at hand, the result would be plainly
disastrous. Testators may provide, as Thomas Hanley has provided, that their
estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust
may last for fifty years, or for a longer period which does not offend the rule
against petuities. The collection of the tax would then be left to the will of a
private individual. The mere suggestion of this result is a sufficient warning
against the accpetance of the essential to the very exeistence of government.
(Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs.
Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall.,
71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S.,
194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon
the privileges enjoyed by, or the protection afforded to, a citizen by the
government but upon the necessity of money for the support of the state
(Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to
or resist the payment of taxes solely because no personal benefit to him can be
pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law.
ed., 740.) While courts will not enlarge, by construction, the government's power
of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup.
Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to
permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts,
1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed.
Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18
Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co.
vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty,
39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a
tax statute should be construed to avoid the possibilities of tax evasion.
Construed this way, the statute, without resulting in injustice to the taxpayer,
becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax
system. Thus, no court is allowed to grant injunction to restrain the collection of
any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs.
Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461),
this court had occassion to demonstrate trenchment adherence to this policy of
the law. It held that "the fact that on account of riots directed against the Chinese
on October 18, 19, and 20, 1924, they were prevented from praying their internal
revenue taxes on time and by mutual agreement closed their homes and stores
and remained therein, does not authorize the Collector of Internal Revenue to
extend the time prescribed for the payment of the taxes or to accept them without
the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States,
". . . that the modes adopted to enforce the taxes levied should be interfered with
as little as possible. Any delay in the proceedings of the officers, upon whom the
duty is developed of collecting the taxes, may derange the operations of
government, and thereby, cause serious detriment to the public." (Dows vs.
Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32
Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the payment of interest and
surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore
became trustee. The interest due should be computed from that date and it is
error on the part of the defendant to compute it one month later. The provisions
cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither
the Collector of Internal Revenuen or this court may remit or decrease such
interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice
and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-
five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised
Administrative Code). Demand was made by the Deputy Collector of Internal
Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29).
The date fixed for the payment of the tax and interest was November 30, 1931.
November 30 being an official holiday, the tenth day fell on December 1, 1931.
As the tax and interest due were not paid on that date, the estate became liable
for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error
assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from
the estate of Thomas Hanley inaccordance with the conclusions we have
reached.

At the time of his death, the deceased left real properties valued at P27,920 and
personal properties worth P1,465, or a total of P29,385. Deducting from this
amount the sum of P480.81, representing allowable deductions under secftion
1539 of the Revised Administrative Code, we have P28,904.19 as the net value
of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised
Administrative Code, should be imposed at the rate of one per centum upon the
first ten thousand pesos and two per centum upon the amount by which the
share exceed thirty thousand pesos, plus an additional two hundred per centum.
One per centum of ten thousand pesos is P100. Two per centum of P18,904.19
is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum
of P1,434.24.

To the primary tax thus computed should be added the sums collectible under
section 1544 of the Revised Administrative Code. First should be added
P1,465.31 which stands for interest at the rate of twelve per centum per annum
from March 10, 1924, the date of delinquency, to September 15, 1932, the date
of payment under protest, a period covering 8 years, 6 months and 5 days. To
the tax and interest thus computed should be added the sum of P724.88,
representing a surhcarge of 25 per cent on both the tax and interest, and also
P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total
of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of
P1,581.69 is legally due from the estate. This last sum is P390.42 more than the
amount demanded by the defendant in his counterclaim. But, as we cannot give
the defendant more than what he claims, we must hold that the plaintiff is liable
only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the
plaintiff in both instances. So ordered.

G.R. No. L-1849 October 25, 1949

Testate estate of the deceased Raymundo Melliza y Angulo.
LAUREANA GABIN, claimant-appellant,
vs.
MARIA MELLIZA, ET AL., oppositors-appellees.

Fulgencio Vega for appellant.

V. Sian Melliza and Juan Jamora, Jr., for appellees.

OZAETA, J.:

On January 19, 1944, Raymundo Melliza and Laureana Gabin entered into a
written agreement whereby the former contracted the personal services of the
latter to administer certain haciendas owned by Raymundo Melliza for a period of
thirty years from said date, at the option of Laureana Gabin. As compensation for
said personal services Melliza agreed to pay Gabin 350 cavans of palay every
agricultural year. It was further stipulated that Laureana Gabin cannot be
dismissed from the service without just and legal cause during the time she cared
to serve within the said period of thirty years, and in case of dismissal she shall
have the right to be indemnified for the rest of the period at the rate of 150
cavans of palay for each agricultural year.

Raymundo Melliza died on December 11, 1945, and testamentary proceedings

were thereafter instituted in the Court of First Instance of Iloilo for the
administration and distribution of his estate.

Having been deprived by the executrix Remedios S. de Villanueva of the

administration of the haciendas in question, Laureana Gabin presented to the
probate court a claim against the estate of the deceased Raymundo Melliza for
the payment to her by the executrix of 150 cavans of palay beginning the
agricultural year 1945-1946 until the termination of the testamentary
proceedings, and that thereafter the heir or heirs to whom the haciendas may be
adjudicated be ordered to pay the claimant the same amount of palay every year
until the expiration of thirty years from the agricultural year 1945-1946.

The heirs of the deceased opposed said claim on the following grounds: (1) That,
not being a claim for money, it is not a proper claim under section 5 of Rule 87;
(2) that the agreement or contract on which it is based is one of agency which
was terminated by the death of the principal; (3) that Raymundo Melliza could
not, except by will, dispose of the administration of his properties after his death;
and (4) that there was no consideration for the granting of such administration for
30 years with remuneration. l aw phi 1.nêt

The probate court sustained the first ground of the opposition and denied the
claim. Hence this appeal.

The question to determine is whether appellant's claim for 150 cavans of palay a
year for the remainder of the thirty-year period mentioned in the agreement
Exhibit A is a proper claim which may be allowed in the testamentary
proceedings under Rule 87. Section 1 of said rule provides that immediately after
the granting of letters testamentary or of administration the court shall issue a
notice requiring all person having money claims against the decedent to file them
in the office of the clerk of said court; and section 5 provides that all claims for
money against the decedent arising from contract, express or implied, whether
the same be due, not due, or contingent, all claims for funeral expenses and
expenses of the last sickness of the decedent, and judgment for money against
the decedent, must be filed within the time limited in the notice. "'By money
claims, is meant any claim for "money, debt, or interest thereon," according to
section 21 of Rule 3 and section 1 of Rule 88. Not all money claims may,
however, be presented, but only those which are proper against the decedent,
that is, claim upon a liability contracted by the decedent before his death.
Accordingly, claims arising after his death cannot thus presented, except funeral
expenses." (Moran on the Rules of Court, Volume 2, second edition, p. 347.)

Upon the facts and the law involved in this case, we find no valid reason to
reverse the order appealed from.

In the first place, the claim in question arose after the death of the decedent.
Assuming without deciding that the contract on which the claim is based is valid,
the decedent appears to have complied with it up to the time of his death. It was
the executrix who dismissed the claimant from the service as administratrix or
manager of the haciendas of the deceased.

In the second place, the claim is not for money, debt, or interest thereon but for
150 cavans of palay a year for twenty-nine agricultural years (one agricultural
year having elapsed before the death of Raymundo Melliza). Even if it wanted to,
the probate court could not determine in advance the value of the palay in money
because the price of palay varies from year to year.

It appears from the record that before presenting the claim in question the
claimant filed a motion in the probate court praying that she be appointed
coadministratrix of the estate of the deceased on the strength of the contract of
service hereinabove mentioned. But Judge Blanco denied said motion without
prejudice to the right of the claimant to present a claim in due form against the
estate. Appellant now contends in her third assignment of error that said order of
Judge Blanco not having been appealed from, "the lower court erred in not
holding that the question of the presentation and admission of the claimant's
claim has become res judicata." This assignment of error is without merit
because the mere reservation by Judge Blanco to the claimant of her right to
present the claim in question in lieu of her appointment as coadministratrix of the
estate of the deceased did not preclude the court from denying said claim if, after
hearing, it found the same to be improper or not allowable in these proceedings.

Wherefore, without deciding whether or not the contract claimed upon is valid
and binding against the heirs of the decedent, and without prejudice to any
proper action that the appellant may bring upon said contract, we affirm the order
appealed from, with costs against the appellant.

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME

ARANETA, as Regional Director, Revenue Region No. 14, Bureau of Internal
Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros
Occidental, Branch V, and FRANCIS A. TONGOY, Administrator of the
Estate of the late LUIS D. TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental,
Branch V in Special Proceedings No. 7794, entitled: "Intestate Estate of Luis D.
Tongoy," the first dated July 29, 1969 dismissing the Motion for Allowance of
Claim and for an Order of Payment of Taxes by the Government of the Republic
of the Philippines against the Estate of the late Luis D. Tongoy, for deficiency
income taxes for the years 1963 and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise
penalties, and the second, dated October 7, 1969, denying the Motion for
reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969
was filed on June 3, 1969 in the abovementioned special proceedings, (par. 3,
Annex A, Petition, pp. 1920, Rollo). The claim represents the indebtedness to the
Government of the late Luis D. Tongoy for deficiency income taxes in the total
sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-
29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached
Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed
the motion solely on the ground that the claim was barred under Section 5, Rule
86 of the Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp.
23-24, Rollo). Finding the opposition well-founded, the respondent Judge, Jose
F. Fernandez, dismissed the motion for allowance of claim filed by herein
petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated
July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion
for reconsideration was filed, of the order of July 29, 1969, but was denied in an
Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the
government against the estate of Luis D. Tongoy was filed beyond
the period provided in Section 2, Rule 86 of the Rules of Court.

2. The lower court erred in holding that the claim for taxes of the
government was already barred under Section 5, Rule 86 of the
Rules of Court.

which raise the sole issue of whether or not the statute of non-claims Section 5,
Rule 86 of the New Rule of Court, bars claim of the government for unpaid taxes,
still within the period of limitation prescribed in Section 331 and 332 of the
National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid

Oppositions to the Motion for Allowance of Claim, etc. of the petitioners reads as
follows:

All claims for money against the decedent, arising from contracts,
express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice;
otherwise they are barred forever, except that they may be set forth
as counter claims in any action that the executor or administrator
may bring against the claimants. Where the executor or
 administrator commence an action, or prosecutes an action already
commenced by the deceased in his lifetime, the debtor may set forth
may answer the claims he has against the decedents, instead of
presenting them independently to the court has herein provided, and
mutual claims may be set off against each other in such action; and
in final judgment is rendered in favored of the decedent, the amount
to determined shall be considered the true balance against the
estate, as though the claim has been presented directly before the
court in the administration proceedings. Claims not yet due, or
contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims

for monetary obligation of the decedent created by law, such as taxes which is
entirely of different character from the claims expressly enumerated therein, such
as: "all claims for money against the decedent arising from contract, express or
implied, whether the same be due, not due or contingent, all claim for funeral
expenses and expenses for the last sickness of the decedent and judgment for
money against the decedent." Under the familiar rule of statutory construction
of expressio unius est exclusio alterius, the mention of one thing implies the
exclusion of another thing not mentioned. Thus, if a statute enumerates the
things upon which it is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect (Crawford, Statutory
Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant,
et al., G.R. No. L-23081, December 30, 1969, it was held that the assessment,
collection and recovery of taxes, as well as the matter of prescription thereof are
governed by the provisions of the National Internal revenue Code, particularly
Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim
Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal
Revenue, G.R. No. L-10681, March 29, 1958). Even without being specifically
mentioned, the provisions of Section 2 of Rule 86 of the Rules of Court may
reasonably be presumed to have been also in the mind of the Court as not
affecting the aforecited Section of the National Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more
pointedly held that "taxes assessed against the estate of a deceased person ...
need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate." The abolition of the Committee on Claims does not
alter the basic ruling laid down giving exception to the claim for taxes from being
filed as the other claims mentioned in the Rule should be filed before the Court.
Claims for taxes may be collected even after the distribution of the decedent's
estate among his heirs who shall be liable therefor in proportion of their share in
the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's
estate in the form of exception from the application of the statute of non-claims, is
not hard to find. Taxes are the lifeblood of the Government and their prompt and
certain availability are imperious need. (Commissioner of Internal Revenue vs.
Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation
depends the Government ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm or
detriment to the people, in the same manner as private persons may be made to
suffer individually on account of his own negligence, the presumption being that
they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern.
This is the philosophy behind the government's exception, as a general rule, from
the operation of the principle of estoppel. (Republic vs. Caballero, L-27437,
September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and
Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30,
1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April
30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;
Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine
Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance
Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs.
Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez,
Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.)
As already shown, taxes may be collected even after the distribution of the estate
of the decedent among his heirs (Government of the Philippines vs.
Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca
vs. Commissioner of Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra,

citing the last paragraph of Section 315 of the Tax Code payment of income tax
shall be a lien in favor of the Government of the Philippines from the time the
assessment was made by the Commissioner of Internal Revenue until paid with
interests, penalties, etc. By virtue of such lien, this court held that the property of
the estate already in the hands of an heir or transferee may be subject to the
payment of the tax due the estate. A fortiori before the inheritance has passed to
the heirs, the unpaid taxes due the decedent may be collected, even without its
having been presented under Section 2 of Rule 86 of the Rules of Court. It may
truly be said that until the property of the estate of the decedent has vested in the
heirs, the decedent, represented by his estate, continues as if he were still alive,
subject to the payment of such taxes as would be collectible from the estate even
after his death. Thus in the case above cited, the income taxes sought to be
collected were due from the estate, for the three years 1946, 1947 and 1948
following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time
prescribed in Section 2, Rule 86 of the Rules of Court, the claim in question may
be filed even after the expiration of the time originally fixed therein, as may be
gleaned from the italicized portion of the Rule herein cited which reads:

Section 2. Time within which claims shall be filed. - In the notice

provided in the preceding section, the court shall state the time for
the filing of claims against the estate, which shall not be more than
twelve (12) nor less than six (6) months after the date of the first
publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed to
file his claim within the time previously limited the court may, for
cause shown and on such terms as are equitable, allow such claim
to be flied within a time not exceeding one (1) month. (Emphasis
supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim
and for an Order of Payment of Taxes) which, though filed after the expiration of
the time previously limited but before an order of the distribution is entered,
should have been granted by the respondent court, in the absence of any valid
ground, as none was shown, justifying denial of the motion, specially considering
that it was for allowance Of claim for taxes due from the estate, which in effect
represents a claim of the people at large, the only reason given for the denial that
the claim was filed out of the previously limited period, sustaining thereby private
respondents' contention, erroneously as has been demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax

Commissioner's assessment in the total amount of P3,254.80 with 5 % surcharge
and 1 % monthly interest as provided in the Tax Code is a final one and the
respondent estate's sole defense of prescription has been herein overruled, the
Motion for Allowance of Claim is herein granted and respondent estate is ordered
to pay and discharge the same, subject only to the limitation of the interest
collectible thereon as provided by the Tax Code. No pronouncement as to costs.

SO ORDERED.
G.R. No. 140944 April 30, 2008

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator

of the Estate of the deceased JOSE P. FERNANDEZ, petitioner,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision2 dated April 30, 1999 which affirmed the Decision3 of the Court of Tax
Appeals (CTA) dated June 17, 1997.4

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for

the probate of his will5 was filed with Branch 51 of the Regional Trial Court (RTC)
of Manila (probate court).[6] The probate court then appointed retired Supreme
Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael
Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator,
respectively, of the Estate of Jose (Estate). In a letter7 dated October 13, 1988,
Justice Dizon informed respondent Commissioner of the Bureau of Internal
Revenue (BIR) of the special proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the
required estate tax return were granted by the BIR since the assets of the estate,
as well as the claims against it, had yet to be collated, determined and identified.
Thus, in a letter8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M.
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required
estate tax return and to represent the same in securing a Certificate of Tax
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a
letter9 addressed to the BIR Regional Director for San Pablo City and filed the
estate tax return10 with the same BIR Regional Office, showing therein a NIL
estate tax liability, computed as follows:

COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property 3,460,591.34
 (Sch.2)
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL.
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL.
Estate Tax Due NIL.11

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali
issued Certification Nos. 2052[12] and 2053[13] stating that the taxes due on the
transfer of real and personal properties[14] of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime in August 1990, Justice
Dizon passed away. Thus, on October 22, 1990, the probate court appointed
petitioner as the administrator of the Estate.15

Petitioner requested the probate court's authority to sell several properties

forming part of the Estate, for the purpose of paying its creditors, namely:
Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de
Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation
(P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the
Estate was not included, as it did not file a claim with the probate court since it
had security over several real estate properties forming part of the Estate.16

However, on November 26, 1991, the Assistant Commissioner for Collection of

the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No.
FAS-E-87-91-003269,17 demanding the payment of P66,973,985.40 as deficiency
estate tax, itemized as follows:

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48
25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
 non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00
Total amount due & collectible P66,973,985.4018

In his letter19 dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her letter20 dated
April 12, 1994, the BIR Commissioner denied the request and reiterated that the
estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On
May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner
filed a petition for review21 before respondent CTA. Trial on the merits ensued.

As found by the CTA, the respective parties presented the following pieces of
evidence, to wit:

In the hearings conducted, petitioner did not present testimonial evidence

but merely documentary evidence consisting of the following:

Nature of Document (sic) Exhibits

1. Letter dated October 13, 1988 from Arsenio P. "A"
Dizon addressed to the Commissioner of
Internal Revenue informing the latter of the
special proceedings for the settlement of the
estate (p. 126, BIR records);
2. Petition for the probate of the will and issuance "B" & "B-1"
of letter of administration filed with the
Regional Trial Court (RTC) of Manila,
docketed as Sp. Proc. No. 87-42980 (pp. 107-
108, BIR records);
3. Pleading entitled "Compliance" filed with the "C"
probate Court submitting the final inventory of
all the properties of the deceased (p. 106, BIR
records);
4. Attachment to Exh. "C" which is the detailed "C-1" to "C-17"
and complete listing of the properties of the
deceased (pp. 89-105, BIR rec.);
5. Claims against the estate filed by Equitable "D" to "D-24"
Banking Corp. with the probate Court in the
amount of P19,756,428.31 as of March 31,
1988, together with the Annexes to the claim
 (pp. 64-88, BIR records);
6. Claim filed by Banque de L' Indochine et de "E" to "E-3"
Suez with the probate Court in the amount of
US $4,828,905.90 as of January 31, 1988 (pp.
262-265, BIR records);
7. Claim of the Manila Banking Corporation "F" to "F-3"
(MBC) which as of November 7, 1987
amounts to P65,158,023.54, but recomputed
as of February 28, 1989 at a total amount
of P84,199,160.46; together with the demand
letter from MBC's lawyer (pp. 194-197, BIR
records);
8. Demand letter of Manila Banking Corporation "G" & "G-1"
prepared by Asedillo, Ramos and Associates
Law Offices addressed to Fernandez
Hermanos, Inc., represented by Jose P.
Fernandez, as mortgagors, in the total amount
of P240,479,693.17 as of February 28, 1989
(pp. 186-187, BIR records);
9. Claim of State Investment House, Inc. filed "H" to "H-16"
with the RTC, Branch VII of Manila, docketed
as Civil Case No. 86-38599 entitled "State
Investment House, Inc., Plaintiff, versus
Maritime Company Overseas, Inc. and/or Jose
P. Fernandez, Defendants," (pp. 200-215, BIR
records);
10. Letter dated March 14, 1990 of Arsenio P. "I"
Dizon addressed to Atty. Jesus M. Gonzales,
(p. 184, BIR records);
11. Letter dated April 17, 1990 from J.M. Gonzales "J"
addressed to the Regional Director of BIR in
San Pablo City (p. 183, BIR records);
12. Estate Tax Return filed by the estate of the "K" to "K-5"
late Jose P. Fernandez through its authorized
representative, Atty. Jesus M. Gonzales, for
Arsenio P. Dizon, with attachments (pp. 177-
182, BIR records);
13. Certified true copy of the Letter of "L"
Administration issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980 appointing Atty.
 Rafael S. Dizon as Judicial Administrator of
the estate of Jose P. Fernandez; (p. 102, CTA
records) and
14. Certification of Payment of estate taxes Nos. "M" to "M-5"
2052 and 2053, both dated April 27, 1990,
issued by the Office of the Regional Director,
Revenue Region No. 4-C, San Pablo City, with
attachments (pp. 103-104, CTA records.).

Respondent's [BIR] counsel presented on June 26, 1995 one witness

in the person of Alberto Enriquez, who was one of the revenue
examiners who conducted the investigation on the estate tax case of
the late Jose P. Fernandez. In the course of the direct examination of
the witness, he identified the following:

Documents/Signatures BIR Record

1. Estate Tax Return prepared by the BIR; p. 138
2. Signatures of Ma. Anabella Abuloc and Alberto -do-
Enriquez, Jr. appearing at the lower Portion of
Exh. "1";
3. Memorandum for the Commissioner, dated pp. 143-144
July 19, 1991, prepared by revenue
examiners, Ma. Anabella A. Abuloc, Alberto S.
Enriquez and Raymund S. Gallardo; Reviewed
by Maximino V. Tagle
4. Signature of Alberto S. Enriquez appearing at -do-
the lower portion on p. 2 of Exh. "2";
5. Signature of Ma. Anabella A. Abuloc -do-
appearing at the lower portion on p. 2 of Exh.
"2";
6. Signature of Raymund S. Gallardo appearing -do-
at the Lower portion on p. 2 of Exh. "2";
7. Signature of Maximino V. Tagle also -do-
appearing on p. 2 of Exh. "2";
8. Summary of revenue Enforcement Officers p. 139
Audit Report, dated July 19, 1991;
9. Signature of Alberto Enriquez at the lower -do-
portion of Exh. "3";
10. Signature of Ma. Anabella A. Abuloc at the -do-
 lower portion of Exh. "3";
11. Signature of Raymond S. Gallardo at the lower -do-
portion of Exh. "3";
12. Signature of Maximino V. Tagle at the lower -do-
portion of Exh. "3";
13. Demand letter (FAS-E-87-91-00), signed by p. 169
the Asst. Commissioner for Collection for the
Commissioner of Internal Revenue,
demanding payment of the amount
of P66,973,985.40; and
14. Assessment Notice FAS-E-87-91-00 pp. 169-17022

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's
ruling in Vda. de Oñate v. Court of Appeals,23 the CTA opined that the
aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:

Although the above-mentioned documents were not formally offered as evidence

for respondent, considering that respondent has been declared to have waived
the presentation thereof during the hearing on March 20, 1996, still they could be
considered as evidence for respondent since they were properly identified during
the presentation of respondent's witness, whose testimony was duly recorded as
part of the records of this case. Besides, the documents marked as respondent's
exhibits formed part of the BIR records of the case.24

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it
came up with its own computation of the deficiency estate tax, to wit:

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
Add: Capital/Paraphernal
Properties – P44,652,813.66
 Less: Capital/Paraphernal 44,652,813.66
Deductions
Net Taxable Estate P 50,569,821.62
============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
Total deficiency estate tax P 37,419,493.71
============

exclusive of 20% interest from due date of its payment until full payment
thereof

[Sec. 283 (b), Tax Code of 1987].25

Thus, the CTA disposed of the case in this wise:

WHEREFORE, viewed from all the foregoing, the Court finds the petition
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
Fernandez are hereby ordered to pay to respondent the amount
of P37,419,493.71 plus 20% interest from the due date of its payment until
full payment thereof as estate tax liability of the estate of Jose P.
Fernandez who died on November 7, 1987.

SO ORDERED.26

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for

review.27

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with the
BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the
BIR Commissioner of her authority to re-examine or re-assess the said return
filed on behalf of the Estate.28

On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA
denied in its Resolution30 dated November 3, 1999.
Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally

offered by the respondent BIR by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is contrary to the Rules of
Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in recognizing/considering the estate tax return prepared and filed by
respondent BIR knowing that the probate court appointed administrator of
the estate of Jose P. Fernandez had previously filed one as in fact, BIR
Certification Clearance Nos. 2052 and 2053 had been issued in the
estate's favor;

3. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in disallowing the valid and enforceable claims of creditors against the
estate, as lawful deductions despite clear and convincing evidence thereof;
and

4. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in validating erroneous double imputation of values on the very same
estate properties in the estate tax return it prepared and filed which
effectively bloated the estate's assets.31

The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due; that the lack of a
formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda.
de Oñate has already been abandoned in a long line of cases in which the Court
held that evidence not formally offered is without any weight or value; that
Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of
evidence is mandatory in character; that, while BIR's witness Alberto Enriquez
(Alberto) in his testimony before the CTA identified the pieces of evidence
aforementioned such that the same were marked, BIR's failure to formally offer
said pieces of evidence and depriving petitioner the opportunity to cross-examine
Alberto, render the same inadmissible in evidence; that assuming arguendo that
the ruling in Vda. de Oñate is still applicable, BIR failed to comply with the
doctrine's requisites because the documents herein remained simply part of the
BIR records and were not duly incorporated in the court records; that the BIR
failed to consider that although the actual payments made to the Estate creditors
were lower than their respective claims, such were compromise agreements
reached long after the Estate's liability had been settled by the filing of its estate
tax return and the issuance of BIR Certification Nos. 2052 and 2053; and that the
reckoning date of the claims against the Estate and the settlement of the estate
tax due should be at the time the estate tax return was filed by the judicial
administrator and the issuance of said BIR Certifications and not at the time the
aforementioned Compromise Agreements were entered into with the Estate's
creditors.32

On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are
considered evidence even if the same were not formally offered; that the filing of
the estate tax return by the Estate and the issuance of BIR Certification Nos.
2052 and 2053 did not deprive the BIR of its authority to examine the return and
assess the estate tax; and that the factual findings of the CTA as affirmed by the
CA may no longer be reviewed by this Court via a petition for review. 33

The Issues

There are two ultimate issues which require resolution in this case:

First. Whether or not the CTA and the CA gravely erred in allowing the admission
of the pieces of evidence which were not formally offered by the BIR; and

Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.

The Court’s Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of

record. As cases filed before it are litigated de novo, party-litigants shall prove
every minute aspect of their cases. Indubitably, no evidentiary value can be given
the pieces of evidence submitted by the BIR, as the rules on documentary
evidence require that these documents must be formally offered before the
CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which
reads:

SEC. 34. Offer of evidence. — The court shall consider no evidence which
has not been formally offered. The purpose for which the evidence is
offered must be specified.

The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated
this Court's previous rulings in People v. Napat-a35 and People v. Mate36 on the
admission and consideration of exhibits which were not formally offered during
the trial. Although in a long line of cases many of which were decided after Vda.
de Oñate, we held that courts cannot consider evidence which has not been
formally offered,37 nevertheless, petitioner cannot validly assume that the doctrine
laid down in Vda. de Oñate has already been abandoned. Recently, in Ramos v.
Dizon,38 this Court, applying the said doctrine, ruled that the trial court judge
therein committed no error when he admitted and considered the respondents'
exhibits in the resolution of the case, notwithstanding the fact that the same were
not formally offered. Likewise, in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,39 the Court made reference to said doctrine
in resolving the issues therein. Indubitably, the doctrine laid down in Vda. De
Oñate still subsists in this jurisdiction. In Vda. de Oñate, we held that:

From the foregoing provision, it is clear that for evidence to be considered,

the same must be formally offered. Corollarily, the mere fact that a
particular document is identified and marked as an exhibit does not mean
that it has already been offered as part of the evidence of a party.
In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion
to make a distinction between identification of documentary evidence and
its formal offer as an exhibit. We said that the first is done in the course of
the trial and is accompanied by the marking of the evidence as an exhibit
while the second is done only when the party rests its case and not before.
A party, therefore, may opt to formally offer his evidence if he believes that
it will advance his cause or not to do so at all. In the event he chooses to
do the latter, the trial court is not authorized by the Rules to consider the
same.

However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103
SCRA 484], we relaxed the foregoing rule and allowed evidence not
formally offered to be admitted and considered by the trial court
provided the following requirements are present, viz.: first, the same
must have been duly identified by testimony duly recorded and,
second, the same must have been incorporated in the records of the
case.40

From the foregoing declaration, however, it is clear that Vda. de Oñate is merely
an exception to the general rule. Being an exception, it may be applied only when
there is strict compliance with the requisites mentioned therein; otherwise, the
general rule in Section 34 of Rule 132 of the Rules of Court should prevail.

In this case, we find that these requirements have not been satisfied. The
assailed pieces of evidence were presented and marked during the trial
particularly when Alberto took the witness stand. Alberto identified these pieces
of evidence in his direct testimony.41 He was also subjected to cross-examination
and re-cross examination by petitioner.42 But Alberto’s account and the
exchanges between Alberto and petitioner did not sufficiently describe the
contents of the said pieces of evidence presented by the BIR. In fact, petitioner
sought that the lead examiner, one Ma. Anabella A. Abuloc, be summoned to
testify, inasmuch as Alberto was incompetent to answer questions relative to the
working papers.43 The lead examiner never testified. Moreover, while Alberto's
testimony identifying the BIR's evidence was duly recorded, the BIR documents
themselves were not incorporated in the records of the case.

A common fact threads through Vda. de Oñate and Ramos that does not exist at
all in the instant case. In the aforementioned cases, the exhibits were marked at
the pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:

In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked during
the pre-trial of the case thus, they have been incorporated into the
records. Further, Elpidio himself explained the contents of these exhibits
when he was interrogated by respondents' counsel...

xxxx

But what further defeats petitioner's cause on this issue is that

respondents' exhibits were marked and admitted during the pre-trial stage
as shown by the Pre-Trial Order quoted earlier.44

While the CTA is not governed strictly by technical rules of evidence,45 as rules of
procedure are not ends in themselves and are primarily intended as tools in the
administration of justice, the presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's claims
against the Estate.46 The BIR's failure to formally offer these pieces of evidence,
despite CTA's directives, is fatal to its cause.47 Such failure is aggravated by the
fact that not even a single reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence48 in the
hearing of February 21, 1996, but BIR's counsel failed to appear.49 The CTA
denied petitioner's motion to consider BIR's presentation of evidence as waived,
with a warning to BIR that such presentation would be considered waived if BIR's
evidence would not be presented at the next hearing. Again, in the hearing of
March 20, 1996, BIR's counsel failed to appear.50 Thus, in its Resolution51 dated
March 21, 1996, the CTA considered the BIR to have waived presentation of its
evidence. In the same Resolution, the parties were directed to file their
respective memorandum. Petitioner complied but BIR failed to do so.52 In all of
these proceedings, BIR was duly notified. Hence, in this case, we are
constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:53

A formal offer is necessary because judges are mandated to rest their

findings of facts and their judgment only and strictly upon the evidence
offered by the parties at the trial. Its function is to enable the trial judge to
know the purpose or purposes for which the proponent is presenting the
evidence. On the other hand, this allows opposing parties to examine the
evidence and object to its admissibility. Moreover, it facilitates review as
the appellate court will not be required to review documents not previously
scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court
in Constantino v. Court of Appeals ruled that the formal offer of one's
evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit
an offer of evidence made after a lapse of three (3) months because
to do so would "condone an inexcusable laxity if not non-compliance
with a court order which, in effect, would encourage needless delays
and derail the speedy administration of justice."

Applying the aforementioned principle in this case, we find that the trial
court had reasonable ground to consider that petitioners had waived their
right to make a formal offer of documentary or object evidence. Despite
several extensions of time to make their formal offer, petitioners failed to
comply with their commitment and allowed almost five months to lapse
before finally submitting it. Petitioners' failure to comply with the rule on
admissibility of evidence is anathema to the efficient, effective, and
expeditious dispensation of justice.

Having disposed of the foregoing procedural issue, we proceed to discuss the

merits of the case.

Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest
respect and will not be disturbed on appeal unless it is shown that the lower
courts committed gross error in the appreciation of facts.54 In this case, however,
we find the decision of the CA affirming that of the CTA tainted with palpable
error.

It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. As a mode of extinguishing an obligation,55 condonation or remission
of debt56 is defined as:
 an act of liberality, by virtue of which, without receiving any equivalent, the
creditor renounces the enforcement of the obligation, which is extinguished
in its entirety or in that part or aspect of the same to which the remission
refers. It is an essential characteristic of remission that it be gratuitous, that
there is no equivalent received for the benefit given; once such equivalent
exists, the nature of the act changes. It may become dation in payment
when the creditor receives a thing different from that stipulated; or
novation, when the object or principal conditions of the obligation should
be changed; or compromise, when the matter renounced is in litigation or
dispute and in exchange of some concession which the creditor receives.57

Verily, the second issue in this case involves the construction of Section 7958 of
the National Internal Revenue Code59 (Tax Code) which provides for the
allowable deductions from the gross estate of the decedent. The specific
question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that the
said claims were reduced or condoned through compromise agreements entered
into by the Estate with its creditors.

"Claims against the estate," as allowable deductions from the gross estate under
Section 79 of the Tax Code, are basically a reproduction of the deductions
allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA
466), otherwise known as the National Internal Revenue Code of 1939, and
which was the first codification of Philippine tax laws. Philippine tax laws were, in
turn, based on the federal tax laws of the United States. Thus, pursuant to
established rules of statutory construction, the decisions of American courts
construing the federal tax code are entitled to great weight in the interpretation of
our own tax laws.60

It is noteworthy that even in the United States, there is some dispute as to

whether the deductible amount for a claim against the estate is fixed as of the
decedent's death which is the general rule, or the same should be adjusted to
reflect post-death developments, such as where a settlement between the parties
results in the reduction of the amount actually paid.61 On one hand, the U.S. court
ruled that the appropriate deduction is the "value" that the claim had at the date
of the decedent's death.62 Also, as held in Propstra v. U.S., 63 where a lien
claimed against the estate was certain and enforceable on the date of the
decedent's death, the fact that the claimant subsequently settled for lesser
amount did not preclude the estate from deducting the entire amount of the claim
for estate tax purposes. These pronouncements essentially confirm the general
principle that post-death developments are not material in determining the
amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-death
settlement should be taken into consideration and the claim should be allowed as
a deduction only to the extent of the amount actually paid.64 Recognizing the
dispute, the Service released Proposed Regulations in 2007 mandating that the
deduction would be limited to the actual amount paid.65

In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals
held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly

apply the Ithaca Trust date-of-death valuation principle to enforceable
claims against the estate. As we interpret Ithaca Trust, when the Supreme
Court announced the date-of-death valuation principle, it was making a
judgment about the nature of the federal estate tax specifically, that it is a
tax imposed on the act of transferring property by will or intestacy and,
because the act on which the tax is levied occurs at a discrete time, i.e.,
the instance of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of that time. This analysis supports
broad application of the date-of-death valuation rule.67

We express our agreement with the date-of-death valuation rule, made pursuant
to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States.68 First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the
net value of the estate. It bears emphasis that tax burdens are not to be imposed,
nor presumed to be imposed, beyond what the statute expressly and clearly
imports, tax statutes being construed strictissimi juris against the
government.69 Any doubt on whether a person, article or activity is taxable is
generally resolved against taxation.70 Second. Such construction finds relevance
and consistency in our Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased before
his death.71 Therefore, the claims existing at the time of death are significant to,
and should be made the basis of, the determination of allowable deductions.

WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed

Decision dated April 30, 1999 and the Resolution dated November 3, 1999 of the
Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE.
The Bureau of Internal Revenue's deficiency estate tax assessment against the
Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.

G.R. No. L-68385 May 12, 1989

ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate

of the late WARREN TAYLOR GRAHAM, petitioner
vs.
HON. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE respondents.

Agrava, Lucero & Gineta for petitioners.

The Office of the Solictor General for public respondents.

CRUZ, J.:

What the petitioner presents as a rather complicated problem is in reality a very

simple question from the viewpoint of the Solicitor General. We agree with the
latter. There is actually only one issue to be resolved in this action. That issue is
whether or not the respondent Court of Tax Appeals erred in dismissing the
petitioner's appeal on grounds of jurisdiction and lack of a cause of action.

Appeal from what? That indeed is the question.

But first the facts.

On March 14, 1976, Warren Taylor Graham, an American national formerly

resident in the Philippines, died in Oregon, U.S.A. 1 As he left certain shares of
stock in the Philippines, his son, Ward Graham, filed an estate tax return on
September 16, 1976, with the Philippine Revenue Representative in San
Francisco, U.S.A. 2

On the basis of this return, the respondent Commissioner of Internal Revenue

assessed the decedent's estate an estate tax in the amount of P96,509.35 on
February 9, 1978.3 This assessment was protested on March 7, 1978, by the law
firm of Bump, Young and Walker on behalf of the estate . 4 The protest was
denied by the Commissioner on July 7, 1978.5 No further action was taken by the
estate in pursuit of that protest.
Meanwhile, on January 18, 1977, the decedent's will had been admitted to
probate in the Circuit Court of Oregon 6 Ward Graham, the designated executor,
then appointed Ildefonso Elegado, the herein petitioner, as his attorney-in-fact for
the allowance of the will in the Philippines.7

Pursuant to such authority, the petitioner commenced probate proceedings in the

Court of First Instance of Rizal. 8 The will was allowed on December 18, 1978,
with the petitioner as ancillary administrator. 9 As such, he filed a second estate
tax return with the Bureau of Internal Revenue on June 4, 1980.10

On the basis of this second return, the Commissioner imposed an assessment

on the estate in the amount of P72,948.87.11 This was protested on behalf of the
estate by the Agrava, Lucero and Gineta Law Office on August 13, 1980.12

While this protest was pending, the Commissioner filed in the probate
proceedings a motion for the allowance of the basic estate tax of P96,509.35 as
assessed on February 9, 1978.13 He said that this liability had not yet been paid
although the assessment had long become final and executory.

The petitioner regarded this motion as an implied denial of the protest filed on
August 13, 1980, against the second assessment of P72,948.87.14 On this
understanding, he filed on September 15, 1981, a petition for review with the
Court of Tax Appeals challenging the said assessment. 15

The Commissioner did not immediately answer (in fact, as the petitioner
stressed, no answer was filed during a delay of 195 days) and in the end instead
cancelled the protested assessment in a letter to the decedent's estate dated
March 31, 1982.16 This cancellation was notified to the Court of Tax Appeals in a
motion to dismiss on the ground that the protest had become moot and
academic.17

The motion was granted and the petition dismissed on April 25, 1984.18 The
petitioner then came to this Court on certiorari under Rule 45 of the Rules of
Court.

The petitioner raises three basic questions, to wit, (1) whether the shares of
stocks left by the decedent should be treated as his exclusive, and not conjugal,
property; (2) whether the said stocks should be assessed as of the time of the
owner's death or six months thereafter; and (3) whether the appeal filed with the
respondent court should be considered moot and academic.

We deal first with the third issue as it is decisive of this case.

In the letter to the decedent's estate dated March 31, 1982, the Commissioner of
Internal Revenue wrote as follows:

Estate of WARREN T. GRAHAM c/o Mr. ILDEFENSO O. ELEGADO Ancillary

Administrator Philex Building cor. Brixton & Fairlane Sts. Pasig, Metro Manila

Sir:

This is with regard to the estate of the late WARREN TAYLOR

GRAHAM, who died a resident of Oregon, U.S.A. on March 14,
1976. It appears that two (2) letters of demand were issued by this
Bureau. One is for the amount of P96,509.35 based on the first
return filed, and the other in the amount of P72,948.87, based on the
second return filed.

It appears that the first assessment of P96,509.35 was issued on

February 9, 1978 on the basis of the estate tax return filed on
September 16, 1976. The said assessment was, however, protested
in a letter dated March 7, 1978 but was denied on July 7, 1978.
Since no appeal was made within the regulatory period, the same
has become final.

In view thereof, it is requested that you settle the aforesaid

assessment for P96,509.35 within fifteen (15) days upon receipt
hereof to the Receivable Accounts Division, this Bureau, BIR
National Office Building, Diliman, Quezon City. The assessment for
P72,949.57 dated July 3, 1980, referred to above is hereby
cancelled.

Very truly yours,

(SGD.) RUBEN B. ANCHETA Acting Commissioner 19

It is obvious from the express cancellation of the second assessment for

P72,948.87 that the petitioner had been deprived of a cause of action as it was
precisely from this assessment that he was appealing.

In its decision, the Court of Tax Appeals said that the petition questioning the
assessment of July 3, 1980, was "premature" since the protest to the
assessment had not yet been resolved.20 As a matter of fact it had: the said
assessment had been cancelled by virtue of the above-quoted letter. The
respondent court was on surer ground, however, when it followed with the finding
that the said cancellation had rendered the petition moot and academic. There
was really no more assessment to review.

The petitioner argues that the issuance of the second assessment on July 3,
1980, had the effect of canceling the first assessment of February 9, 1978, and
that the subsequent cancellation of the second assessment did not have the
effect of automatically reviving the first. Moreover, the first assessment is not
binding on him because it was based on a return filed by foreign lawyers who
had no knowledge of our tax laws or access to the Court of Tax Appeals.

The petitioner is clutching at straws.

It is noted that in the letter of July 3, 1980, imposing the second assessment of
P72,948.87, the Commissioner made it clear that "the aforesaid amount is
considered provisional only based on the estate tax return filed subject to
investigation by this Office for final determination of the correct estate tax due
from the estate. Any amount that may be found due after said investigation will
be assessed and collected later." 21 It is illogical to suggest that
a provisional assessment can supersede an earlier assessment which had
clearly become final and executory.

The second contention is no less flimsy. The petitioner cannot be serious when
he argues that the first assessment was invalid because the foreign lawyers who
filed the return on which it was based were not familiar with our tax laws and
procedure. Is the petitioner suggesting that they are excused from compliance
therewith because of their ignorance?

If our own lawyers and taxpayers cannot claim a similar preference because they
are not allowed to claim a like ignorance, it stands to reason that foreigners
cannot be any less bound by our own laws in our own country. A more obvious
and shallow discrimination than that suggested by the petitioner is indeed difficult
to find.

But the most compelling consideration in this case is the fact that the first
assessment is already final and executory and can no longer be questioned at
this late hour. The assessment was made on February 9, 1978. It was protested
on March 7, 1978. The protest was denied on July 7, 1978. As no further action
was taken thereon by the decedent's estate, there is no question that the
assessment has become final and executory.

In fact, the law firm that had lodged the protest appears to have accepted its
denial. In his motion with the probate court, the respondent Commissioner
stressed that "in a letter dated January 29, 1980, the Estate of Warren Taylor
Graham thru the aforesaid foreign law firm informed claimant that they have paid
said tax liability thru the Agrava, Velarde, Lucero and Puno, Philippine law firm of
313 Buendia Avenue Ext., Makati, Metro Manila that initiated the instant ancillary
proceedings" although he added that such payment had not yet been
received.22 This letter was an acknowledgment by the estate of the validity and
finality of the first assessment. Significantly, it has not been denied by the
petitioner.

In view of the finality of the first assessment, the petitioner cannot now raise the
question of its validity before this Court any more than he could have done so
before the Court of Tax Appeals. What the estate of the decedent should have
done earlier, following the denial of its protest on July 7, 1978, was to appeal to
the Court of Tax Appeals within the reglementary period of 30 days after it
received notice of said denial. It was in such appeal that the petitioner could then
have raised the first two issues he now raises without basis in the present
petition.

The question of whether or not the shares of stock left by the decedent should be
considered conjugal property or belonging to him alone is immaterial in these
proceedings. So too is the time at which the assessment of these shares of stock
should have been made by the BIR. These questions were not resolved by the
Court of Tax Appeals because it had no jurisdiction to act on the petitioner's
appeal from an assessment that had already been cancelled. The assessment
being no longer controversial or reviewable, there was no justification for the
respondent court to rule on the petition except to dismiss it.

If indeed the Commissioner of Internal Revenue committed an error in the

computation of the estate tax, as the petitioner insists, that error can no longer be
rectified because the original assessment has long become final and executory.
If that assessment was not challenged on time and in accordance with the
prescribed procedure, that error — for error it was — was committed not by the
respondents but by the decedent's estate itself which the petitioner represents.
So how can he now complain.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so

ordered,

G.R. No. 120880 June 5, 1997

FERDINAND R. MARCOS II, petitioner,
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.

TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again

assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the Decision 1 of
the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where
the said court held:

In view of all the foregoing, we rule that the deficiency income tax
assessments and estate tax assessment, are already final and
(u)nappealable-and-the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by Section 213
and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not affected or
precluded by the pendency of any other tax remedies instituted by
the government.

WHEREFORE, premises considered, judgment is hereby rendered

DISMISSING the petition for certiorari with prayer for Restraining
Order and Injunction.

No pronouncements as to costs.

SO ORDERED.

More than seven years since the demise of the late Ferdinand E. Marcos, the
former President of the Republic of the Philippines, the matter of the settlement
of his estate, and its dues to the government in estate taxes, are still unresolved,
the latter issue being now before this Court for resolution. Specifically, petitioner
Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations
of the respondent Commissioner of Internal Revenue in assessing, and collecting
through the summary remedy of Levy on Real Properties, estate and income tax
delinquencies upon the estate and properties of his father, despite the pendency
of the proceedings on probate of the will of the late president, which is docketed
as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition
for Certiorari and Prohibition with an application for writ of preliminary injunction
and/or temporary restraining order on June 28, 1993, seeking to —

I. Annul and set aside the Notices of Levy on real property dated
February 22, 1993 and May 20, 1993, issued by respondent
Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II

(Collection Service), from proceeding with the Auction of the real
properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its
Decision 2 on November 29, 1994, ruling that the deficiency assessments for
estate and income tax made upon the petitioner and the estate of the deceased
President Marcos have already become final and unappealable, and may thus be
enforced by the summary remedy of levying upon the properties of the late
President, as was done by the respondent Commissioner of Internal Revenue.

WHEREFORE, premises considered judgment is hereby rendered

DISMISSING the petition for Certiorari with prayer for Restraining
Order and Injunction.

No pronouncements as to cost.

SO ORDERED.

Unperturbed, petitioner is now before us assailing the validity of the appellate

court's decision, assigning the following as errors:

A. RESPONDENT COURT MANIFESTLY ERRED IN RULING

THAT THE SUMMARY TAX REMEDIES RESORTED TO BY THE
GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE
PENDENCY OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO
THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY
PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE
COURT TO THE EXCLUSION OF ALL OTHER COURTS AND
ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN
SWEEPINGLY DECIDING THAT SINCE THE TAX ASSESSMENTS
OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME
FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO
INTO THE MERITS OF THE GROUNDS CITED IN THE PETITION.
INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD
ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD
IN WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY
RESPONDENTS COMMISSIONER AND DE GUZMAN. THUS,
RESPONDENT COURT SHOULD HAVE FAVORABLY
CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS IN
THE PETITION:

(1) The Notices of Levy on Real Property were issued

beyond the period provided in the Revenue
Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning

the late President's ownership or interests in several
properties (both personal and real) make the total value
of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time.
Thus, respondents' assessment of the estate tax and
their issuance of the Notices of Levy and Sale are
premature, confiscatory and oppressive.

[b] Petitioner, as one of the late President's compulsory

heirs, was never notified, much less served with copies
of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never
given an opportunity to contest the Notices in violation
of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION,

RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT
IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO
PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING,
COURTS POSSESS THE POWER TO ISSUE A WRIT OF
PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS
COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD
OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND
INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby
adopted:

On September 29, 1989, former President Ferdinand Marcos died in

Honolulu, Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to

conduct investigations and examinations of the tax liabilities and
obligations of the late president, as well as that of his family,
associates and "cronies". Said audit team concluded its investigation
with a Memorandum dated July 26, 1991. The investigation
disclosed that the Marcoses failed to file a written notice of the death
of the decedent, an estate tax returns [sic], as well as several
income tax returns covering the years 1982 to 1986, — all in
violation of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R.

Marcos before the Regional Trial of Quezon City for violations of
Sections 82, 83 and 84 (has penalized under Sections 253 and 254
in relation to Section 252 — a & b) of the National Internal Revenue
Code (NIRC).

The Commissioner of Internal Revenue thereby caused the

preparation and filing of the Estate Tax Return for the estate of the
late president, the Income Tax Returns of the Spouses Marcos for
the years 1985 to 1986, and the Income Tax Returns of petitioner
Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate
tax assessment no. FAC-2-89-91-002464 (against the estate of the
late president Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment
no. FAC-1-85-91-002452 and Deficiency income tax assessment no.
FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda
Marcos in the amounts of P149,551.70 and P184,009,737.40
representing deficiency income tax for the years 1985 and 1986); (3)
Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand "Bongbong"
Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos;
P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency
income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the
deficiency estate and income tax assessments were all personally
and constructively served on August 26, 1991 and September 12,
1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez)
at her last known address at No. 204 Ortega St., San Juan, M.M.
(Annexes "D" and "E" of the Petition). Likewise, copies of the
deficiency tax assessments issued against petitioner Ferdinand
"Bongbong" Marcos II were also personally and constructively
served upon him (through his caretaker) on September 12, 1991, at
his last known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the
Petition). Thereafter, Formal Assessment notices were served on
October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City.
Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly
authorized representative or counsel), to a conference, was
furnished the counsel of Mrs. Marcos, Dean Antonio Coronel — but
to no avail.

The deficiency tax assessments were not protested administratively,

by Mrs. Marcos and the other heirs of the late president, within 30
days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two

notices of levy on real property against certain parcels of land owned
by the Marcoses — to satisfy the alleged estate tax and deficiency
income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were
issued for the purpose of satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property
were again issued. The foregoing tax remedies were resorted to
pursuant to Sections 205 and 213 of the National Internal Revenue
Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata
(counsel of herein petitioner) calling the attention of the BIR and
requesting that they be duly notified of any action taken by the BIR
affecting the interest of their client Ferdinand "Bongbong" Marcos II,
as well as the interest of the late president — copies of the aforesaid
notices were, served on April 7, 1993 and on June 10, 1993, upon
 Mrs. Imelda Marcos, the petitioner, and their counsel of record, "De
Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office".

Notices of sale at public auction were posted on May 26, 1993, at

the lobby of the City Hall of Tacloban City. The public auction for the
sale of the eleven (11) parcels of land took place on July 5, 1993.
There being no bidder, the lots were declared forfeited in favor of the
government.

On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed

the instant petition for certiorari and prohibition under Rule 65 of the
Rules of Court, with prayer for temporary restraining order and/or
writ of preliminary injunction.

It has been repeatedly observed, and not without merit, that the enforcement of
tax laws and the collection of taxes, is of paramount importance for the
sustenance of government. Taxes are the lifeblood of the government and should
be collected without unnecessary hindrance. However, such collection should be
made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved. 3

Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the
Court's inquiry.

Petitioner posits that notices of levy, notices of sale, and subsequent sale of
properties of the late President Marcos effected by the BIR are null and void for
disregarding the established procedure for the enforcement of taxes due upon
the estate of the deceased. The case of Domingo vs. Garlitos 4 is specifically
cited to bolster the argument that "the ordinary procedure by which to settle
claims of indebtedness against the estate of a deceased, person, as in an
inheritance (estate) tax, is for the claimant to present a claim before the probate
court so that said court may order the administrator to pay the amount therefor."
This remedy is allegedly, exclusive, and cannot be effected through any other
means.

Petitioner goes further, submitting that the probate court is not precluded from
denying a request by the government for the immediate payment of taxes, and
should order the payment of the same only within the period fixed by the probate
court for the payment of all the debts of the decedent. In this regard, petitioner
cites the case of Collector of Internal Revenue vs. The Administratrix of the
Estate of Echarri (67 Phil 502), where it was held that:

The case of Pineda vs. Court of First Instance of Tayabas and

Collector of Internal Revenue (52 Phil 803), relied upon by the
petitioner-appellant is good authority on the proposition that the
court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for
taxes due and to order the administrator to pay the tax should it find
that the assessment was proper, and that the tax was legal, due and
collectible. And the rule laid down in that case must be understood in
relation to the case of Collector of Customs vs. Haygood, supra., as
to the procedure to be followed in a given case by the government to
effectuate the collection of the tax. Categorically stated, where
during the pendency of judicial administration over the estate of a
deceased person a claim for taxes is presented by the government,
the court has the authority to order payment by the administrator;
but, in the same way that it has authority to order payment or
satisfaction, it also has the negative authority to deny the same.
While there are cases where courts are required to perform certain
duties mandatory and ministerial in character, the function of the
court in a case of the present character is not one of them; and here,
the court cannot be an organism endowed with latitude of judgment
in one direction, and converted into a mere mechanical contrivance
in another direction.

On the other hand, it is argued by the BIR, that the state's authority to collect
internal revenue taxes is paramount. Thus, the pendency of probate proceedings
over the estate of the deceased does not preclude the assessment and
collection, through summary remedies, of estate taxes over the same. According
to the respondent, claims for payment of estate and income taxes due and
assessed after the death of the decedent need not be presented in the form of a
claim against the estate. These can and should be paid immediately. The
probate court is not the government agency to decide whether an estate is liable
for payment of estate of income taxes. Well-settled is the rule that the probate
court is a court with special and limited jurisdiction.

Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling
thing. The court's jurisdiction, once invoked, and made effective, cannot be
treated with indifference nor should it be ignored with impunity by the very parties
invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person by his prospective
heirs before final adjudication; 5 to determine who are the heirs of the
decedent; 6 the recognition of a natural child; 7 the status of a woman claiming to
be the legal wife of the decedent; 8 the legality of disinheritance of an heir by the
testator; 9 and to pass upon the validity of a waiver of hereditary rights. 10

The pivotal question the court is tasked to resolve refers to the authority of the
Bureau of Internal Revenue to collect by the summary remedy of levying upon,
and sale of real properties of the decedent, estate tax deficiencies, without the
cognition and authority of the court sitting in probate over the supposed will of the
deceased.

The nature of the process of estate tax collection has been described as follows:

Strictly speaking, the assessment of an inheritance tax does not

directly involve the administration of a decedent's estate, although it
may be viewed as an incident to the complete settlement of an
estate, and, under some statutes, it is made the duty of the probate
court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of
decedent, nor is it a claim against the estate as such, but it is against
the interest or property right which the heir, legatee, devisee, etc.,
has in the property formerly held by decedent. Further, under some
statutes, it has been held that it is not a suit or controversy between
the parties, nor is it an adversary proceeding between the state and
the person who owes the tax on the inheritance. However, under
other statutes it has been held that the hearing and determination of
the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem. 11

In the Philippine experience, the enforcement and collection of estate tax, is

executive in character, as the legislature has seen it fit to ascribe this task to the
Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code
attests to this:

Sec. 3. Powers and duties of the Bureau. — The powers and duties
of the Bureau of Internal Revenue shall comprehend the
assessment and collection of all national internal revenue taxes,
fees, and charges, and the enforcement of all forfeitures, penalties,
and fines connected therewith, including the execution of judgments
in all cases decided in its favor by the Court of Tax Appeals and the
 ordinary courts. Said Bureau shall also give effect to and administer
the supervisory and police power conferred to it by this Code or
other laws.

Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal
treatment of claims for taxes charged against the estate of the decedent. Such
taxes, we said, were exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding, immortalized in the
maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei
publicae — taxes are the sinews of the state.

Taxes assessed against the estate of a deceased person, after

administration is opened, need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its
control over the administrator, the court may direct the payment of
such taxes upon motion showing that the taxes have been assessed
against the estate.

Such liberal treatment of internal revenue taxes in the probate proceedings

extends so far, even to allowing the enforcement of tax obligations against the
heirs of the decedent, even after distribution of the estate's properties.

Claims for taxes, whether assessed before or after the death of the
deceased, can be collected from the heirs even after the distribution
of the properties of the decedent. They are exempted from the
application of the statute of non-claims. The heirs shall be liable
therefor, in proportion to their share in the inheritance. 13

Thus, the Government has two ways of collecting the taxes in

question. One, by going after all the heirs and collecting from each
one of them the amount of the tax proportionate to the inheritance
received. Another remedy, pursuant to the lien created by Section
315 of the Tax Code upon all property and rights to property belong
to the taxpayer for unpaid income tax, is by subjecting said property
of the estate which is in the hands of an heir or transferee to the
payment of the tax due the estate. (Commissioner of Internal
Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued that
the Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to seek
first the probate court's sanction. There is nothing in the Tax Code, and in the
pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same
can be enforced and collected.

On the contrary, under Section 87 of the NIRC, it is the probate or settlement

court which is bidden not to authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any party interested in the
estate, unless it is shown a Certification by the Commissioner of Internal
Revenue that the estate taxes have been paid. This provision disproves the
petitioner's contention that it is the probate court which approves the assessment
and collection of the estate tax.

If there is any issue as to the validity of the BIR's decision to assess the estate
taxes, this should have been pursued through the proper administrative and
judicial avenues provided for by law.

Section 229 of the NIRC tells us how:

Sec. 229. Protesting of assessment. — When the Commissioner of

Internal Revenue or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of
his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the Commissioner shall issue an
assessment based on his findings.

Such assessment may be protested administratively by filing a

request for reconsideration or reinvestigation in such form and
manner as may be prescribed by implementing regulations within
(30) days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association

or corporation adversely affected by the decision on the protest may
appeal to the Court of Tax Appeals within thirty (30) days from
receipt of said decision; otherwise, the decision shall become final,
executory and demandable. (As inserted by P.D. 1773)

Apart from failing to file the required estate tax return within the time required for
the filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left by
President Marcos.

Petitioner submits, however, that "while the assessment of taxes may have been
validly undertaken by the Government, collection thereof may have been done in
violation of the law. Thus, the manner and method in which the latter is enforced
may be questioned separately, and irrespective of the finality of the former,
because the Government does not have the unbridled discretion to enforce
collection without regard to the clear provision of law." 14

Petitioner specifically points out that applying Memorandum Circular No. 38-68,
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the
BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed
period, and are therefore null and void:

. . . the Notices of Levy on Real Property (Annexes O to NN of

Annex C of this Petition) in satisfaction of said assessments were
still issued by respondents well beyond the period mandated in
Revenue Memorandum Circular No. 38-68. These Notices of Levy
were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last
service of tax assessment on 12 September 1991. As no notices of
distraint of personal property were first issued by respondents, the
latter should have complied with Revenue Memorandum Circular
No. 38-68 and issued these Notices of Levy not earlier than three (3)
months nor later than six (6) months from 12 September 1991. In
accordance with the Circular, respondents only had until 12 March
1992 (the last day of the sixth month) within which to issue these
Notices of Levy. The Notices of Levy, having been issued beyond
the period allowed by law, are thus void and of no effect. 15

We hold otherwise. The Notices of Levy upon real property were issued within
the prescriptive period and in accordance with the provisions of the present Tax
Code. The deficiency tax assessment, having already become final, executory,
and demandable, the same can now be collected through the summary remedy
of distraint or levy pursuant to Section 205 of the NIRC.

The applicable provision in regard to the prescriptive period for the assessment
and collection of tax deficiency in this instance is Article 223 of the NIRC, which
pertinently provides:

Sec. 223. Exceptions as to a period of limitation of assessment and

collection of taxes. — (a) In the case of a false or fraudulent return
 with intent to evade tax or of a failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may
be begun without assessment, at any time within ten (10) years after
the discovery of the falsity, fraud, or omission: Provided, That, in a
fraud assessment which has become final and executory, the fact of
fraud shall be judicially taken cognizance of in the civil or criminal
action for the collection thereof.

xxx xxx xxx

(c) Any internal revenue tax which has been assessed within the
period of limitation above prescribed, may be collected by distraint or
levy or by a proceeding in court within three years following the
assessment of the tax.

xxx xxx xxx

The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal to the petitioner's cause, as
under the above-cited provision, in case of failure to file a return, the tax may be
assessed at any time within ten years after the omission, and any tax so
assessed may be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax assessment had
become final and unappealable by the petitioner's default as regards protesting
the validity of the said assessment, there is now no reason why the BIR cannot
continue with the collection of the said tax. Any objection against the assessment
should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.

Petitioner further argues that "the numerous pending court cases questioning the
late president's ownership or interests in several properties (both real and
personal) make the total value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of Levy and sale
are premature and oppressive." He points out the pendency of Sandiganbayan
Civil Case Nos. 0001-0034 and 0141, which were filed by the government to
question the ownership and interests of the late President in real and personal
properties located within and outside the Philippines. Petitioner, however, omits
to allege whether the properties levied upon by the BIR in the collection of estate
taxes upon the decedent's estate were among those involved in the said cases
pending in the Sandiganbayan. Indeed, the court is at a loss as to how these
cases are relevant to the matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.

Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the
findings of the Department of Justice's Panel of Prosecutors as per its resolution
of 20 September 1991. Allegedly, this is clear evidence of the uncertainty on the
part of the Government as to the total value of the estate of the late President.

This is, to our mind, the petitioner's last ditch effort to assail the assessment of
estate tax which had already become final and unappealable.

It is not the Department of Justice which is the government agency tasked to

determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue, 16 whose determinations and assessments are presumed
correct and made in good faith. 17 The taxpayer has the duty of proving otherwise.
In the absence of proof of any irregularities in the performance of official duties,
an assessment will not be disturbed. Even an assessment based on estimates
is prima facie valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining party to
show clearly that the assessment is erroneous. Failure to present proof of error in
the assessment will justify the judicial affirmance of said assessment. 18 In this
instance, petitioner has not pointed out one single provision in the Memorandum
of the Special Audit Team which gave rise to the questioned assessment, which
bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears
mainly on the alleged improbable and unconscionable amount of the taxes
charged. But mere rhetoric cannot supply the basis for the charge of impropriety
of the assessments made.

Moreover, these objections to the assessments should have been raised,

considering the ample remedies afforded the taxpayer by the Tax Code, with the
Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier,
and cannot be raised now via Petition for Certiorari, under the pretext of grave
abuse of discretion. The course of action taken by the petitioner reflects his
disregard or even repugnance of the established institutions for governance in
the scheme of a well-ordered society. The subject tax assessments having
become final, executory and enforceable, the same can no longer be contested
by means of a disguised protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy. 19 This judicial policy becomes more
pronounced in view of the absence of sufficient attack against the actuations of
government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner,
we find the respondent appellate court's pronouncements sound and resilient to
petitioner's attacks.

Anent grounds 3(b) and (B) — both alleging/claiming lack of notice

— We find, after considering the facts and circumstances, as well as
evidences, that there was sufficient, constructive and/or actual notice
of assessments, levy and sale, sent to herein petitioner Ferdinand
"Bongbong" Marcos as well as to his mother Mrs. Imelda Marcos.

Even if we are to rule out the notices of assessments personally

given to the caretaker of Mrs. Marcos at the latter's last known
address, on August 26, 1991 and September 12, 1991, as well as
the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 —
the subsequent notices given thereafter could no longer be ignored
as they were sent at a time when petitioner was already here in the
Philippines, and at a place where said notices would surely be called
to petitioner's attention, and received by responsible persons of
sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices were served

upon Mrs. Marcos c/o the petitioner, at his office, House of
Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-
2", "A-3"; pp. 207-210, Comment/Memorandum of OSG). Moreover,
a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a
conference relative to her tax liabilities, was furnished the counsel of
Mrs. Marcos — Dean Antonio Coronel (Annex "B", p. 211, ibid).
Thereafter, copies of Notices were also served upon Mrs. Imelda
Marcos, the petitioner and their counsel "De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June
10, 1993. Despite all of these Notices, petitioner never lifted a finger
to protest the assessments, (upon which the Levy and sale of
properties were based), nor appealed the same to the Court of Tax
Appeals.

There being sufficient service of Notices to herein petitioner (and his

mother) and it appearing that petitioner continuously ignored said
Notices despite several opportunities given him to file a protest and
to thereafter appeal to the Court of Tax Appeals, — the tax
assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or
indirectly) via this instant petition for certiorari. 20
Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has an
interest in the subject estate, and notices of levy upon its properties should have
been served upon him.

We do not agree. In the case of notices of levy issued to satisfy the delinquent
estate tax, the delinquent taxpayer is the Estate of the decedent, and not
necessarily, and exclusively, the petitioner as heir of the deceased. In the same
vein, in the matter of income tax delinquency of the late president and his
spouse, petitioner is not the taxpayer liable. Thus, it follows that service of
notices of levy in satisfaction of these tax delinquencies upon the petitioner is not
required by law, as under Section 213 of the NIRC, which pertinently states:

xxx xxx xxx

. . . Levy shall be effected by writing upon said certificate a

description of the property upon which levy is made. At the same
time, written notice of the levy shall be mailed to or served upon the
Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from
the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or if there be none, to the
occupant of the property in question.

xxx xxx xxx

The foregoing notwithstanding, the record shows that notices of warrants of

distraint and levy of sale were furnished the counsel of petitioner on April 7,
1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his office
at the Batasang Pambansa. 21 We cannot therefore, countenance petitioner's
insistence that he was denied due process. Where there was an opportunity to
raise objections to government action, and such opportunity was disregarded, for
no justifiable reason, the party claiming oppression then becomes the oppressor
of the orderly functions of government. He who comes to court must come with
clean hands. Otherwise, he not only taints his name, but ridicules the very
structure of established authority.

IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED
in all respects.

SO ORDERED.
G.R. No. 138485 September 10, 2001

DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in

his capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

VITUG,, J.:

Before the Court is a petition for review seeking to set aside the decision of 24
February 1999 of the Court of Appeals, as well as its resolution of 27 Apri11999,
in CA-G.R. SP No. 34156, which has reversed that of the Court of Tax Appeals in
CTA Case No.4956, entitled "Jose V. Feria, in his capacity as Executor of the
Estate of Jose San Agustin versus Commissioner of Internal Revenue." The tax
court's decision has modified the deficiency assessment of the Commission of
Internal Revenue for surcharge, interests and other penalties imposed against
the estate of the late Jose San Agustin.

The facts of the case narrated by the appellate court would appear, by and large,
to be uncontroverted; thus viz:

"Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on
June 27, 1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He
left a holographic will executed on April 21, 1980 giving all his estate to his
widow, and naming retired Justice Jose Y. Feria as Executor thereof.

"Probate proceedings were instituted on August 22, 1990, in the Regional

Trial Court (RTC) of Makati, Branch 139, docketed as Sp. Proc. No. M-
2554. Pursuantly, notice of decedent's death was sent to the
Commissioner of Internal Revenue on August 30, 1990. 1âw phi 1.nêt

"On September 3, 1990, an estate tax return reporting an estate tax due of
P1,676,432.00 was filed on behalf of the estate, with a request for an
extension of two years for the payment of the tax, inasmuch as the
decedent's widow ( did) not personally have sufficient funds, and that the
payment (would) have to come from the estate.
"In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner
Victor A. Deoferio, Jr., granted the heirs an extension of only six (6)
months, subject to the imposition of penalties and interests under Sections
248 and 249 of the National Internal Revenue Code, as amended.

"In the probate proceedings, on October 11, 1990 the RTC allowed the will
and appointed Jose Feria as Executor of the estate. On December 5,
1990, the executor submitted to the probate court an inventory of the
estate with a motion for authority to withdraw funds for the payment of the
estate tax.

Such authority was granted by the probate court on March 5, 1991

.Thereafter, on March 8, 1991 , the executor paid the estate tax in the
amount of P1,676,432 as reported in the Tax Return filed with the BIR.
This was well within the six (6) months extension period granted by the
BIR.

"On September 23, 1991, the widow of the deceased, Felisa L. San
Agustin, received a Pre-Assessment Notice from the BIR, dated August
29, 1991, showing a deficiency estate tax of P538,509.50, which, including
surcharge, interest and penalties, amounted to P976,540.00.

"On October 1, 1991, within the ten-day period given in the pre-
assessment notice, the executor filed a letter with the petitioner
Commissioner expressing readiness to pay the basic deficiency estate tax
of P538,509.50 as soon as the Regional Trial Court approves withdrawal
thereof, but, requesting that the surcharge, interest, and other penalties,
amounting to P438,040.38 be waived, considering that the assessed
deficiency arose only on account of the difference in zonal valuation used
by the Estate and the BIR, and that the estate tax due per return of
P1,676,432.00 was already paid in due time within the extension period.

"On October 4, 1991, the Commissioner issued an Assessment Notice

reiterating the demand in the pre- assessment notice and requesting
payment on or before thirty (30) days upon receipt thereof.

"In a letter, dated October 31, 1991, the executor requested the
Commissioner a reconsideration of the assessment of P976,549.00 and
waiver of the surcharge, interest, etc.

"On December 18, 1991, the Commissioner accepted payment of the basic
deficiency tax in the amount of P538,509.50 through its Receivable
Accounts Billing Division.
 "The request for reconsideration was not acted upon until January 21,
1993, when the executor received a letter, dated September 21, 1992,
signed by the Commissioner, stating that there is no legal justification for
the waiver of the interests, surcharge and compromise penalty in this case,
and requiring full payment of P438,040.38 representing such charges
within ten (10) days from receipt thereof.

"In view thereof, the respondent estate paid the amount of P438,040.38
under protest on January 25, 1993.

"On February 18, 1993, a Petition for Review was filed by the executor with
the CT A with the prayer that the Commissioner's letter/decision, dated
September 21, 1992 be reversed and that a refund of the amount of
P438,040.38 be ordered .

"The Commissioner opposed the said petition, alleging that the CTA's
jurisdiction was not properly invoked inasmuch as no claim for a tax refund
of the deficiency tax collected was filed with the Bureau of Internal
Revenue before the petition was filed, in violation of Sections 204 and 230
of the National Internal Revenue Code. Moreover, there is no statutory
basis for the refund of the deficiency surcharges, interests and penalties
charged by the Commissioner upon the estate of the decedent.

"Upholding its jurisdiction over the dispute, the CTA rendered its Decision,
dated April 21, 1994, modifying the CIR's assessment for surcharge,
interests and other penalties from P438,040.38 to P13,462.74,
representing interest on the deficiency estate tax, for which reason the
CTA ordered the reimbursement to the respondent estate the balance of
P423,577.64, to wit:

"WHEREFORE, respondent's deficiency assessment for surcharge,

interests, and other penalties is hereby modified and since petitioner
has clearly paid the full amount of P438,040.38, respondent is
hereby ordered to refund to the Estate of Jose San Agustin the
overpayment amounting to P423,577.64."1

On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the
Commissioner of Internal Revenue to the Court of Appeals. There, the petition for
review raised the following issues:

"1. Whether respondent Tax Court has jurisdiction to take cognizance of

the case considering the failure of private respondent to comply with the
 mandatory requirements of Sections 204 and 230 of the National Internal
Revenue Code.

"2. Whether or not respondent Tax Court was correct in ordering the refund
to the Estate of Jose San Agustin the reduced amount of P423,577.64 as
alleged overpaid surcharge, interests and compromise penalty imposed on
the basic deficiency estate tax of P538,509.50 due on the transmission of
the said Estate to the sole heir in 1990."2

In its decision of 24 February 1999, the Court of Appeals granted the petition of
the Commissioner of Internal Revenue and held that the Court of Tax Appeals
did not acquire jurisdiction over the subject matter and that, accordingly, its
decision was null and void.

Hence, the instant petition where petitioner submits that -

"1. The filing of a claim for refund [is] not essential before the filing of the
petition for review.

"2. The imposition by the respondent of surcharge, interest and penalties

on the deficiency estate tax is not in accord with the law and therefore
illegal."3

The Court finds the petition partly meritorious.

The case has a striking resemblance to the controversy in Roman Catholic

Archbishop of Cebu vs. Collector of Internal Revenue.4

The petitioner in that case paid under protest the sum of P5,201.52 by way of
income tax, surcharge and interest and, forthwith, filed a petition for review
before the Court of Tax Appeals. Then respondent Collector (now Commissioner)
of Internal Revenue set up several defenses, one of which was that petitioner
had failed to first file a written claim for refund, pursuant to Section 306 of the Tax
Code, of the amounts paid. Convinced that the lack of a written claim for refund
was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the
petition for lack of jurisdiction. On appeal to this Court, the tax court's ruling was
reversed; the Court held:

"We agree with petitioner that Section 7 of Republic Act No.1125, creating
the Court of Tax Appeals, in providing for appeals from -

'(1) Decisions of the Collector of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or
 other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or
part of the law administered by the Bureau of Internal Revenue -

allows an appeal from a decision of the Collector in cases involving'

disputed assessments' as distinguished from cases involving' refunds of
internal revenue taxes, fees or other charges, x x'; that the present action
involves a disputed assessment'; because from the time petitioner received
assessments Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing
certain deductions claimed by him in his income tax returns for the years
1955 and 1956, he already protested and refused to pay the same,
questioning the correctness and legality of such assessments; and that the
petitioner paid the disputed assessments under protest before filing his
petition for review with the Court a quo, only to forestall the sale of his
properties that had been placed under distraint by the respondent Collector
since December 4, 1957. To hold that the taxpayer has now lost the right
to appeal from the ruling on, the disputed assessment but must prosecute
his appeal under section 306 of the Tax Code, which requires a taxpayer
to file a claim for refund of the taxes paid as a condition precedent to his
right to appeal, would in effect require of him to go through a useless and
needless ceremony that would only delay the ! disposition of the case, for
the Collector (now Commissioner) would cer1ainly disallow the claim for
refund in the same way as he disallowed the protest against the
assessment. The law, should not be interpreted as to result in
absurdities."5

The Court sees no cogent reason to abandon the above dictum and to require a
useless formality that can serve the interest of neither the government nor the
taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's
appeal to it.

On the second issue, the National Internal Revenue Code, relative to the
imposition of surcharges, interests, and penalties, provides thusly:

"Sec. 248. Civil Penalties. -

"(a) There shall be imposed, in addition to the tax required to be paid, a

penalty equivalent to twenty-five percent (25% ) of the amount due, in the
following cases:

"(1) Failure to file any return and pay the tax due thereon as required under
the provisions of this Code or rules and regulations on the date prescribed;
or
"(2) Unless otherwise authorized by the Commissioner, filing a return with
an internal revenue officer other than those with whom the return is
required to be filed; or

"(3) Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment; or

"(4) Failure to pay the full or part of the amount of tax shown on any return
required to be filed under the provisions of this Code or rules and
regulations, or the full amount of tax due for which no return is required to
be filed, on or before the date prescribed for its payment."

"Sec.249. Interest. -

"(A) In General. -There shall be assessed and collected on any unpaid

amount of tax, interest at the rate of twenty percent (20%) per annum, or
such higher rate as may be prescribed by rules and regulations, from the
date prescribed for payment until the amount is fully paid.

"(B) Deficiency Interest. - Any deficiency in the tax due, as the term is
defined in this Code, shall be subject to the interest prescribed in
Subsection (A) hereof, which interest shall be assessed and collected from
the date prescribed for its payment until the full payment thereof.

"(C) Delinquency Interest. -In case of failure to pay:

"(1) The amount of the tax due on any return to be filed, or

"(2) The amount of the tax due for which no return is required, or

"(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which
interest shall form part of the tax.

"(D) Interest on Extended Payment. -If any person required to pay the tax
is qualified and elects to pay the tax on installment under the provisions of
this Code, but fails to pay the tax or any installment hereof, or any part of
such amount or installment on or before the date prescribed for its
payment, or where the Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any part thereof, there shall
be assessed and collected interest at the rate hereinabove prescribed on
 the tax or deficiency tax or any part thereof unpaid from the date of notice
and demand until it is paid."

It would appear that, as early as 23 September 1991, the estate already received
a pre-assessment notice indicating a deficiency estate tax of P538,509.50. Within
the ten-day period given in the pre-assessment notice, respondent
Commissioner received a letter from petitioner expressing the latter's readiness
to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court
would have approved the withdrawal of that sum from the estate but requesting
that the surcharge, interests and penalties be waived. On 04 October 1991,
however, petitioner received from the Commissioner notice insisting payment of
the tax due on or before the lapse of thirty (30) days from receipt thereof. The
deficiency estate tax of P538,509.50 was not paid until 19 December 1991.6

The delay in the payment of the deficiency tax within the time prescribed for its
payment in the notice of assessment justifies the imposition of a 25% surcharge
in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in
this case being P538,509.50, the twenty-five percent thereof comes to
P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax
due would be subject to interest at the rate of twenty percent (20%) per annum,
which interest shall be assessed and collected from the date prescribed for its
payment until full payment is made. The computation of interest by the Court of
Tax Appeals -

"Deficiency x Interest Rate x Terms

estate tax 20% per 11/2 mo./12 mos
P538,509.50 annum (11/04/91 to
12/19/91)
= P13,462.74"7

conforms with the law, i.e., computed on the deficiency tax from the date
prescribed for its payment until it is paid.

The Court of Tax Appeals correctly held that the compromise penalty of
P20,000.00 could not be imposed on petitioner, a compromise being, by its
nature, mutual in essence. The payment made under protest by petitioner could
only signify that there was no agreement that had effectively been reached
between the parties.

Regrettably for petitioner, the need for an authority from the probate court in the
payment of the deficiency estate tax, over which respondent Commissioner has
hardly any control, is not one that can negate the application of the Tax Code
provisions aforequoted. Taxes, the lifeblood of the government, are meant to be
paid without delay and often oblivious to contingencies or conditions.

In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and
interest of P13,462.74 or a total of P148,090.00.

WHEREFORE, the instant petition is partly GRANTED. The deficiency

assessment for surcharge, interest and penalties is modified and recomputed to
be in the amount of P148,090.00 surcharge of P134,627.37 and interest of
P13,462.74. Petitioner estate having since paid the sum of P438,040.38,
respondent Commissioner is hereby ordered to refund to the Estate of Jose San
Agustin the overpaid amount of P289,950.38. No costs.

SO ORDERED. 1âwphi 1.nêt

G.R. No. L-56340 June 24, 1983

SPOUSES ALVARO PASTOR, JR. and MA. ELENA ACHAVAL DE

PASTOR, petitioners,
vs.
THE COURT OF APPEALS, JUAN Y. REYES, JUDGE OF BRANCH I, COURT
OF FIRST INSTANCE OF CEBU and LEWELLYN BARLITO
QUEMADA, respondents.

Pelaez, Pelaez, & Pelaez Law Office for petitioners.

Ceniza, Rama & Associates for private respondents.

PLANA, J.:

I. FACTS:

This is a case of hereditary succession.

Alvaro Pastor, Sr. (PASTOR, SR.), a Spanish subject, died in Cebu City on June
5, 1966, survived by his Spanish wife Sofia Bossio (who also died on October 21,
1966), their two legitimate children Alvaro Pastor, Jr. (PASTOR, JR.) and Sofia
Pastor de Midgely (SOFIA), and an illegitimate child, not natural, by the name of
Lewellyn Barlito Quemada QUEMADA PASTOR, JR. is a Philippine citizen,
having been naturalized in 1936. SOFIA is a Spanish subject. QUEMADA is a
Filipino by his mother's citizenship.

On November 13, 1970, QUEMADA filed a petition for the probate and allowance
of an alleged holographic will of PASTOR, SR. with the Court of First Instance of
Cebu, Branch I (PROBATE COURT), docketed as SP No. 3128-R. The will
contained only one testamentary disposition: a legacy in favor of QUEMADA
consisting of 30% of PASTOR, SR.'s 42% share in the operation by Atlas
Consolidated Mining and Development Corporation (ATLAS) of some mining
claims in Pina-Barot, Cebu.

On November 21, 1970, the PROBATE COURT, upon motion of QUEMADA and
after an ex parte hearing, appointed him special administrator of the entire estate
of PASTOR, SR., whether or not covered or affected by the holographic will. He
assumed office as such on December 4, 1970 after filing a bond of P 5,000.00.

On December 7, 1970, QUEMADA as special administrator, instituted against

PASTOR, JR. and his wife an action for reconveyance of alleged properties of
the estate, which included the properties subject of the legacy and which were in
the names of the spouses PASTOR, JR. and his wife, Maria Elena Achaval de
Pastor, who claimed to be the owners thereof in their own rights, and not by
inheritance. The action, docketed as Civil Case No. 274-R, was filed with the
Court of First Instance of Cebu, Branch IX.

On February 2, 1971, PASTOR, JR. and his sister SOFIA filed their opposition to
the petition for probate and the order appointing QUEMADA as special
administrator.

On December 5, 1972, the PROBATE COURT issued an order allowing the will
to probate. Appealed to the Court of Appeals in CA-G.R. No. 52961- R, the order
was affirmed in a decision dated May 9, 1977. On petition for review, the
Supreme Court in G.R. No. L-46645 dismissed the petition in a minute resolution
dated November 1, 1977 and remanded the same to the PROBATE COURT
after denying reconsideration on January 11, 1978.

For two years after remand of the case to the PROBATE COURT, QUEMADA
filed pleading after pleading asking for payment of his legacy and seizure of the
properties subject of said legacy. PASTOR, JR. and SOFIA opposed these
pleadings on the ground of pendency of the reconveyance suit with another
branch of the Cebu Court of First Instance. All pleadings remained unacted upon
by the PROBATE COURT.
On March 5, 1980, the PROBATE COURT set the hearing on the intrinsic validity
of the will for March 25, 1980, but upon objection of PASTOR, JR. and SOFIA on
the e ground of pendency of the reconveyance suit, no hearing was held on
March 25. Instead, the PROBATE COURT required the parties to submit their
respective position papers as to how much inheritance QUEMADA was entitled
to receive under the wig. Pursuant thereto, PASTOR. JR. and SOFIA submitted
their Memorandum of authorities dated April 10, which in effect showed that
determination of how much QUEMADA should receive was still premature.
QUEMADA submitted his Position paper dated April 20, 1980. ATLAS, upon
order of the Court, submitted a sworn statement of royalties paid to the Pastor
Group of tsn from June 1966 (when Pastor, Sr. died) to February 1980. The
statement revealed that of the mining claims being operated by ATLAS, 60%
pertained to the Pastor Group distributed as follows:

1. A. Pastor, Jr. ...................................40.5%

2. E. Pelaez, Sr. ...................................15.0%

3. B. Quemada .......................................4.5%

On August 20, 1980, while the reconveyance suit was still being litigated in
Branch IX of the Court of First Instance of Cebu, the PROBATE COURT issued
the now assailed Order of Execution and Garnishment, resolving the question of
ownership of the royalties payable by ATLAS and ruling in effect that the legacy
to QUEMADA was not inofficious. [There was absolutely no statement or claim in
the Order that the Probate Order of December 5, 1972 had previously resolved
the issue of ownership of the mining rights of royalties thereon, nor the intrinsic
validity of the holographic will.]

The order of August 20, 1980 found that as per the holographic will and a written
acknowledgment of PASTOR, JR. dated June 17, 1962, of the above 60%
interest in the mining claims belonging to the Pastor Group, 42% belonged to
PASTOR, SR. and only 33% belonged to PASTOR, JR. The remaining 25%
belonged to E. Pelaez, also of the Pastor Group. The PROBATE COURT thus
directed ATLAS to remit directly to QUEMADA the 42% royalties due decedent's
estate, of which QUEMADA was authorized to retain 75% for himself as legatee
and to deposit 25% with a reputable banking institution for payment of the estate
taxes and other obligations of the estate. The 33% share of PASTOR, JR. and/or
his assignees was ordered garnished to answer for the accumulated legacy of
QUEMADA from the time of PASTOR, SR.'s death, which amounted to over two
million pesos.
The order being "immediately executory", QUEMADA succeeded in obtaining a
Writ of Execution and Garnishment on September 4, 1980, and in serving the
same on ATLAS on the same day. Notified of the Order on September 6, 1980,
the oppositors sought reconsideration thereof on the same date primarily on the
ground that the PROBATE COURT gravely abused its discretion when it
resolved the question of ownership of the royalties and ordered the payment of
QUEMADA's legacy after prematurely passing upon the intrinsic validity of the
will. In the meantime, the PROBATE COURT ordered suspension of payment of
all royalties due PASTOR, JR. and/or his assignees until after resolution of
oppositors' motion for reconsideration.

Before the Motion for Reconsideration could be resolved, however, PASTOR,

JR., this time joined by his wife Ma. ELENA ACHAVAL DE PASTOR, filed with
the Court of Appeals a Petition for certiorari and Prohibition with a prayer for writ
of preliminary injunction (CA-G.R. No. SP- 11373-R). They assailed the Order
dated August 20, 1980 and the writ of execution and garnishment issued
pursuant thereto. The petition was denied on November 18, 1980 on the grounds
(1) that its filing was premature because the Motion for Reconsideration of the
questioned Order was still pending determination by the PROBATE COURT; and
(2) that although "the rule that a motion for reconsideration is prerequisite for an
action for certiorari is never an absolute rule," the Order assailed is "legally valid.
"

On December 9, 1980, PASTOR, JR. and his wife moved for reconsideration of
the Court of Appeal's decision of November 18, 1980, calling the attention of the
appellate court to another order of the Probate Court dated November 11, 1980
(i.e., while their petition for certiorari was pending decision in the appellate court),
by which the oppositors' motion for reconsideration of the Probate Court's Order
of August 20, 1980 was denied. [The November 11 Order declared that the
questions of intrinsic validity of the will and of ownership over the mining claims
(not the royalties alone) had been finally adjudicated by the final and executory
Order of December 5, 1972, as affirmed by the Court of Appeals and the
Supreme Court, thereby rendering moot and academic the suit for reconveyance
then pending in the Court of First Instance of Cebu, Branch IX. It clarified that
only the 33% share of PASTOR, JR. in the royalties (less than 7.5% share which
he had assigned to QUEMADA before PASTOR, SR. died) was to be garnished
and that as regards PASTOR, SR.'s 42% share, what was ordered was just the
transfer of its possession to the custody of the PROBATE COURT through the
special administrator. Further, the Order granted QUEMADA 6% interest on his
unpaid legacy from August 1980 until fully paid.] Nonetheless, the Court of
Appeals denied reconsideration.
Hence, this Petition for Review by certiorari with prayer for a writ of pre y
injunction, assailing the decision of the Court of Appeals dated November 18,
1980 as well as the orders of the Probate Court dated August 20, 1980,
November 11, 1980 and December 17, 1980, Med by petitioners on March 26,
1981, followed by a Supplemental Petition with Urgent Prayer for Restraining
Order.

In April 1981, the Court (First Division) issued a writ of preliminary injunction, the
lifting of which was denied in the Resolution of the same Division dated October
18, 1982, although the bond of petitioners was increased from P50,000.00 to
P100,000.00.

Between December 21, 1981 and October 12, 1982, private respondent filed
seven successive motions for early resolution. Five of these motions expressly
prayed for the resolution of the question as to whether or not the petition should
be given due course.

On October 18, 1982, the Court (First Division) adopted a resolution stating that
"the petition in fact and in effect was given due course when this case was heard
on the merits on September 7, (should be October 21, 1981) and concise
memoranda in amplification of their oral arguments on the merits of the case
were filed by the parties pursuant to the resolution of October 21, 1981 . . . " and
denied in a resolution dated December 13, 1982, private respondent's "Omnibus
motion to set aside resolution dated October 18, 1982 and to submit the matter of
due course to the present membership of the Division; and to reassign the case
to another ponente."

Upon Motion for Reconsideration of the October 18, 1982 and December 13,
1982 Resolutions, the Court en banc resolved to CONFIRM the questioned
resolutions insofar as hey resolved that the petition in fact and in effect had been
given due course.

II. ISSUES:

Assailed by the petitioners in these proceedings is the validity of the Order of

execution and garnishment dated August 20, 1980 as well as the Orders
subsequently issued allegedly to implement the Probate Order of December 5,
1972, to wit: the Order of November 11, 1980 declaring that the Probate Order of
1972 indeed resolved the issues of ownership and intrinsic validity of the will, and
reiterating the Order of Execution dated August 20, 1980; and the Order of
December 17, 1980 reducing to P2,251,516.74 the amount payable to
QUEMADA representing the royalties he should have received from the death of
PASTOR, SR. in 1966 up to February 1980.
The Probate Order itself, insofar as it merely allowed the holographic will in
probate, is not questioned. But petitioners denounce the Probate Court for having
acted beyond its jurisdiction or with grave abuse of discretion when it issued the
assailed Orders. Their argument runs this way: Before the provisions of the
holographic win can be implemented, the questions of ownership of the mining
properties and the intrinsic validity of the holographic will must first be resolved
with finality. Now, contrary to the position taken by the Probate Court in 1980 —
i.e., almost eight years after the probate of the will in 1972 — the Probate Order
did not resolve the two said issues. Therefore, the Probate Order could not have
resolved and actually did not decide QUEMADA's entitlement to the legacy. This
being so, the Orders for the payment of the legacy in alleged implementation of
the Probate Order of 1972 are unwarranted for lack of basis.

Closely related to the foregoing is the issue raised by QUEMADA The Probate
Order of 1972 having become final and executory, how can its implementation
(payment of legacy) be restrained? Of course, the question assumes that
QUEMADA's entitlement to the legacy was finally adjudged in the Probate Order.

On the merits, therefore, the basic issue is whether the Probate Order of
December 5, 1972 resolved with finality the questions of ownership and intrinsic
validity. A negative finding will necessarily render moot and academic the other
issues raised by the parties, such as the jurisdiction of the Probate Court to
conclusively resolve title to property, and the constitutionality and repercussions
of a ruling that the mining properties in dispute, although in the name of
PASTOR, JR. and his wife, really belonged to the decedent despite the latter's
constitutional disqualification as an alien.

On the procedural aspect, placed in issue is the propriety of certiorari as a means

to assail the validity of the order of execution and the implementing writ.

III. DISCUSSION:

1. Issue of Ownership —

(a) In a special proceeding for the probate of a will, the issue by and large is
restricted to the extrinsic validity of the will, i.e., whether the testator, being of
sound mind, freely executed the will in accordance with the formalities prescribed
by law. (Rules of Court, Rule 75, Section 1; Rule 76, Section 9.) As a rule, the
question of ownership is an extraneous matter which the Probate Court cannot
resolve with finality. Thus, for the purpose of determining whether a certain
property should or should not be included in the inventory of estate properties,
the Probate Court may pass upon the title thereto, but such determination is
provisional, not conclusive, and is subject to the final decision in a separate
action to resolve title. [3 Moran, Comments on the Rules of Court (1980 ed.), p.
458; Valero Vda. de Rodriguez vs. Court of Appeals, 91 SCRA 540.]

(b) The rule is that execution of a judgment must conform to that decreed in the
dispositive part of the decision. (Philippine-American Insurance Co. vs.
Honorable Flores, 97 SCRA 811.) However, in case of ambiguity or uncertainty,
the body of the decision may be scanned for guidance in construing the
judgment. (Heirs of Presto vs. Galang, 78 SCRA 534; Fabular vs. Court of
Appeals, 119 SCRA 329; Robles vs. Timario. 107 Phil. 809.)

The Order sought to be executed by the assailed Order of execution is the

Probate Order of December 5, 1972 which allegedly resolved the question of
ownership of the disputed mining properties. The said Probate Order enumerated
the issues before the Probate Court, thus:

Unmistakably, there are three aspects in these proceedings: (1) the

probate of the holographic will (2) the intestate estate aspect; and
(3) the administration proceedings for the purported estate of the
decedent in the Philippines.

In its broad and total perspective the whole proceedings are being
impugned by the oppositors on jurisdictional grounds, i.e., that the
fact of the decedent's residence and existence of properties in the
Philippines have not been established.

Specifically placed in issue with respect to the probate proceedings

are: (a) whether or not the holographic will (Exhibit "J") has lost its
efficacy as the last will and testament upon the death of Alvaro
Pastor, Sr. on June 5, 1966, in Cebu City, Philippines; (b) Whether
or not the said will has been executed with all the formalities
required by law; and (c) Did the late presentation of the holographic
will affect the validity of the same?

Issues In the Administration Proceedings are as follows: (1) Was the

ex- parte appointment of the petitioner as special administrator valid
and proper? (2) Is there any indispensable necessity for the estate
of the decedent to be placed under administration? (3) Whether or
not petition is qualified to be a special administrator of the estate;
and (4) Whether or not the properties listed in the inventory
(submitted by the special administrator but not approved by the
Probate Court) are to be excluded.

Then came what purports to be the dispositive portion:

Upon the foregoing premises, this Court rules on and resolves some
of the problems and issues presented in these proceedings, as
follows:

(a) The Court has acquired jurisdiction over the probate proceedings
as it hereby allows and approves the so-called holographic will of
testator Alvaro Pastor, Sr., executed on July 31, 1961 with respect to
its extrinsic validity, the same having been duly authenticated
pursuant to the requisites or solemnities prescribed by law. Let,
therefore, a certificate of its allowance be prepared by the Branch
Clerk of this Court to be signed by this Presiding Judge, and attested
by the seal of the Court, and thereafter attached to the will, and the
will and certificate filed and recorded by the clerk. Let attested
copies of the will and of the certificate of allowance thereof be sent
to Atlas Consolidated Mining & Development Corporation, Goodrich
Bldg., Cebu City, and the Register of Deeds of Cebu or of Toledo
City, as the case may be, for recording.

(b) There was a delay in the granting of the letters testamentary or of

administration for as a matter of fact, no regular executor and/or
administrator has been appointed up to this time and - the
appointment of a special administrator was, and still is, justified
under the circumstances to take possession and charge of the
estate of the deceased in the Philippines (particularly in Cebu) until
the problems causing the delay are decided and the regular
executor and/or administrator appointed.

(c) There is a necessity and propriety of a special administrator and

later on an executor and/or administrator in these proceedings, in
spite of this Court's declaration that the oppositors are the forced
heirs and the petitioner is merely vested with the character of a
voluntary heir to the extent of the bounty given to him (under) the
will insofar as the same will not prejudice the legitimes of the
oppositor for the following reasons:

1. To submit a complete inventory of the

estate of the decedent-testator Alvaro
Pastor, Sr.

2. To administer and to continue to put to

prolific utilization of the properties of the
decedent;
 3. To keep and maintain the houses and
other structures and belonging to the
estate, since the forced heirs are residing in
Spain, and prepare them for delivery to the
heirs in good order after partition and when
directed by the Court, but only after the
payment of estate and inheritance taxes;

(d) Subject to the outcome of the suit for reconveyance of ownership

and possession of real and personal properties in Civil Case No.
274-T before Branch IX of the Court of First Instance of Cebu, the
intestate estate administration aspect must proceed, unless,
however, it is duly proven by the oppositors that debts of the
decedent have already been paid, that there had been an
extrajudicial partition or summary one between the forced heirs, that
the legacy to be given and delivered to the petitioner does not
exceed the free portion of the estate of the testator, that the
respective shares of the forced heirs have been fairly apportioned,
distributed and delivered to the two forced heirs of Alvaro Pastor,
Sr., after deducting the property willed to the petitioner, and the
estate and inheritance taxes have already been paid to the
Government thru the Bureau of Internal Revenue.

The suitability and propriety of allowing petitioner to remain as

special administrator or administrator of the other properties of the
estate of the decedent, which properties are not directly or indirectly
affected by the provisions of the holographic will (such as bank
deposits, land in Mactan etc.), will be resolved in another order as
separate incident, considering that this order should have been
properly issued solely as a resolution on the issue of whether or not
to allow and approve the aforestated will. (Emphasis supplied.)

Nowhere in the dispositive portion is there a declaration of ownership of specific

properties. On the contrary, it is manifest therein that ownership was not
resolved. For it confined itself to the question of extrinsic validity of the win, and
the need for and propriety of appointing a special administrator. Thus it allowed
and approved the holographic win "with respect to its extrinsic validity, the same
having been duly authenticated pursuant to the requisites or solemnities
prescribed by law." It declared that the intestate estate administration aspect
must proceed " subject to the outcome of the suit for reconveyance of ownership
and possession of real and personal properties in Civil Case 274-T before
Branch IX of the CFI of Cebu." [Parenthetically, although the statement refers
only to the "intestate" aspect, it defies understanding how ownership by the
estate of some properties could be deemed finally resolved for purposes
of testate administration, but not so for intestate purposes. Can the estate be the
owner of a property for testate but not for intestate purposes?] Then again, the
Probate Order (while indeed it does not direct the implementation of the legacy)
conditionally stated that the intestate administration aspect must proceed "unless
. . . it is proven . . . that the legacy to be given and delivered to the petitioner
does not exceed the free portion of the estate of the testator," which clearly
implies that the issue of impairment of legitime (an aspect of intrinsic validity) was
in fact not resolved. Finally, the Probate Order did not rule on the propriety of
allowing QUEMADA to remain as special administrator of estate properties not
covered by the holographic will, "considering that this (Probate) Order should
have been properly issued solely as a resolution on the issue of whether or not to
allow and approve the aforestated will. "

(c) That the Probate Order did not resolve the question of ownership of the
properties listed in the estate inventory was appropriate, considering that the
issue of ownership was the very subject of controversy in the reconveyance suit
that was still pending in Branch IX of the Court of First Instance of Cebu.

(d) What, therefore, the Court of Appeals and, in effect, the Supreme Court
affirmed en toto when they reviewed the Probable Order were only the matters
properly adjudged in the said Order.

(e) In an attempt to justify the issuance of the Order of execution dated August
20, 1980, the Probate Court in its Order of November 11, 1980 explained that the
basis for its conclusion that the question of ownership had been formally resolved
by the Probate Order of 1972 are the findings in the latter Order that (1) during
the lifetime of the decedent, he was receiving royalties from ATLAS; (2) he had
resided in the Philippines since pre-war days and was engaged in the mine
prospecting business since 1937 particularly in the City of Toledo; and (3)
PASTOR, JR. was only acting as dummy for his father because the latter was a
Spaniard.

Based on the premises laid, the conclusion is obviously far-fetched.

(f) It was, therefore, error for the assailed implementing Orders to conclude that
the Probate Order adjudged with finality the question of ownership of the mining
properties and royalties, and that, premised on this conclusion, the dispositive
portion of the said Probate Order directed the special administrator to pay the
legacy in dispute.

2. Issue of Intrinsic Validity of the Holographic Will -

(a) When PASTOR, SR. died in 1966, he was survived by his wife, aside from his
two legitimate children and one illegitimate son. There is therefore a need to
liquidate the conjugal partnership and set apart the share of PASTOR, SR.'s wife
in the conjugal partnership preparatory to the administration and liquidation of the
estate of PASTOR, SR. which will include, among others, the determination of
the extent of the statutory usufructuary right of his wife until her death. * When the
disputed Probate order was issued on December 5, 1972, there had been no liquidation of the community properties of PASTOR, SR. and
his wife.

(b) So, also, as of the same date, there had been no prior definitive determination
of the assets of the estate of PASTOR, SR. There was an inventory of his
properties presumably prepared by the special administrator, but it does not
appear that it was ever the subject of a hearing or that it was judicially approved.
The reconveyance or recovery of properties allegedly owned but not in the name
of PASTOR, SR. was still being litigated in another court.

(c) There was no appropriate determination, much less payment, of the debts of
the decedent and his estate. Indeed, it was only in the Probate Order of
December 5, 1972 where the Probate Court ordered that-

... a notice be issued and published pursuant to the provisions of

Rule 86 of the Rules of Court, requiring all persons having money
claims against the decedent to file them in the office of the Branch
Clerk of this Court."

(d) Nor had the estate tax been determined and paid, or at least provided for, as
of December 5, 1972.

(e) The net assets of the estate not having been determined, the legitime of the
forced heirs in concrete figures could not be ascertained.

(f) All the foregoing deficiencies considered, it was not possible to determine
whether the legacy of QUEMADA - a fixed share in a specific property rather
than an aliquot part of the entire net estate of the deceased - would produce an
impairment of the legitime of the compulsory heirs.

(g) Finally, there actually was no determination of the intrinsic validity of the will in
other respects. It was obviously for this reason that as late as March 5, 1980 -
more than 7 years after the Probate Order was issued the Probate Court
scheduled on March 25, 1980 a hearing on the intrinsic validity of the will.

3. Propriety of certiorari —
Private respondent challenges the propriety of certiorari as a means to assail the
validity of the disputed Order of execution. He contends that the error, if any, is
one of judgment, not jurisdiction, and properly correctible only by appeal, not
certiorari.

Under the circumstances of the case at bar, the challenge must be rejected.
Grave abuse of discretion amounting to lack of jurisdiction is much too evident in
the actuations of the probate court to be overlooked or condoned.

(a) Without a final, authoritative adjudication of the issue as to what properties

compose the estate of PASTOR, SR. in the face of conflicting claims made by
heirs and a non-heir (MA. ELENA ACHAVAL DE PASTOR) involving properties
not in the name of the decedent, and in the absence of a resolution on the
intrinsic validity of the will here in question, there was no basis for the Probate
Court to hold in its Probate Order of 1972, which it did not, that private
respondent is entitled to the payment of the questioned legacy. Therefore, the
Order of Execution of August 20, 1980 and the subsequent implementing orders
for the payment of QUEMADA's legacy, in alleged implementation of the
dispositive part of the Probate Order of December 5, 1972, must fall for lack of
basis.

(b) The ordered payment of legacy would be violative of the rule requiring prior
liquidation of the estate of the deceased, i.e., the determination of the assets of
the estate and payment of all debts and expenses, before apportionment and
distribution of the residue among the heirs and legatees. (Bernardo vs. Court of
Appeals, 7 SCRA 367.)

(c) Neither has the estate tax been paid on the estate of PASTOR, SR. Payment
therefore of the legacy to QUEMADA would collide with the provision of the
National Internal Revenue Code requiring payment of estate tax before delivery
to any beneficiary of his distributive share of the estate (Section 107 [c])

(d) The assailed order of execution was unauthorized, having been issued
purportedly under Rule 88, Section 6 of the Rules of Court which reads:

Sec. 6. Court to fix contributive shares where devisees, legatees, or

heirs have been in possession. — Where devisees, legatees,
or heirs have entered into possession of portions of the estate
before the debts and expenses have been settled and paid and have
become liable to contribute for the payment of such debts and
expenses, the court having jurisdiction of the estate may, by order
for that purpose, after hearing, settle the amount of their several
 liabilities, and order how much and in what manner each person
shall contribute, and may issue execution as circumstances require.

The above provision clearly authorizes execution to enforce payment of debts of

estate. A legacy is not a debt of the estate; indeed, legatees are among those
against whom execution is authorized to be issued.

... there is merit in the petitioners' contention that the probate court
generally cannot issue a writ of execution. It is not supposed to issue
a writ of execution because its orders usually refer to the
adjudication of claims against the estate which the executor or
administrator may satisfy without the necessity of resorting to a writ
of execution. The probate court, as such, does not render any
judgment enforceable by execution.

The circumstances that the Rules of Court expressly specifies that

the probate court may issue execution (a) to satisfy (debts of the
estate out of) the contributive shares of devisees, legatees and heirs
in possession of the decedent's assets (Sec. 6. Rule 88), (b) to
enforce payment of the expenses of partition (Sec. 3, Rule 90), and
(c) to satisfy the costs when a person is cited for examination in
probate proceedings (Sec. 13, Rule 142) may mean, under the rule
of inclusion unius est exclusion alterius, that those are the only
instances when it can issue a writ of execution. (Vda. de Valera vs.
Ofilada, 59 SCRA 96, 108.)

(d) It is within a court's competence to order the execution of a final judgment; but
to order the execution of a final order (which is not even meant to be executed)
by reading into it terms that are not there and in utter disregard of existing rules
and law, is manifest grave abuse of discretion tantamount to lack of jurisdiction.
Consequently, the rule that certiorari may not be invoked to defeat the right of a
prevailing party to the execution of a valid and final judgment, is inapplicable. For
when an order of execution is issued with grave abuse of discretion or is at
variance with the judgment sought to be enforced (PVTA vs. Honorable
Gonzales, 92 SCRA 172), certiorari will lie to abate the order of execution.

(e) Aside from the propriety of resorting to certiorari to assail an order of

execution which varies the terms of the judgment sought to be executed or does
not find support in the dispositive part of the latter, there are circumstances in the
instant case which justify the remedy applied for.

Petitioner MA. ELENA ACHAVAL DE PASTOR, wife of PASTOR, JR., is the

holder in her own right of three mining claims which are one of the objects of
conflicting claims of ownership. She is not an heir of PASTOR, SR. and was not
a party to the probate proceedings. Therefore, she could not appeal from the
Order of execution issued by the Probate Court. On the other hand, after the
issuance of the execution order, the urgency of the relief she and her co-
petitioner husband seek in the petition for certiorari states against requiring her to
go through the cumbersome procedure of asking for leave to intervene in the
probate proceedings to enable her, if leave is granted, to appeal from the
challenged order of execution which has ordered the immediate transfer and/or
garnishment of the royalties derived from mineral properties of which she is the
duly registered owner and/or grantee together with her husband. She could not
have intervened before the issuance of the assailed orders because she had no
valid ground to intervene. The matter of ownership over the properties subject of
the execution was then still being litigated in another court in a reconveyance suit
filed by the special administrator of the estate of PASTOR, SR.

Likewise, at the time petitioner PASTOR, JR. Med the petition for certiorari with
the Court of Appeals, appeal was not available to him since his motion for
reconsideration of the execution order was still pending resolution by the Probate
Court. But in the face of actual garnishment of their major source of income,
petitioners could no longer wait for the resolution of their motion for
reconsideration. They needed prompt relief from the injurious effects of the
execution order. Under the circumstances, recourse to certiorari was the feasible
remedy.

WHEREFORE, the decision of the Court of Appeals in CA G.R. No. SP-11373-R

is reversed. The Order of execution issued by the probate Court dated August
20, 1980, as well as all the Orders issued subsequent thereto in alleged
implementation of the Probate Order dated December 5, 1972, particularly the
Orders dated November 11, 1980 and December 17, 1980, are hereby set aside;
and this case is remanded to the appropriate Regional Trial Court for proper
proceedings, subject to the judgment to be rendered in Civil Case No. 274-R.

SO ORDERED.

G.R. No. 170632 July 10, 2007

EUGENIA D. POLIDO, Petitioner,

vs.
HON. COURT OF APPEALS and MARIANO P. GASAT, Respondents.
 DECISION

CARPIO MORALES, J.:

After the death of her husband Jacinto Polido (Polido), Eugenia Duque Polido,
petitioner, tried to withdraw the joint savings deposit they maintained at the
Philippine National Bank, Camiling, Tarlac Branch, but failed because one
Mariano Gasat (Gasat), herein respondent who claimed to be the couple’s
adopted child, objected thereto.

Petitioner thus filed on January 21, 2004 a complaint before the Regional Trial
Court of Tarlac, with Motion for the Issuance of a Writ of Preliminary Injunction,
against Gasat.

In her complaint, petitioner prayed for the following reliefs:

1. An Order granting the issuance of [a] writ of preliminary

injunction enjoining and restraining the defendant and all persons acting
under him from preventing the officers or employee[s] of the Philippine
National Bank, Camiling, Tarlac Branch from releasing in favor of the
plaintiff the money deposited with the said bank upon posting of a bond by
the plaintiff in an amount to be fixed by the Court;

2. After trial, to declare the defendant not the adopted child of the plaintiff
and her husband Jacinto Polido;

3. Directing the defendant to pay plaintiff attorney’s fees and litigation

expenses in the amount of P100,000.00 and moral damages in the amount
of P50,000.00.

Other reliefs which are just and equitable under the premises are likewise prayed
for.1 (Underscoring supplied)

In his Answer with Compulsory Counterclaim,2 Gasat alleged that petitioner and
her late husband had adopted him as their child, annexing as proof thereof a
photocopy of an Order dated September 23, 1970 of the Municipal Trial Court
(MTC) of Camiling in Civil Case No. 2497, "In the Matter of the Adoption of the
Minors, Lea D. Tomas and Mariano Gasat, JACINTO POLIDO AND EUGENIA
POLIDO, Petitioners,"3 and a copy of a Certification4 from the MTC Clerk of Court
that a "[c]opy of the decree of adoption dated September 23, 1970 was furnished
to the Office of the Local Civil Registrar" and said decree had become final and
executory; and that petitioner cannot withdraw any amount from the bank
account because she should follow legal procedures governing settlement of the
estate of a deceased, unless a competent court issues an order allowing her to
withdraw from said account.5

In his Opposition to the Issuance of Preliminary Injunction and Motion to Set the
Affirmative Defenses for Preliminary Hearing,6 Gasat argued that:

xxxx

3. Even assuming but without admitting that the defendant’s adoption

paper is ineffective, still he cannot be deprived of his inheritance from the
Estate of Jacinto Polido because said deceased and the plaintiff are
childless and all the properties subject of inheritance are exclusive
properties of the late Jacinto Polido, the same being inherited from his late
father, NARCISO POLIDO[,] who died in Hawaii, USA.

4. The Estate of Narciso Polido was inherited by his two children, namely,
said JACINTO POLIDO and PETRA P. GASAT, also deceased and the
latter was survived by her husband and SEVEN (7) children of which the
defendant (MARIANO D. POLIDO) is one . . .;

5. Thus, by virtue of the provision of Art. 1001 of the Civil Code of the
Philippines, which reads as follows:

"ART. 1001. Should brothers and sisters or their children survive with the widow
or widower, the latter shall be entitled to one-half of the inheritance and the
brothers and sisters or their children to the other half."

[T]he heirs of the late Jacinto Polido are his WIFE (plaintiff) [who is entitled to]
one-half (1/2) and Petra P. Gasat’s SEVEN (7) CHILDREN which would include
the defendant[, who are entitled to] one-half (1/2).

HENCE, THERE IS NO WAY WHATSOEVER TO JUSTIFY THE ISSUANCE OF

PRELIMINARY INJUNCTION AGAINST THE DEFENDANT EVEN IF HIS
ADOPTION WOULD BE NULLIFIED OR OF NO EFFECT
WHATSOEVER.7 (Emphasis in the original; underscoring supplied)

Gasat subsequently filed an Omnibus Motion8 withdrawing 1) the allegation he

had made in various pleadings that he is an adopted son of the couple and 2) his
Motion to Set the Affirmative Defenses for Preliminary Hearing. And he moved to
convert the case to an action for partition, at his instance, of the estate of his
grandfather Narciso Polido,9 father of petitioner’s husband and Gasat’s mother,
and to require petitioner to file income tax returns and pay the estate tax due.
To Gasat’s prayer to convert the action to one for partition and to require her to
file Estate Tax Returns, petitioner filed an Opposition.10 And she moved for
Judgment on the Pleadings.11

To justify her motion for judgment on the pleadings, petitioner argued that Gasat,
in withdrawing his claim and allegation that he is an adopted child, "practically
admitted [her] material allegations [in the Complaint] that [he] is not an adopted
child."12

By Order13 dated December 7, 2004, the trial court denied Gasat’s motion to
convert the case to an action for partition and granted petitioner’s motion for
judgment on the pleadings in this wise:

On November 30, 2004, the plaintiff filed a Motion for Judgment on the ground
that by withdrawing all his allegations that he is [an] adopted child of the plaintiff,
defendant practically admitted all the material allegations in the complaint and
prayed that judgment be rendered as the complaint may warrant.

This Court resolves to grant the motion for judgment on the ground that the
defense that he is an adopted child of the plaintiff is withdrawn by the defendant
himself. By withdrawing his defense, he is deemed to have admitted the main
allegation of the plaintiff that he is not an adopted child. On the motion of the
defendant that the instant action be converted into a partition and that the plaintiff
be ordered to file her real estate tax return, the same is denied for lack of
merit.14 (Underscoring supplied)

Accordingly, the trial court disposed as follows:

WHEREFORE, judgment is hereby rendered:

1. Declaring the defendant not the adopted child of the plaintiff,

2. Ordering the Manager of the Philippine National Bank, Camiling Branch

or any other branch to release to plaintiff upon her request the money she
deposited or her deceased husband Jacinto Polido;

3. Directing the defendant to pay the plaintiff moral damages in the amount
of P25,000.00 and attorney’s fee[s] in the amount of P25,000.00.

SO ORDERED.15 (Underscoring supplied)

Gasat filed a Notice of Appeal.16 On May 26, 2005, before the Court of Appeals,
he filed an Ex-Parte Motion to Admit Payment of Docket Fee,17 explaining that
being jobless, it took some time for him to raise the docket fee. He added that he
had to borrow at an exorbitant interest rate. Finally, he explained that when he
went to the trial court to pay the docket fee, he was advised to pay the same at
the Court of Appeals, the records having already been forwarded to it.

The Court of Appeals denied his motion and dismissed his

appeal.18 On Motion for Reconsideration, however, the Court of Appeals,
by Resolution dated July 19, 2005, admitted Gasat’s docket fee.19 Petitioner filed
a Motion for Reconsideration, which the Court of Appeals denied in this wise: 20

It is settled that "delay in the payment of the docket fees confers a discretionary,
and not mandatory, power to dismiss the proposed appeal." While the payment
of the prescribed docket fee is a jurisdictional requirement, its non-payment at
the time of filing does not automatically cause the dismissal of the case, as long
as the fee is paid within the applicable prescriptive or reglementary period,
moreso, when the party involved demonstrates a willingness to abide by the rules
prescribing such payment. On this score is the case of Spouses Gregorio Go and
Juan Tan Go v. Johnson Y. Tong, et. al., where the Supreme Court ruled that:

While the cause of action of the private respondent was supposed to prescribe in
four (4) years, he was allowed to pay; and he in fact paid the docket fee in a
year’s time. We do not see how this period can be deemed unreasonable.
Moreover, on his part there is no showing of any pattern or intent to defraud the
government of the required docket fee.

In the instant case, the period between the filing of the notice of appeal on
February 28, 2005 and the payment of docket fee on May 26, 2005 is deemed
reasonable. Moreover, justice will be better served with the admission of such
belated payment.21 (Underscoring supplied)

Hence, the present Petition for Certiorari and Prohibition with Urgent Motion for
Injunction and Temporary Restraining Order,22 petitioner faulting the Court of
Appeals for committing grave abuse of discretion in relaxing the rule on the
payment of docket fees on the ground of substantial justice.23

The petition fails.

Indeed, jurisprudence allows the relaxation of the Rule on non-payment of

appellate docket fees.

Notwithstanding the mandatory nature of the requirement of payment of appellate

docket fees, we also recognize that its strict application is qualified by the
following: first, failure to pay those fees within the reglementary period allows
only discretionary, not automatic, dismissal; second, such power should be used
by the court in conjunction with its exercise of sound discretion in accordance
with the tenets of justice and fair play, as well as with a great deal of
circumspection in consideration of all attendant circumstances.24

The relaxation by the appellate court of the rule on non-payment of the appellate
docket fee appears justified as a perusal of the records of the case shows
persuasive and weighty reasons to give due course to the appeal.25

Instead of remanding the case to the appellate court, however, this Court, in the
interest of speedy dispensation of justice,26 especially given that the main issue is
a question of law, now passes on the merits of the appeal of Gasat.

Section 1 of Rule 34 of the Rules of Court provides:

SECTION 1. Judgment on the Pleadings. – Where an answer fails to tender an

issue, or otherwise admits the material allegations of the adverse party’s
pleading, the court may, on motion of that party, direct judgment on such
pleading. However, in actions for declaration of nullity or annulment of marriage
or for legal separation, the material facts alleged in the complaint shall always be
proved. (Emphasis and underscoring supplied)

Passing on this rule, the Court declared:

x x x The answer would fail to tender an issue x x x if it does not comply with the
requirements for a specific denial set out in Section 10 (or Section 8) of Rule 8;
and it would admit the material allegations of the adverse party’s pleadings not
only where it expressly confesses the truthfulness thereof but also if it omits to
deal with them at all.

Now, if an answer does in fact specifically deny the material averments of the
complaint in the manner indicated by said Section 10 of Rule 8, and/or asserts
affirmative defenses (allegations of new matter which, while admitting the
material allegations of the complaint expressly or impliedly, would nevertheless
bar recovery by the plaintiff) x x x, a judgment on the pleadings would naturally
not be proper.27

In the case at bar, the trial court granted petitioner’s motion for judgment on the
pleadings on petitioner’s argument that in withdrawing Gasat’s allegation of her
having adopted him, he "practically admitted her material allegations [in her
Complaint] that [he] is not an adopted child."

Gasat’s Answer with Compulsory Counterclaim raised other issues,

however, which are independent of his claim of adoptive filiation and which would
defeat petitioner’s main cause of action – for the court to enjoin Gasat "and all
persons acting under him from preventing the officers or employees of the [PNB]
from releasing" the deposit to her.

11. . . Further, defendant has all the rights to prohibit the plaintiff from personally
withdrawing [from] the said bank account because, it is mandated by law
that after the death of the owner of the said account, any withdrawal is prohibited
except by order of the Court or upon presentation of an Extrajudicial Settlement
executed by the legal heirs and after compliance with all the requirements of the
law. Likewise the bank is prohibited to allow any withdrawal without submitting to
it said requirements.

xxxx

13. With respect to the allegations of said paragraph 14, to wit –

Unless an injunction be issued against the defendant restraining him from

claiming in the bank account, the plaintiff would suffer irreparable damage. The
plaintiff is willing to post a bond in an amount to be fixed by the Honorable Court.

this allegation is UNFOUNDED AND BASELESS and the court cannot use [it] as
a ground for the issuance of any restraining order. Even assuming that the court
will issue an Order restraining defendant from claiming the bank account,
the plaintiff still cannot withdraw any amount thereof, because it is a part of the
ESTATE of Jacinto Polido, and as provided for by laws before the bank allows
any withdrawal, the plaintiff has to follow certain procedures required by other
laws governing estate settlement, that is, - (a) Payment of Estate Tax, if any; (b)
BIR Tax Clearance; (c) Present a duly published Extrajudicial Partition executed
by the heirs adjudicating said amount to such heir, unless a competent Court
issues an Order allowing the plaintiff to withdraw [from] said
account. 28 (Underscoring supplied)

It bears noting that petitioner and her deceased husband Polido were childless;
hence, Gasat, who is a son of Polido’s sister Petra P. Gasat, could inherit from
Polido.

Parenthetically, Section 97 of the National Internal Revenue Code states:

xxxx

If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the
said deposit account unless the Commissioner had certified that the taxes
imposed thereon by this Title have been paid; Provided, however, That the
administrator of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not exceeding Twenty
thousand pesos (₱20,000) without the said certification. For this purpose, all
withdrawal slips shall contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any one of the joint
depositors and such statement shall be under oath by the said depositors.

There being no ground to merit petitioner’s Motion for Judgment on the

Pleadings, the trial court erred in granting the same.
law phil.net

WHEREFORE, the assailed petition is DENIED. The Court of Appeals Resolution

admitting respondent’s payment of docket fee is upheld.

The Order of the Regional Trial Court of Camiling, Tarlac, Branch 68 dated
December 7, 2004 granting petitioner’s Motion for Judgment on the Pleadings is
REVERSED and SET ASIDE.

Let the case be REMANDED to the trial court which is directed to continue with
dispatch its proceedings on and/or resolve the case in light of the foregoing
discussions.

Costs against petitioner.

SO ORDERED.