THIRD DIVISION Taxable Transfer (Sch.

3) non payment

G.R. No. 140944             April 30, 2008 Gross Conjugal Estate no notice of death
Less: Deductions (Sch. 4)
RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial no CPA Certificate
Administrator of the Estate of the deceased JOSE P. Net Conjugal Estate
FERNANDEZ, petitioner, Less: Share of Surviving Spouse Total amount due & collectible
vs.
COURT OF TAX APPEALS and COMMISSIONER OF Net Share in Conjugal Estate
INTERNAL REVENUE, respondents. xxx In his letter19 dated December 12, 1991, Atty. Gonzales moved
for the reconsideration of the said estate tax assessment.
DECISION Net Taxable Estate However, in her letter20 dated April 12, 1994, the BIR
Commissioner denied the request and reiterated that the estate
Estate Tax Due is liable for the payment of P66,973,985.40 as deficiency estate
NACHURA, J.: tax. On May 3, 1994, petitioner received the letter of denial. On
June 2, 1994, petitioner filed a petition for review21 before
On April 27, 1990, BIR Regional Director for San Pablo City,
Before this Court is a Petition for Review on Certiorari1 under respondent CTA. Trial on the merits ensued.
Osmundo G. Umali issued Certification Nos. 2052[12] and
Rule 45 of the Rules of Civil Procedure seeking the reversal of 2053[13] stating that the taxes due on the transfer of real and
the Court of Appeals (CA) Decision2 dated April 30, 1999 which personal properties[14] of Jose had been fully paid and said As found by the CTA, the respective parties presented the
affirmed the Decision3 of the Court of Tax Appeals (CTA) dated properties may be transferred to his heirs. Sometime in August following pieces of evidence, to wit:
June 17, 1997.4 1990, Justice Dizon passed away. Thus, on October 22, 1990,
the probate court appointed petitioner as the administrator of
In the hearings conducted, petitioner did not present
The Facts the Estate.15
testimonial evidence but merely documentary
evidence consisting of the following:
On November 7, 1987, Jose P. Fernandez (Jose) died. Petitioner requested the probate court's authority to sell several
Thereafter, a petition for the probate of his will5 was filed with properties forming part of the Estate, for the purpose of paying
its creditors, namely: Equitable Banking Corporation Nature of Documen
Branch 51 of the Regional Trial Court (RTC) of Manila (probate
court).[6] The probate court then appointed retired Supreme (P19,756,428.31), Banque de L'Indochine et. de Suez
Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, (US$4,828,905.90 as of January 31, 1988), Manila Banking 1. Letter dated October 13, 1988 from Arsenio P
Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Corporation (P84,199,160.46 as of February 28, 1989) and Commissioner of Internal Revenue informing
Assistant Special Administrator, respectively, of the Estate of State Investment House, Inc. (P6,280,006.21). Petitioner proceedings for the settlement of the estate (p
Jose (Estate). In a letter7 dated October 13, 1988, Justice manifested that Manila Bank, a major creditor of the Estate was
not included, as it did not file a claim with the probate court 2. Petition for the probate of the will and issuanc
Dizon informed respondent Commissioner of the Bureau of filed with the Regional Trial Court (RTC) of M
Internal Revenue (BIR) of the special proceedings for the since it had security over several real estate properties forming
part of the Estate.16 No. 87-42980 (pp. 107-108, BIR records);
Estate.
3. Pleading entitled "Compliance" filed with the p
However, on November 26, 1991, the Assistant Commissioner final inventory of all the properties of the dece
Petitioner alleged that several requests for extension of the
period to file the required estate tax return were granted by the for Collection of the BIR, Themistocles Montalban, issued 4. Attachment to Exh. "C" which is the detailed a
BIR since the assets of the estate, as well as the claims Estate Tax Assessment Notice No. FAS-E-87-91- properties of the deceased (pp. 89-105, BIR r
against it, had yet to be collated, determined and identified. 003269,17 demanding the payment of P66,973,985.40 as
deficiency estate tax, itemized as follows: 5. Claims against the estate filed by Equitable B
Thus, in a letter8 dated March 14, 1990, Justice Dizon Court in the amount of P19,756,428.31 as of
authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign the Annexes to the claim (pp. 64-88, BIR reco
and file on behalf of the Estate the required estate tax return
Deficiency Estate Tax- 1987 6. Claim filed by Banque de L' Indochine et de S
and to represent the same in securing a Certificate of Tax
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote Estate tax the amount of US $4,828,905.90 as of Januar
a letter9 addressed to the BIR Regional Director for San Pablo records);
25% surcharge- late filing
City and filed the estate tax return10 with the same BIR 7. Claim of the Manila Banking Corporation (MB
Regional Office, showing therein a NIL estate tax liability, late payment 1987 amounts to P65,158,023.54, but recomp
computed as follows: at a total amount of P84,199,160.46; together
Interest MBC's lawyer (pp. 194-197, BIR records);
COMPUTATION OF TAX 8. Demand letter of Manila Banking Corporation
Compromise-non filing and Associates Law Offices addressed to Fer
Conjugal Real Property (Sch. 1)
represented by Jose P. Fernandez, as mortga
Conjugal Personal Property (Sch.2) of P240,479,693.17 as of February 28, 1989
 9. Claim of State Investment House, Inc. filed with the RTC, Branch
12. VII ofSignature of Maximino V. Tagle at the lower portion Add:
of Exh.
Penalties
"3"; for-No notice of death
Manila, docketed as Civil Case No. 86-38599 entitled "State Investment
13. Demand letter (FAS-E-87-91-00), signed by the Asst. Commissioner for No CPA certificate
House, Inc., Plaintiff, versus Maritime Company Overseas, Inc. and/or Jose
Collection for the Commissioner of Internal Revenue, demanding payment
P. Fernandez, Defendants," (pp. 200-215, BIR records);
of the amount of P66,973,985.40; and Total deficiency estate tax
10. Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus
14. Assessment Notice FAS-E-87-91-00
M. Gonzales, (p. 184, BIR records);
11. Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional
Director of BIR in San Pablo City (p. 183, BIR records); The CTA's Ruling exclusive of 20% interest from due date of its
payment until full payment thereof
12. Estate Tax Return filed by the estate of the late Jose P. Fernandez through
its authorized representative, Atty. Jesus On June 17, 1997,
M. Gonzales, the CTA
for Arsenio P. denied
Dizon, the said petition for review.
Citing this Court's ruling in Vda. de Oñate v. Court of
with attachments (pp. 177-182, BIR records); [Sec. 283 (b), Tax Code of 1987].25
Appeals,  the CTA opined that the aforementioned pieces of
23

13. Certified true copy of the Letter of Administration

evidenceissued by RTC
introduced by Manila,
the BIR were admissible in evidence.
Branch 51, in Sp. Proc. No. 87-42980 appointing Thus, the CTA disposed of the case in this wise:
The CTAAtty. Rafael S. Dizon as
ratiocinated:
Judicial Administrator of the estate of Jose P. Fernandez; (p. 102, CTA
records) and WHEREFORE, viewed from all the foregoing, the
Although the above-mentioned documents were not formally
14. Certification of Payment of estate taxes Nos. 2052 Court finds the petition unmeritorious and denies the
offered asand 2053, for
evidence bothrespondent,
dated considering that
April 27, 1990, issued by the Office of therespondent
Regional Director, Revenue same. Petitioner and/or the heirs of Jose P.
has been declared to have waived the presentation
Region No. 4-C, San Pablo City, with attachments (pp. 103-104, CTA Fernandez are hereby ordered to pay to respondent
thereof during the hearing on March 20, 1996, still they could
records.). the amount of P37,419,493.71 plus 20% interest
be considered as evidence for respondent since they were
from the due date of its payment until full payment
properly identified during the presentation of respondent's
thereof as estate tax liability of the estate of Jose P.
Respondent's [BIR] counsel presented on June witness, whose testimony was duly recorded as part of the
Fernandez who died on November 7, 1987.
26, 1995 one witness in the person of Alberto records of this case. Besides, the documents marked as
Enriquez, who was one of the revenue examiners respondent's exhibits formed part of the BIR records of the
case.24 SO ORDERED.26
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, Nevertheless, the CTA did not fully adopt the assessment Aggrieved, petitioner, on March 2, 1998, went to the CA via a
he identified the following: made by the BIR and it came up with its own computation of petition for review.27
the deficiency estate tax, to wit:
Documents/Signatures The CA's Ruling
Conjugal Real Property
1. Estate Tax Return prepared by the BIR; Conjugal Personal Prop. 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
2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez,
GrossJr. appearing
Conjugal at
Estate of filing an estate tax return with the BIR and the issuance of
the lower Portion of Exh. "1";
Less: Deductions BIR Certification Nos. 2052 and 2053 did not deprive the BIR
3. Memorandum for the Commissioner, dated July 19, 1991, prepared by Commissioner of her authority to re-examine or re-assess the
revenue examiners, Ma. Anabella A. Abuloc, AlbertoNet Conjugal and
S. Enriquez Estate said return filed on behalf of the Estate.28
Raymund S. Gallardo; Reviewed by Maximino V. TagleLess: Share of Surviving Spouse
4. Signature of Alberto S. Enriquez appearing at the lower
Net portion
Share inonConjugal
p. 2 of Estate On May 31, 1999, petitioner filed a Motion for
Exh. "2"; Reconsideration29 which the CA denied in its Resolution30 dated
Add: Capital/Paraphernal November 3, 1999.
5. Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2
of Exh. "2";
Properties – P44,652,813.66
Hence, the instant Petition raising the following issues:
6. Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of
Exh. "2";
Less: Capital/Paraphernal Deductions
1. Whether or not the admission of evidence which
7. Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2";
were not formally offered by the respondent BIR by
8. Summary of revenue Enforcement Officers Audit Report, dated July
Net Taxable 19,
Estate the Court of Tax Appeals which was subsequently
1991; upheld by the Court of Appeals is contrary to the
9. Signature of Alberto Enriquez at the lower portion of Exh. "3"; Rules of Court and rulings of this Honorable Court;
Estate Tax Due P 29,935,342.97
10. Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3";
2. Whether or not the Court of Tax Appeals and the
11. Signature of Raymond S. Gallardo at the lower portion of Exh. "3"; Court of Appeals erred in recognizing/considering the
Add: 25% Surcharge for Late Filing
estate tax return prepared and filed by respondent
 BIR knowing that the probate court appointed factual findings of the CTA as affirmed by the CA may no From the foregoing provision, it is clear that for
administrator of the estate of Jose P. Fernandez had longer be reviewed by this Court via a petition for review.33 evidence to be considered, the same must be
previously filed one as in fact, BIR Certification formally offered. Corollarily, the mere fact that a
Clearance Nos. 2052 and 2053 had been issued in particular document is identified and marked as an
The Issues
the estate's favor; exhibit does not mean that it has already been
offered as part of the evidence of a party.
There are two ultimate issues which require resolution in this In Interpacific Transit, Inc. v. Aviles [186 SCRA 385],
3. Whether or not the Court of Tax Appeals and the
case: we had the occasion to make a distinction between
Court of Appeals erred in disallowing the valid and
identification of documentary evidence and its formal
enforceable claims of creditors against the estate, as
offer as an exhibit. We said that the first is done in
lawful deductions despite clear and convincing First. Whether or not the CTA and the CA gravely erred in the course of the trial and is accompanied by the
evidence thereof; and allowing the admission of the pieces of evidence which were marking of the evidence as an exhibit while the
not formally offered by the BIR; and second is done only when the party rests its case
4. Whether or not the Court of Tax Appeals and the and not before. A party, therefore, may opt to
Court of Appeals erred in validating erroneous Second. Whether or not the CA erred in affirming the CTA in formally offer his evidence if he believes that it will
double imputation of values on the very same estate the latter's determination of the deficiency estate tax imposed advance his cause or not to do so at all. In the event
properties in the estate tax return it prepared and against the Estate. he chooses to do the latter, the trial court is not
filed which effectively bloated the estate's assets.31 authorized by the Rules to consider the same.
The Court’s Ruling
The petitioner claims that in as much as the valid claims of However, in People v. Napat-a [179 SCRA 403]
creditors against the Estate are in excess of the gross estate, citing People v. Mate [103 SCRA 484], we relaxed
The Petition is impressed with merit. the foregoing rule and allowed evidence not
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 formally offered to be admitted and considered
in Vda. de Oñate has already been abandoned in a long line of Under Section 8 of RA 1125, the CTA is categorically by the trial court provided the following
cases in which the Court held that evidence not formally described as a court of record. As cases filed before it are requirements are present, viz.: first, the same
offered is without any weight or value; that Section 34 of Rule litigated de novo, party-litigants shall prove every minute must have been duly identified by testimony duly
132 of the Rules on Evidence requiring a formal offer of aspect of their cases. Indubitably, no evidentiary value can be recorded and, second, the same must have been
evidence is mandatory in character; that, while BIR's witness given the pieces of evidence submitted by the BIR, as the rules incorporated in the records of the case.40
Alberto Enriquez (Alberto) in his testimony before the CTA on documentary evidence require that these documents must
identified the pieces of evidence aforementioned such that the be formally offered before the CTA.34 Pertinent is Section 34, From the foregoing declaration, however, it is clear that Vda.
same were marked, BIR's failure to formally offer said pieces of Rule 132 of the Revised Rules on Evidence which reads: de Oñate is merely an exception to the general rule. Being an
evidence and depriving petitioner the opportunity to cross-
exception, it may be applied only when there is strict
examine Alberto, render the same inadmissible in evidence;
SEC. 34. Offer of evidence. — The court shall compliance with the requisites mentioned therein; otherwise,
that assuming arguendo that the ruling in Vda. de Oñate is still
consider no evidence which has not been formally the general rule in Section 34 of Rule 132 of the Rules of Court
applicable, BIR failed to comply with the doctrine's requisites
offered. The purpose for which the evidence is should prevail.
because the documents herein remained simply part of the BIR
records and were not duly incorporated in the court records; offered must be specified.
that the BIR failed to consider that although the actual In this case, we find that these requirements have not been
payments made to the Estate creditors were lower than their The CTA and the CA rely solely on the case of Vda. de Oñate, satisfied. The assailed pieces of evidence were presented and
respective claims, such were compromise agreements reached which reiterated this Court's previous rulings in People v. marked during the trial particularly when Alberto took the
long after the Estate's liability had been settled by the filing of Napat-a35 and People v. Mate36 on the admission and witness stand. Alberto identified these pieces of evidence in his
its estate tax return and the issuance of BIR Certification Nos. consideration of exhibits which were not formally offered during direct testimony.41 He was also subjected to cross-examination
2052 and 2053; and that the reckoning date of the claims the trial. Although in a long line of cases many of which were and re-cross examination by petitioner.42 But Alberto’s account
against the Estate and the settlement of the estate tax due decided after Vda. de Oñate, we held that courts cannot and the exchanges between Alberto and petitioner did not
should be at the time the estate tax return was filed by the consider evidence which has not been formally sufficiently describe the contents of the said pieces of evidence
judicial administrator and the issuance of said BIR offered,37 nevertheless, petitioner cannot validly assume that presented by the BIR. In fact, petitioner sought that the lead
Certifications and not at the time the aforementioned the doctrine laid down in Vda. de Oñate has already been examiner, one Ma. Anabella A. Abuloc, be summoned to
Compromise Agreements were entered into with the Estate's abandoned. Recently, in Ramos v. Dizon,38 this Court, applying testify, inasmuch as Alberto was incompetent to answer
creditors.32 the said doctrine, ruled that the trial court judge therein questions relative to the working papers.43 The lead examiner
committed no error when he admitted and considered the never testified. Moreover, while Alberto's testimony identifying
respondents' exhibits in the resolution of the case, the BIR's evidence was duly recorded, the BIR documents
On the other hand, respondent counters that the documents,
notwithstanding the fact that the same were not formally themselves were not incorporated in the records of the case.
being part of the records of the case and duly identified in a
duly recorded testimony are considered evidence even if the offered. Likewise, in Far East Bank & Trust Company v.
same were not formally offered; that the filing of the estate tax Commissioner of Internal Revenue,39 the Court made reference
return by the Estate and the issuance of BIR Certification Nos. to said doctrine in resolving the issues therein. Indubitably, the
2052 and 2053 did not deprive the BIR of its authority to doctrine laid down in Vda. De Oñate still subsists in this
examine the return and assess the estate tax; and that the jurisdiction. In Vda. de Oñate, we held that:
A common fact threads through Vda. de other hand, this allows opposing parties to examine creditor receives a thing different from that stipulated;
Oñate and Ramos that does not exist at all in the instant case. the evidence and object to its admissibility. or novation, when the object or principal conditions of
In the aforementioned cases, the exhibits were marked at the Moreover, it facilitates review as the appellate court the obligation should be changed; or compromise,
pre-trial proceedings to warrant the pronouncement that the will not be required to review documents not when the matter renounced is in litigation or dispute
same were duly incorporated in the records of the case. Thus, previously scrutinized by the trial court. and in exchange of some concession which the
we held in Ramos: creditor receives.57
Strict adherence to the said rule is not a trivial
In this case, we find and so rule that these matter. The Court in Constantino v. Court of Verily, the second issue in this case involves the construction
requirements have been satisfied. The exhibits in Appeals ruled that the formal offer of one's of Section 7958 of the National Internal Revenue Code59 (Tax
question were presented and marked during the evidence is deemed waived after failing to submit Code) which provides for the allowable deductions from the
pre-trial of the case thus, they have been it within a considerable period of time. It gross estate of the decedent. The specific question is whether
incorporated into the records. Further, Elpidio explained that the court cannot admit an offer of the actual claims of the aforementioned creditors may be fully
himself explained the contents of these exhibits evidence made after a lapse of three (3) months allowed as deductions from the gross estate of Jose despite
when he was interrogated by respondents' counsel... because to do so would "condone an the fact that the said claims were reduced or condoned through
inexcusable laxity if not non-compliance with a compromise agreements entered into by the Estate with its
court order which, in effect, would encourage creditors.
xxxx
needless delays and derail the speedy
administration of justice."
"Claims against the estate," as allowable deductions from the
But what further defeats petitioner's cause on this
gross estate under Section 79 of the Tax Code, are basically a
issue is that respondents' exhibits were marked and
Applying the aforementioned principle in this case, reproduction of the deductions allowed under Section 89 (a) (1)
admitted during the pre-trial stage as shown by the
we find that the trial court had reasonable ground to (C) and (E) of Commonwealth Act No. 466 (CA 466), otherwise
Pre-Trial Order quoted earlier.44
consider that petitioners had waived their right to known as the National Internal Revenue Code of 1939, and
make a formal offer of documentary or object which was the first codification of Philippine tax laws. Philippine
While the CTA is not governed strictly by technical rules of evidence. Despite several extensions of time to tax laws were, in turn, based on the federal tax laws of the
evidence,45 as rules of procedure are not ends in themselves make their formal offer, petitioners failed to comply United States. Thus, pursuant to established rules of statutory
and are primarily intended as tools in the administration of with their commitment and allowed almost five construction, the decisions of American courts construing the
justice, the presentation of the BIR's evidence is not a mere months to lapse before finally submitting federal tax code are entitled to great weight in the interpretation
procedural technicality which may be disregarded considering it. Petitioners' failure to comply with the rule on of our own tax laws.60
that it is the only means by which the CTA may ascertain and admissibility of evidence is anathema to the
verify the truth of BIR's claims against the Estate.46 The BIR's efficient, effective, and expeditious dispensation
It is noteworthy that even in the United States, there is some
failure to formally offer these pieces of evidence, despite CTA's of justice.
dispute as to whether the deductible amount for a claim against
directives, is fatal to its cause.47 Such failure is aggravated by
the estate is fixed as of the decedent's death which is the
the fact that not even a single reason was advanced by the BIR
Having disposed of the foregoing procedural issue, we proceed general rule, or the same should be adjusted to reflect post-
to justify such fatal omission. This, we take against the BIR.
to discuss the merits of the case. death developments, such as where a settlement between the
parties results in the reduction of the amount actually paid.61 On
Per the records of this case, the BIR was directed to present its one hand, the U.S. court ruled that the appropriate deduction is
Ordinarily, the CTA's findings, as affirmed by the CA, are
evidence48 in the hearing of February 21, 1996, but BIR's the "value" that the claim had at the date of the decedent's
entitled to the highest respect and will not be disturbed on
counsel failed to appear.49 The CTA denied petitioner's motion death.62 Also, as held in Propstra v. U.S., 63 where a lien
appeal unless it is shown that the lower courts committed gross
to consider BIR's presentation of evidence as waived, with a claimed against the estate was certain and enforceable on the
error in the appreciation of facts.54 In this case, however, we
warning to BIR that such presentation would be considered date of the decedent's death, the fact that the claimant
find the decision of the CA affirming that of the CTA tainted
waived if BIR's evidence would not be presented at the next subsequently settled for lesser amount did not preclude the
with palpable error.
hearing. Again, in the hearing of March 20, 1996, BIR's counsel estate from deducting the entire amount of the claim for estate
failed to appear.50 Thus, in its Resolution51 dated March 21, tax purposes. These pronouncements essentially confirm the
1996, the CTA considered the BIR to have waived presentation It is admitted that the claims of the Estate's aforementioned general principle that post-death developments are not material
of its evidence. In the same Resolution, the parties were creditors have been condoned. As a mode of extinguishing an in determining the amount of the deduction.
directed to file their respective memorandum. Petitioner obligation,55 condonation or remission of debt56 is defined as:
complied but BIR failed to do so.52 In all of these proceedings,
On the other hand, the Internal Revenue Service (Service)
BIR was duly notified. Hence, in this case, we are constrained
an act of liberality, by virtue of which, without opines that post-death settlement should be taken into
to apply our ruling in Heirs of Pedro Pasag v. Parocha: 53
receiving any equivalent, the creditor renounces the consideration and the claim should be allowed as a deduction
enforcement of the obligation, which is extinguished only to the extent of the amount actually paid.64 Recognizing
A formal offer is necessary because judges are in its entirety or in that part or aspect of the same to the dispute, the Service released Proposed Regulations in
mandated to rest their findings of facts and their which the remission refers. It is an essential 2007 mandating that the deduction would be limited to the
judgment only and strictly upon the evidence offered characteristic of remission that it be gratuitous, that actual amount paid.65
by the parties at the trial. Its function is to enable the there is no equivalent received for the benefit given;
trial judge to know the purpose or purposes for which once such equivalent exists, the nature of the act
In announcing its agreement with Propstra,66 the U.S. 5th Circuit
the proponent is presenting the evidence. On the changes. It may become dation in payment when the
Court of Appeals held:
 We are persuaded that the Ninth Circuit's WE CONCUR: Associate Justice Eugenio S. Labitoria (now retired),
decision...in Propstra correctly apply the Ithaca concurring; id. at 22-31.
Trust date-of-death valuation principle to enforceable
claims against the estate. As we interpret Ithaca CONSUELO YNARES-SANTIAGO 3
 Particularly docketed as CTA Case No. 5116;
Trust, when the Supreme Court announced the date- Associate Justice penned by Associate Judge Ramon O. De Veyra and
of-death valuation principle, it was making a Chairperson concurred in by Presiding Judge Ernesto D. Acosta
judgment about the nature of the federal estate tax
and Associate Judge Amancio Q. Saga; id. at 33-61.
specifically, that it is a tax imposed on the act
MA.ofALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO
transferring property by will or intestacy and, Associate Justice Associate Justice
because the act on which the tax is levied occurs at 4
 This case was decided before the CTA was
a discrete time, i.e., the instance of death, the net RUBEN T. REYES elevated by law to the same level as the CA by virtue
value of the property transferred should be Associate Justice of Republic Act (RA) No. 9282 otherwise known as
ascertained, as nearly as possible, as of that time. "An Act Expanding the Jurisdiction of the Court of
This analysis supports broad application of the date- Tax Appeals (CTA), Elevating its Rank to the Level
of-death valuation rule.67 of a Collegiate Court with Special Jurisdiction and
Enlarging its Membership, Amending for the Purpose
Certain Sections of Republic Act No. 1125, as
We express our agreement with the date-of-death valuation
ATTESTATION amended, otherwise known as The Law Creating the
rule, made pursuant to the ruling of the U.S. Supreme Court
Court of Tax Appeals, and for other purposes," which
in Ithaca Trust Co. v. United States.68 First. There is no law, nor
was approved on March 30, 2004. Hence, upon its
do we discern any legislative intent in our tax laws, which I attest that the conclusions in the above Decision had been
effectivity, decisions of the CTA are now appealable
disregards the date-of-death valuation principle and particularly reached in consultation before the case was assigned to the
directly to the Supreme Court.
provides that post-death developments must be considered in writer of the opinion of the Court’s Division.
determining the net value of the estate. It bears emphasis that
tax burdens are not to be imposed, nor presumed to be 5
 BIR Records, pp. 1-88.
CONSUELO YNARES-SANTIAGO
imposed, beyond what the statute expressly and clearly
Associate Justice
imports, tax statutes being construed strictissimi juris against
Chairperson, Third Division 6
 The said petition is entitled: In the Matter of the
the government.69 Any doubt on whether a person, article or
Petition to Approve the Will of Jose P. Fernandez,
activity is taxable is generally resolved against
Carlos P. Fernandez, Petitioner, particularly
taxation.70 Second. Such construction finds relevance and
docketed as Special Proceedings No. 87-42980; BIR
consistency in our Rules on Special Proceedings wherein the
Record, pp. 107-108.
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 CERTIFICATION
7
 Id. at 126.
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 Pursuant to Section 13, Article VIII of the Constitution and the
8
 Id. at 184.
determination of allowable deductions. Division Chairperson’s Attestation, I certify that the conclusions
in the above Decision had been reached in consultation before 9
 Id. at 183.
the case was assigned to the writer of the opinion of the
WHEREFORE, the instant Petition is GRANTED. Accordingly, Court’s Division.
the assailed Decision dated April 30, 1999 and the Resolution 10
 Id. at 182.
dated November 3, 1999 of the Court of Appeals in CA-G.R.
S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau REYNATO S. PUNO
of Internal Revenue's deficiency estate tax assessment against Chief Justice
11
 Id.
the Estate of Jose P. Fernandez is hereby NULLIFIED. No
costs. 12
 Rollo, p. 68.

SO ORDERED. 13
 Id. at 69.

Footnotes
ANTONIO EDUARDO B. NACHURA  Lists of Personal and Real Properties of Jose; id.
14

Associate Justice at 70-73.

1
 Dated January 20, 2000, rollo, pp. 8-20.
15
 CTA Record, p. 102.
2
 Particularly docketed as CA-G.R. SP No. 46947;
penned by Associate Justice Marina L. Buzon, with
Presiding Justice Jesus M. Elbinias (now retired) and
16
 Rollo, p. 10.
  BIR Records, p. 169.
17 37
 Far East Bank & Trust Company v. Commissioner  Id. at 120.
51

of Internal Revenue, G.R. No. 149589, September

15, 2006, 502 SCRA 87; Ala-Martin v. Sultan, G.R.
 Id.
18
 CTA Order dated June 17, 1996, CTA Records, p.
52
No. 117512, October 2, 2001, 366 SCRA 316,
138.
citing Ong v. Court of Appeals, 301 SCRA 391
 Id. at 171.
19
(1999), which further cited Candido v. Court of
Appeals, 253 SCRA 78, 82-83 (1996); Republic v. 53
 G.R. No. 155483, April 27, 2007, 522 SCRA 410,
Sandiganbayan, 255 SCRA 438, 456 (1996); People 416, citing Constantino v. Court of Appeals, G.R. No.
 By then BIR Commissioner Liwayway Vinzons-
20
v. Peralta, 237 SCRA 218, 226 (1994); Vda. De 116018, November 13, 1996, 264 SCRA 59 (Other
Chato; id. at 277-278. Alvarez vs. Court of Appeals, 231 SCRA 309, 317- citations omitted; Emphasis supplied ).
318 (1994); and People v. Cariño, et al., 165 SCRA
 CTA Records, pp. 1-7.
21
664, 671 (1988); See also De los Reyes v. 54
 Filinvest Development Corporation v.
Intermediate Appellate Court, G.R. No.74768,
Commissioner of Internal Revenue and Court of Tax
August 11, 1989, 176 SCRA 394, 401-402 (1989)
 Rollo, pp. 37-40 (Emphasis supplied).
22
Appeals, G.R. No. 146941, August 9, 2007, 529
and People v. Mate, supra note 23, at 493.
SCRA 605, 609-610, citing Carrara Marble
Philippines, Inc. v. Commissioner of Customs, 372
23
 G.R. No. 116149, November 23, 1995, 250 SCRA  G.R. No. 137247, August 7, 2006, 498 SCRA 17,
38
Phil. 322, 333-334 (1999) and Commissioner of
283, 287, citing People v. Napat-a, 179 SCRA 403 30-31. Internal Revenue v. Court of Appeals, 358 Phil. 562,
(1989) and People v. Mate, 103 SCRA 484 (1981). 584 (1998).
 Supra note 29, at 91.
39
 CTA Records, p. 148.
24
 Article 1231 of the Civil Code of the Philippines
55

provides:
 Underscoring supplied.
40
 Id. at 166-167.
25

Art. 1231. Obligations are extinguished:

 TSN, June 26, 1995.
41
 Id. at 167.
26

(1) By payment or performance;

 TSN, July 12, 1995.
42
 CA rollo, pp. 3-17.
27

(2) By the loss of the thing due;

 Id. at 42-49.
43
 Citing Section 16 of the 1993 National Internal
28

Revenue Code. (3) By the condonation or remission of

 Supra note 29, at 31 and 34, citing Marmont
44
the debt;
Resort Hotel Enterprises v. Guiang, 168 SCRA 373,
 Rollo, pp. 22-31.
29
379-380 (1988).
(4) By the confusion or merger of the rights
 Id. at 32.
30
of creditor and debtor;
 Calamba Steel Center, Inc. (formerly JS Steel
45

Corporation) v. Commissioner of Internal Revenue,

 Id. at 114-115.
31 G.R. No. 151857, April 28, 2005, 457 SCRA 482, (5) By compensation;
494.
 Id.
32
(6) By novation. (Emphasis ours.)
 Commissioner of Internal Revenue v. Manila
46

Mining Corporation, supra note 28, at 593-594.

 Respondent BIR's Memorandum dated October
33
 Article 1270 of the Civil Code of the Philippines
56

16, 2000; id. at 140-144. provides:

 Far East Bank & Trust Company v. Commissioner
47

of Internal Revenue, supra note 29, at 90.

 Commissioner of Internal Revenue v. Manila
34
Art. 1270. Condonation or remission is
Mining Corporation, G.R. No. 153204, August 31, essentially gratuitous, and requires the
2005, 468 SCRA 571, 588-589.  CTA Resolution dated January 19, 1996; CTA
48
acceptance by the obligor. It may be made
Records, p. 113-114. expressly or impliedly.
 Supra note 23.
35

 CTA Records, p. 117.

49
One and the other kind shall be subject to
the rules which govern inofficious
 Supra note 23.
36
donations. Express condonation shall,
 Id. at 119.
50
furthermore, comply with the forms of
donation.
57
 Tolentino, Commentaries and Jurisprudence on they were contracted bona fide and for an SCRA 442 (1998); Republic v. IAC, 196 SCRA 335
the Civil Code of the Philippines, Vol. IV, 1991 ed., p. adequate and full reconsideration in (1991); CIR v. Firemen's Fund Ins. Co., 148 SCRA
353, citing 8 Manresa 365. money or money's worth. There shall also 315 (1987); and CIR v. CA, 204 SCRA 182 (1991).
be deducted losses incurred during the
settlement of the estate arising from fires,
 SEC. 79. Computation of net estate and estate tax.
58
 Manila International Airport Authority v. Court of
70
storms, shipwreck, or other casualties, or
— For the purpose of the tax imposed in this Appeals, G.R. No. 155650, July 20, 2006, 495 SCRA
from robbery, theft, or embezzlement,
Chapter, the value of the net estate shall be 591, 619.
when such losses are not compensated for
determined:
by insurance or otherwise, and if at the
time of the filing of the return such losses  Quirino v. Grospe, G.R. No. 58797, January 31,
71

(a) In the case of a citizen or resident of have not been claimed as a deduction for 1989, 169 SCRA 702, 704-705, citing Gabin v.
the Philippines, by deducting from the income tax purposes in an income tax Melliza, 84 Phil. 794, 796 (1949).
value of the gross estate — return, and provided that such losses were
incurred not later than last day for the
payment of the estate tax as prescribed in
(1) Expenses, losses, indebtedness, and subsection (a) of Section 84.
taxes. — Such amounts —

 This refers to the 1977 National Internal Revenue

59
(A) For funeral expenses in an amount Code, as amended which was effective at the time of
equal to five per centum of the gross Jose's death on November 7, 1987.
estate but in no case to
exceed P50,000.00;
 Commissioner of Internal Revenue v. Court of
60

Appeals, G.R. No. 123206, March 22, 2000, 328

(B) For judicial expenses of the SCRA 666, 676-677 (citations omitted).
testamentary or intestate proceedings;

 47B Corpus Juris Secundum, Internal Revenue §

61
(C) For claims against the 533.
estate; Provided, That at the time the
indebtedness was incurred the debt
instrument was duly notarized and, if the  Smith v. C.I.R., 82 T.C.M. (CCH) 909 (2001), aff'd
62

loan was contracted within three years 54 Fed. Appx. 413.

before the death of the decedent, the
administrator or executor shall submit a
 680 F.2d 1248.
63
statement showing the disposition of the
proceeds of the loan. (As amended by PD
No. 1994)  47B Corpus Juris Secundum, Internal Revenue §
64

524.
(D) For claims of the deceased against
insolvent persons where the value of  Prop. Treas. Reg. §. 20.2053-1 (b) (1), published
65

decedent's interest therein is included in as REG-143316-03.

the value of the gross estate; and
 Supra note 63.
66

(E) For unpaid mortgages upon, or any

indebtedness in respect to property, where
 `Smith's Est. v. CIR, 198 F3d 515, 525 (5th Cir.
67
the value of decedent's interest therein,
1999). See also O'Neal's Est. v. US, 228 F. Supp. 2d
undiminished by such mortgage or
1290 (ND Ala. 2002).
indebtedness, is included in the value of
the gross estate, but not including any
income taxes upon income received after  279 U.S. 151, 49 S. Ct. 291, 73 L.Ed. 647 (1929).
68

the death of the decedent, or property

taxes not accrued before his death, or any 69
 Commissioner of Internal Revenue v. The Court of
estate tax. The deduction herein allowed in
Appeals, Central Vegetable Manufacturing Co., Inc.,
the case of claims against the estate,
and the Court of Tax Appeals, G.R. No. 107135,
unpaid mortgages, or any indebtedness,
February 23, 1999, 303 SCRA 508, 516-517,
shall when founded upon a promise or
citing Province of Bulacan v. Court of Appeals, 299
agreement, be limited to the extent that
G.R. No. 120880 June 5, 1997 estate and income tax delinquencies upon the estate and PROCEEDING FOR THE ALLOWANCE
properties of his father, despite the pendency of the OF THE LATE PRESIDENT'S ALLEGED
proceedings on probate of the will of the late president, which WILL. TO THE CONTRARY, THIS
FERDINAND R. MARCOS II, petitioner,
is docketed as Sp. Proc. No. 10279 in the Regional Trial Court PROBATE PROCEEDING PRECISELY
vs.
of Pasig, Branch 156. PLACED ALL PROPERTIES WHICH
COURT OF APPEALS, THE COMMISSIONER OF THE
FORM PART OF THE LATE
BUREAU OF INTERNAL REVENUE and HERMINIA D. DE
PRESIDENT'S ESTATE IN CUSTODIA
GUZMAN, respondents. Petitioner had filed with the respondent Court of Appeals a
LEGIS OF THE PROBATE COURT TO
Petition for Certiorari and Prohibition with an application for writ
THE EXCLUSION OF ALL OTHER
of preliminary injunction and/or temporary restraining order on
COURTS AND ADMINISTRATIVE
June 28, 1993, seeking to —
AGENCIES.
TORRES, JR., J.: I. Annul and set aside the Notices of Levy
B. RESPONDENT COURT ARBITRARILY
on real property dated February 22, 1993
ERRED IN SWEEPINGLY DECIDING
In this Petition for Review on Certiorari, Government action is and May 20, 1993, issued by respondent
THAT SINCE THE TAX ASSESSMENTS
once again assailed as precipitate and unfair, suffering the Commissioner of Internal Revenue;
OF PETITIONER AND HIS PARENTS
basic and oftly implored requisites of due process of law. HAD ALREADY BECOME FINAL AND
Specifically, the petition assails the Decision 1 of the Court of II. Annul and set aside the Notices of Sale UNAPPEALABLE, THERE WAS NO
Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, dated May 26, 1993; NEED TO GO INTO THE MERITS OF
where the said court held: THE GROUNDS CITED IN THE
PETITION. INDEPENDENT OF
III. Enjoin the Head Revenue Executive
In view of all the foregoing, we rule that the WHETHER THE TAX ASSESSMENTS
Assistant Director II (Collection Service),
deficiency income tax assessments and HAD ALREADY BECOME FINAL,
from proceeding with the Auction of the
estate tax assessment, are already final HOWEVER, PETITIONER HAS THE
real properties covered by Notices of Sale.
and (u)nappealable-and-the subsequent RIGHT TO QUESTION THE UNLAWFUL
levy of real properties is a tax remedy MANNER AND METHOD IN WHICH TAX
resorted to by the government, sanctioned After the parties had pleaded their case, the Court of Appeals COLLECTION IS SOUGHT TO BE
by Section 213 and 218 of the National rendered its Decision 2 on November 29, 1994, ruling that the ENFORCED BY RESPONDENTS
Internal Revenue Code. This summary tax deficiency assessments for estate and income tax made upon COMMISSIONER AND DE GUZMAN.
remedy is distinct and separate from the the petitioner and the estate of the deceased President Marcos THUS, RESPONDENT COURT SHOULD
other tax remedies (such as Judicial Civil have already become final and unappealable, and may thus be HAVE FAVORABLY CONSIDERED THE
actions and Criminal actions), and is not enforced by the summary remedy of levying upon the MERITS OF THE FOLLOWING
affected or precluded by the pendency of properties of the late President, as was done by the respondent GROUNDS IN THE PETITION:
any other tax remedies instituted by the Commissioner of Internal Revenue.
government. (1) The Notices of
WHEREFORE, premises considered Levy on Real Property
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING were issued beyond
judgment is hereby rendered DISMISSING the petition for Certiorari with prayer for the period provided in
the petition for certiorari with prayer for Restraining Order and Injunction. the Revenue
Restraining Order and Injunction. Memorandum Circular
No. 38-68.
No pronouncements as to cost.
No pronouncements as to costs.
(2) [a] The numerous
SO ORDERED. pending court cases
SO ORDERED. questioning the late
Unperturbed, petitioner is now before us assailing the validity of President's ownership
More than seven years since the demise of the late Ferdinand the appellate court's decision, assigning the following as errors: or interests in several
E. Marcos, the former President of the Republic of the properties (both
Philippines, the matter of the settlement of his estate, and its personal and real)
A. RESPONDENT COURT MANIFESTLY make the total value of
dues to the government in estate taxes, are still unresolved, the
ERRED IN RULING THAT THE his estate, and the
latter issue being now before this Court for resolution.
SUMMARY TAX REMEDIES RESORTED consequent estate tax
Specifically, petitioner Ferdinand R. Marcos II, the eldest son of
TO BY THE GOVERNMENT ARE NOT due, incapable of
the decedent, questions the actuations of the respondent
AFFECTED AND PRECLUDED BY THE exact pecuniary
Commissioner of Internal Revenue in assessing, and collecting
PENDENCY OF THE SPECIAL determination at this
through the summary remedy of Levy on Real Properties,
 time. Thus, Memorandum dated July 26, 1991. The address at No. 204 Ortega St., San Juan,
respondents' investigation disclosed that the Marcoses M.M. (Annexes "D" and "E" of the Petition).
assessment of the failed to file a written notice of the death of Likewise, copies of the deficiency tax
estate tax and their the decedent, an estate tax returns [sic], assessments issued against petitioner
issuance of the as well as several income tax returns Ferdinand "Bongbong" Marcos II were also
Notices of Levy and covering the years 1982 to 1986, — all in personally and constructively served upon
Sale are premature, violation of the National Internal Revenue him (through his caretaker) on September
confiscatory and Code (NIRC). 12, 1991, at his last known address at Don
oppressive. Mariano Marcos St. corner P. Guevarra
St., San Juan, M.M. (Annexes "J" and "J-1"
Subsequently, criminal charges were filed
of the Petition). Thereafter, Formal
[b] Petitioner, as one against Mrs. Imelda R. Marcos before the
Assessment notices were served on
of the late President's Regional Trial of Quezon City for violations
October 20, 1992, upon Mrs. Marcos c/o
compulsory heirs, was of Sections 82, 83 and 84 (has penalized
petitioner, at his office, House of
never notified, much under Sections 253 and 254 in relation to
Representatives, Batasan Pambansa,
less served with Section 252 — a & b) of the National
Quezon City. Moreover, a notice to
copies of the Notices Internal Revenue Code (NIRC).
Taxpayer inviting Mrs. Marcos (or her duly
of Levy, contrary to
authorized representative or counsel), to a
the mandate of
The Commissioner of Internal Revenue conference, was furnished the counsel of
Section 213 of the
thereby caused the preparation and filing Mrs. Marcos, Dean Antonio Coronel — but
NIRC. As such,
of the Estate Tax Return for the estate of to no avail.
petitioner was never
the late president, the Income Tax Returns
given an opportunity to
of the Spouses Marcos for the years 1985
contest the Notices in The deficiency tax assessments were not
to 1986, and the Income Tax Returns of
violation of his right to protested administratively, by Mrs. Marcos
petitioner Ferdinand "Bongbong" Marcos II
due process of law. and the other heirs of the late president,
for the years 1982 to 1985.
within 30 days from service of said
assessments.
C. ON ACCOUNT OF THE CLEAR MERIT
On July 26, 1991, the BIR issued the
OF THE PETITION, RESPONDENT
following: (1) Deficiency estate tax
COURT MANIFESTLY ERRED IN On February 22, 1993, the BIR
assessment no. FAC-2-89-91-002464
RULING THAT IT HAD NO POWER TO Commissioner issued twenty-two notices
(against the estate of the late president
GRANT INJUNCTIVE RELIEF TO of levy on real property against certain
Ferdinand Marcos in the amount of
PETITIONER. SECTION 219 OF THE parcels of land owned by the Marcoses —
P23,293,607,638.00 Pesos); (2) Deficiency
NIRC NOTWITHSTANDING, COURTS to satisfy the alleged estate tax and
income tax assessment no. FAC-1-85-91-
POSSESS THE POWER TO ISSUE A deficiency income taxes of Spouses
002452 and Deficiency income tax
WRIT OF PRELIMINARY INJUNCTION Marcos.
assessment no. FAC-1-86-91-002451
TO RESTRAIN RESPONDENTS
(against the Spouses Ferdinand and
COMMISSIONER'S AND DE GUZMAN'S
Imelda Marcos in the amounts of On May 20, 1993, four more Notices of
ARBITRARY METHOD OF COLLECTING
P149,551.70 and P184,009,737.40 Levy on real property were issued for the
THE ALLEGED DEFICIENCY ESTATE
representing deficiency income tax for the purpose of satisfying the deficiency income
AND INCOME TAXES BY MEANS OF
years 1985 and 1986); (3) Deficiency taxes.
LEVY.
income tax assessment nos. FAC-1-82-91-
002460 to FAC-1-85-91-002463 (against
On May 26, 1993, additional four (4)
The facts as found by the appellate court are undisputed, and petitioner Ferdinand "Bongbong" Marcos II
notices of Levy on real property were
are hereby adopted: in the amounts of P258.70 pesos;
again issued. The foregoing tax remedies
P9,386.40 Pesos; P4,388.30 Pesos; and
were resorted to pursuant to Sections 205
P6,376.60 Pesos representing his
On September 29, 1989, former President and 213 of the National Internal Revenue
deficiency income taxes for the years 1982
Ferdinand Marcos died in Honolulu, Code (NIRC).
to 1985).
Hawaii, USA.
In response to a letter dated March 12,
The Commissioner of Internal Revenue
On June 27, 1990, a Special Tax Audit 1993 sent by Atty. Loreto Ata (counsel of
avers that copies of the deficiency estate
Team was created to conduct herein petitioner) calling the attention of
and income tax assessments were all
investigations and examinations of the tax the BIR and requesting that they be duly
personally and constructively served on
liabilities and obligations of the late notified of any action taken by the BIR
August 26, 1991 and September 12, 1991
president, as well as that of his family, affecting the interest of their client
upon Mrs. Imelda Marcos (through her
associates and "cronies". Said audit team Ferdinand "Bongbong" Marcos II, as well
caretaker Mr. Martinez) at her last known
concluded its investigation with a as the interest of the late president —
 copies of the aforesaid notices were, immediate payment of taxes, and should order the payment of Concededly, the authority of the Regional Trial Court, sitting,
served on April 7, 1993 and on June 10, the same only within the period fixed by the probate court for albeit with limited jurisdiction, as a probate court over estate of
1993, upon Mrs. Imelda Marcos, the the payment of all the debts of the decedent. In this regard, deceased individual, is not a trifling thing. The court's
petitioner, and their counsel of record, "De petitioner cites the case of Collector of Internal Revenue jurisdiction, once invoked, and made effective, cannot be
Borja, Medialdea, Ata, Bello, Guevarra and vs. The Administratrix of the Estate of Echarri (67 Phil 502), treated with indifference nor should it be ignored with impunity
Serapio Law Office". where it was held that: by the very parties invoking its authority.

Notices of sale at public auction were The case of Pineda vs. Court of First In testament to this, it has been held that it is within the
posted on May 26, 1993, at the lobby of Instance of Tayabas and Collector of jurisdiction of the probate court to approve the sale of
the City Hall of Tacloban City. The public Internal Revenue (52 Phil 803), relied upon properties of a deceased person by his prospective heirs
auction for the sale of the eleven (11) by the petitioner-appellant is good before final adjudication; 5 to determine who are the heirs of the
parcels of land took place on July 5, 1993. authority on the proposition that the court decedent; 6 the recognition of a natural child; 7 the status of a
There being no bidder, the lots were having control over the administration woman claiming to be the legal wife of the decedent; 8 the
declared forfeited in favor of the proceedings has jurisdiction to entertain legality of disinheritance of an heir by the testator; 9 and to pass
government. the claim presented by the government for upon the validity of a waiver of hereditary rights. 10
taxes due and to order the administrator to
pay the tax should it find that the
On June 25, 1993, petitioner Ferdinand The pivotal question the court is tasked to resolve refers to the
assessment was proper, and that the tax
"Bongbong" Marcos II filed the instant authority of the Bureau of Internal Revenue to collect by the
was legal, due and collectible. And the rule
petition for certiorari and prohibition under summary remedy of levying upon, and sale of real properties of
laid down in that case must be understood
Rule 65 of the Rules of Court, with prayer the decedent, estate tax deficiencies, without the cognition and
in relation to the case of Collector of
for temporary restraining order and/or writ authority of the court sitting in probate over the supposed will of
Customs vs. Haygood, supra., as to the
of preliminary injunction. the deceased.
procedure to be followed in a given case
by the government to effectuate the
It has been repeatedly observed, and not without merit, that the collection of the tax. Categorically stated, The nature of the process of estate tax collection has been
enforcement of tax laws and the collection of taxes, is of where during the pendency of judicial described as follows:
paramount importance for the sustenance of government. administration over the estate of a
Taxes are the lifeblood of the government and should be deceased person a claim for taxes is
Strictly speaking, the assessment of an
collected without unnecessary hindrance. However, such presented by the government, the court
inheritance tax does not directly involve
collection should be made in accordance with law as any has the authority to order payment by the
the administration of a decedent's estate,
arbitrariness will negate the very reason for government itself. administrator; but, in the same way that it
although it may be viewed as an incident
It is therefore necessary to reconcile the apparently conflicting has authority to order payment or
to the complete settlement of an estate,
interests of the authorities and the taxpayers so that the real satisfaction, it also has the negative
and, under some statutes, it is made the
purpose of taxation, which is the promotion of the common authority to deny the same. While there
duty of the probate court to make the
good, may be achieved. 3 are cases where courts are required to
amount of the inheritance tax a part of the
perform certain duties mandatory and
final decree of distribution of the estate. It
ministerial in character, the function of the
Whether or not the proper avenues of assessment and is not against the property of decedent, nor
court in a case of the present character is
collection of the said tax obligations were taken by the is it a claim against the estate as such, but
not one of them; and here, the court
respondent Bureau is now the subject of the Court's inquiry. it is against the interest or property right
cannot be an organism endowed with
which the heir, legatee, devisee, etc., has
latitude of judgment in one direction, and
in the property formerly held by decedent.
Petitioner posits that notices of levy, notices of sale, and converted into a mere mechanical
Further, under some statutes, it has been
subsequent sale of properties of the late President Marcos contrivance in another direction.
held that it is not a suit or controversy
effected by the BIR are null and void for disregarding the
between the parties, nor is it an adversary
established procedure for the enforcement of taxes due upon On the other hand, it is argued by the BIR, that the state's proceeding between the state and the
the estate of the deceased. The case of Domingo authority to collect internal revenue taxes is paramount. Thus, person who owes the tax on the
vs. Garlitos 4 is specifically cited to bolster the argument that the pendency of probate proceedings over the estate of the inheritance. However, under other statutes
"the ordinary procedure by which to settle claims of deceased does not preclude the assessment and collection, it has been held that the hearing and
indebtedness against the estate of a deceased, person, as in through summary remedies, of estate taxes over the same. determination of the cash value of the
an inheritance (estate) tax, is for the claimant to present a According to the respondent, claims for payment of estate and assets and the determination of the tax are
claim before the probate court so that said court may order the income taxes due and assessed after the death of the adversary proceedings. The proceeding
administrator to pay the amount therefor." This remedy is decedent need not be presented in the form of a claim against has been held to be necessarily a
allegedly, exclusive, and cannot be effected through any other the estate. These can and should be paid immediately. The proceeding in rem. 11
means. probate court is not the government agency to decide whether
an estate is liable for payment of estate of income taxes. Well-
Petitioner goes further, submitting that the probate court is not settled is the rule that the probate court is a court with special
precluded from denying a request by the government for the and limited jurisdiction.
In the Philippine experience, the enforcement and collection of Thus, the Government has two ways of Such assessment may be protested
estate tax, is executive in character, as the legislature has seen collecting the taxes in question. One, by administratively by filing a request for
it fit to ascribe this task to the Bureau of Internal Revenue. going after all the heirs and collecting from reconsideration or reinvestigation in such
Section 3 of the National Internal Revenue Code attests to this: each one of them the amount of the tax form and manner as may be prescribed by
proportionate to the inheritance received. implementing regulations within (30) days
Another remedy, pursuant to the lien from receipt of the assessment; otherwise,
Sec. 3. Powers and duties of the Bureau.
created by Section 315 of the Tax Code the assessment shall become final and
— The powers and duties of the Bureau of
upon all property and rights to property unappealable.
Internal Revenue shall comprehend the
belong to the taxpayer for unpaid income
assessment and collection of all national
tax, is by subjecting said property of the
internal revenue taxes, fees, and charges, If the protest is denied in whole or in part,
estate which is in the hands of an heir or
and the enforcement of all forfeitures, the individual, association or corporation
transferee to the payment of the tax due
penalties, and fines connected therewith, adversely affected by the decision on the
the estate. (Commissioner of Internal
including the execution of judgments in all protest may appeal to the Court of Tax
Revenue vs. Pineda, 21 SCRA 105,
cases decided in its favor by the Court of Appeals within thirty (30) days from receipt
September 15, 1967.)
Tax Appeals and the ordinary courts. Said of said decision; otherwise, the decision
Bureau shall also give effect to and shall become final, executory and
administer the supervisory and police From the foregoing, it is discernible that the approval of the demandable. (As inserted by P.D. 1773)
power conferred to it by this Code or other court, sitting in probate, or as a settlement tribunal over the
laws. deceased is not a mandatory requirement in the collection of
Apart from failing to file the required estate tax return within the
estate taxes. It cannot therefore be argued that the Tax Bureau
time required for the filing of the same, petitioner, and the other
erred in proceeding with the levying and sale of the properties
Thus, it was in Vera vs. Fernandez 12 that the court recognized heirs never questioned the assessments served upon them,
allegedly owned by the late President, on the ground that it was
the liberal treatment of claims for taxes charged against the allowing the same to lapse into finality, and prompting the BIR
required to seek first the probate court's sanction. There is
estate of the decedent. Such taxes, we said, were exempted to collect the said taxes by levying upon the properties left by
nothing in the Tax Code, and in the pertinent remedial laws that
from the application of the statute of non-claims, and this is President Marcos.
implies the necessity of the probate or estate settlement court's
justified by the necessity of government funding, immortalized
approval of the state's claim for estate taxes, before the same
in the maxim that taxes are the lifeblood of the
can be enforced and collected. Petitioner submits, however, that "while the assessment of
government. Vectigalia nervi sunt rei publicae — taxes are the
taxes may have been validly undertaken by the Government,
sinews of the state.
collection thereof may have been done in violation of the law.
On the contrary, under Section 87 of the NIRC, it is the probate
Thus, the manner and method in which the latter is enforced
or settlement court which is bidden not to authorize the
Taxes assessed against the estate of a may be questioned separately, and irrespective of the finality of
executor or judicial administrator of the decedent's estate to
deceased person, after administration is the former, because the Government does not have the
deliver any distributive share to any party interested in the
opened, need not be submitted to the unbridled discretion to enforce collection without regard to the
estate, unless it is shown a Certification by the Commissioner
committee on claims in the ordinary course clear provision of law." 14
of Internal Revenue that the estate taxes have been paid. This
of administration. In the exercise of its
provision disproves the petitioner's contention that it is the
control over the administrator, the court
probate court which approves the assessment and collection of Petitioner specifically points out that applying Memorandum
may direct the payment of such taxes upon
the estate tax. Circular No. 38-68, implementing Sections 318 and 324 of the
motion showing that the taxes have been
old tax code (Republic Act 5203), the BIR's Notices of Levy on
assessed against the estate.
the Marcos properties, were issued beyond the allowed period,
If there is any issue as to the validity of the BIR's decision to
and are therefore null and void:
assess the estate taxes, this should have been pursued
Such liberal treatment of internal revenue taxes in the probate
through the proper administrative and judicial avenues
proceedings extends so far, even to allowing the enforcement
provided for by law. . . . the Notices of Levy on Real Property
of tax obligations against the heirs of the decedent, even after
(Annexes O to NN of Annex C of this
distribution of the estate's properties.
Petition) in satisfaction of said
Section 229 of the NIRC tells us how:
assessments were still issued by
Claims for taxes, whether assessed before respondents well beyond the period
or after the death of the deceased, can be Sec. 229. Protesting of assessment. — mandated in Revenue Memorandum
collected from the heirs even after the When the Commissioner of Internal Circular No. 38-68. These Notices of Levy
distribution of the properties of the Revenue or his duly authorized were issued only on 22 February 1993 and
decedent. They are exempted from the representative finds that proper taxes 20 May 1993 when at least seventeen (17)
application of the statute of non-claims. should be assessed, he shall first notify the months had already lapsed from the last
The heirs shall be liable therefor, in taxpayer of his findings. Within a period to service of tax assessment on 12
proportion to their share in the be prescribed by implementing regulations, September 1991. As no notices of distraint
inheritance. 13 the taxpayer shall be required to respond of personal property were first issued by
to said notice. If the taxpayer fails to respondents, the latter should have
respond, the Commissioner shall issue an complied with Revenue Memorandum
assessment based on his findings. Circular No. 38-68 and issued these
 Notices of Levy not earlier than three (3) Since the estate tax assessment had become final and the questioned assessment, which bears a trace of falsity.
months nor later than six (6) months from unappealable by the petitioner's default as regards protesting Indeed, the petitioner's attack on the assessment bears mainly
12 September 1991. In accordance with the validity of the said assessment, there is now no reason why on the alleged improbable and unconscionable amount of the
the Circular, respondents only had until 12 the BIR cannot continue with the collection of the said tax. Any taxes charged. But mere rhetoric cannot supply the basis for
March 1992 (the last day of the sixth objection against the assessment should have been pursued the charge of impropriety of the assessments made.
month) within which to issue these Notices following the avenue paved in Section 229 of the NIRC on
of Levy. The Notices of Levy, having been protests on assessments of internal revenue taxes.
Moreover, these objections to the assessments should have
issued beyond the period allowed by law,
been raised, considering the ample remedies afforded the
are thus void and of no effect. 15
Petitioner further argues that "the numerous pending court taxpayer by the Tax Code, with the Bureau of Internal Revenue
cases questioning the late president's ownership or interests in and the Court of Tax Appeals, as described earlier, and cannot
We hold otherwise. The Notices of Levy upon real property several properties (both real and personal) make the total value be raised now via Petition for Certiorari, under the pretext of
were issued within the prescriptive period and in accordance of his estate, and the consequent estate tax due, incapable of grave abuse of discretion. The course of action taken by the
with the provisions of the present Tax Code. The deficiency tax exact pecuniary determination at this time. Thus, respondents' petitioner reflects his disregard or even repugnance of the
assessment, having already become final, executory, and assessment of the estate tax and their issuance of the Notices established institutions for governance in the scheme of a well-
demandable, the same can now be collected through the of Levy and sale are premature and oppressive." He points out ordered society. The subject tax assessments having become
summary remedy of distraint or levy pursuant to Section 205 of the pendency of Sandiganbayan Civil Case Nos. 0001-0034 final, executory and enforceable, the same can no longer be
the NIRC. and 0141, which were filed by the government to question the contested by means of a disguised protest. In the
ownership and interests of the late President in real and main, Certiorari may not be used as a substitute for a lost
personal properties located within and outside the Philippines. appeal or remedy. 19 This judicial policy becomes more
The applicable provision in regard to the prescriptive period for
Petitioner, however, omits to allege whether the properties pronounced in view of the absence of sufficient attack against
the assessment and collection of tax deficiency in this instance
levied upon by the BIR in the collection of estate taxes upon the actuations of government.
is Article 223 of the NIRC, which pertinently provides:
the decedent's estate were among those involved in the said
cases pending in the Sandiganbayan. Indeed, the court is at a
On the matter of sufficiency of service of Notices of
Sec. 223. Exceptions as to a period of loss as to how these cases are relevant to the matter at issue.
Assessment to the petitioner, we find the respondent appellate
limitation of assessment and collection of The mere fact that the decedent has pending cases involving
court's pronouncements sound and resilient to petitioner's
taxes. — (a) In the case of a false or ill-gotten wealth does not affect the enforcement of tax
attacks.
fraudulent return with intent to evade tax or assessments over the properties indubitably included in his
of a failure to file a return, the tax may be estate.
assessed, or a proceeding in court for the Anent grounds 3(b) and (B) — both
collection of such tax may be begun alleging/claiming lack of notice — We find,
Petitioner also expresses his reservation as to the propriety of
without assessment, at any time within ten after considering the facts and
the BIR's total assessment of P23,292,607,638.00, stating that
(10) years after the discovery of the falsity, circumstances, as well as evidences, that
this amount deviates from the findings of the Department of
fraud, or omission: Provided, That, in a there was sufficient, constructive and/or
Justice's Panel of Prosecutors as per its resolution of 20
fraud assessment which has become final actual notice of assessments, levy and
September 1991. Allegedly, this is clear evidence of the
and executory, the fact of fraud shall be sale, sent to herein petitioner Ferdinand
uncertainty on the part of the Government as to the total value
judicially taken cognizance of in the civil or "Bongbong" Marcos as well as to his
of the estate of the late President.
criminal action for the collection thereof. mother Mrs. Imelda Marcos.

This is, to our mind, the petitioner's last ditch effort to assail the
xxx xxx xxx Even if we are to rule out the notices of
assessment of estate tax which had already become final and
assessments personally given to the
unappealable.
caretaker of Mrs. Marcos at the latter's last
(c) Any internal revenue tax which has
known address, on August 26, 1991 and
been assessed within the period of
It is not the Department of Justice which is the government September 12, 1991, as well as the
limitation above prescribed, may be
agency tasked to determine the amount of taxes due upon the notices of assessment personally given to
collected by distraint or levy or by a
subject estate, but the Bureau of Internal Revenue, 16 whose the caretaker of petitioner also at his last
proceeding in court within three years
determinations and assessments are presumed correct and known address on September 12, 1991 —
following the assessment of the tax.
made in good faith. 17 The taxpayer has the duty of proving the subsequent notices given thereafter
otherwise. In the absence of proof of any irregularities in the could no longer be ignored as they were
xxx xxx xxx performance of official duties, an assessment will not be sent at a time when petitioner was already
disturbed. Even an assessment based on estimates is prima here in the Philippines, and at a place
facie valid and lawful where it does not appear to have been where said notices would surely be called
The omission to file an estate tax return, and the subsequent arrived at arbitrarily or capriciously. The burden of proof is upon to petitioner's attention, and received by
failure to contest or appeal the assessment made by the BIR is the complaining party to show clearly that the assessment is responsible persons of sufficient age and
fatal to the petitioner's cause, as under the above-cited erroneous. Failure to present proof of error in the assessment discretion.
provision, in case of failure to file a return, the tax may be will justify the judicial affirmance of said assessment. 18 In this
assessed at any time within ten years after the omission, and instance, petitioner has not pointed out one single provision in
any tax so assessed may be collected by levy upon real Thus, on October 20, 1992, formal
the Memorandum of the Special Audit Team which gave rise to
property within three years following the assessment of the tax. assessment notices were served upon
 Mrs. Marcos c/o the petitioner, at his office, time, written notice of the levy shall be 5 Acebedo vs. Abesamis, G.R. No.
House of Representatives, Batasan mailed to or served upon the Register of 102380, 18 January 1993, 217 SCRA 186.
Pambansa, Q.C. (Annexes "A", "A-1", "A- Deeds of the province or city where the
2", "A-3"; pp. 207-210, property is located and upon the
6 Reyes vs. Ysip, G.R. No. 7516, May 12,
Comment/Memorandum of OSG). delinquent taxpayer, or if he be absent
1955, 97 Phil 11.
Moreover, a notice to taxpayer dated from the Philippines, to his agent or the
October 8, 1992 inviting Mrs. Marcos to a manager of the business in respect to
conference relative to her tax liabilities, which the liability arose, or if there be 7 Gaas vs. Fortich, G.R. No. 3154, Dec.
was furnished the counsel of Mrs. Marcos none, to the occupant of the property in 28, 1929, 54 Phil 196.
— Dean Antonio Coronel (Annex "B", p. question.
211, ibid). Thereafter, copies of Notices
8 Torres vs. Javier, May 24, 1916 34 Phil
were also served upon Mrs. Imelda
xxx xxx xxx 382.
Marcos, the petitioner and their counsel
"De Borja, Medialdea, Ata, Bello, Guevarra
and Serapio Law Office", on April 7, 1993 The foregoing notwithstanding, the record shows that notices of 9 Pecson vs. Mediavillo, G.R. No. 7890,
and June 10, 1993. Despite all of these warrants of distraint and levy of sale were furnished the September 29, 1914, 28 Phil 81.
Notices, petitioner never lifted a finger to counsel of petitioner on April 7, 1993, and June 10, 1993, and
protest the assessments, (upon which the the petitioner himself on April 12, 1993 at his office at the
Levy and sale of properties were based), 10 Borromeo-Herrera vs. Borromeo, et. al.,
Batasang Pambansa. 21 We cannot therefore, countenance
nor appealed the same to the Court of Tax L-41171, July 23, 1982.
petitioner's insistence that he was denied due process. Where
Appeals. there was an opportunity to raise objections to government
action, and such opportunity was disregarded, for no justifiable 11 85 C.J.S. # 1191, pp. 1056-1057.
reason, the party claiming oppression then becomes the
There being sufficient service of Notices to
oppressor of the orderly functions of government. He who
herein petitioner (and his mother) and it 12 No. L-31364, March 30, 1979, 89
comes to court must come with clean hands. Otherwise, he not
appearing that petitioner continuously SCRA 199.
only taints his name, but ridicules the very structure of
ignored said Notices despite several
established authority.
opportunities given him to file a protest and
to thereafter appeal to the Court of Tax 13 Pineda vs. Court of First Instance of
Appeals, — the tax assessments subject of IN VIEW WHEREOF, the Court RESOLVED to DENY the Tayabas, G.R. No. 30921, February 16,
this case, upon which the levy and sale of present petition. The Decision of the Court of Appeals dated 1929, 52 Phil 805; Government vs.
properties were based, could no longer be November 29, 1994 is hereby AFFIRMED in all respects. Pamintuan, G.R. No. 33139, October 11,
contested (directly or indirectly) via this 1930, 55 Phil 13.
instant petition for certiorari. 20
SO ORDERED.
14 Petition, p. 50, Rollo.
Petitioner argues that all the questioned Notices of Levy,
Regalado, Romero, Puno and Mendoza, JJ., concur.
however, must be nullified for having been issued without 15 Ibid., pp. 57-58.
validly serving copies thereof to the petitioner. As a mandatory
heir of the decedent, petitioner avers that he has an interest in Footnotes
the subject estate, and notices of levy upon its properties 16 Section 16, National Internal Revenue
should have been served upon him. Code.
1 Penned by Associate Justice Asaali S.
Isnani, Chairman; Justices Corona Ibay
We do not agree. In the case of notices of levy issued to satisfy Somera and Celia Lipana Reyes, 17 Interprovincial Autobus Co., Inc. vs.
the delinquent estate tax, the delinquent taxpayer is the Estate concurring. Collector of Internal Revenue, G.R. No.
of the decedent, and not necessarily, and exclusively, the 6741, January 31, 1956, 98 Phil 290; CIR
petitioner as heir of the deceased. In the same vein, in the vs. Construction Resources Asia, Inc.,
matter of income tax delinquency of the late president and his 2 Annex "A", Petition, p. 80, Rollo. G.R. No. 98230, November 25, 1986, 145
spouse, petitioner is not the taxpayer liable. Thus, it follows that SCRA 671; Sy Po vs. Court of Tax
service of notices of levy in satisfaction of these tax Appeals, et. al., G.R. No. L-81446, August
3 Commissioner of Internal Revenue vs.
delinquencies upon the petitioner is not required by law, as 18, 1988, 164 SCRA 524; CIR vs. Bohol
Algue, Inc., et. al., G.R. No. L-28896,
under Section 213 of the NIRC, which pertinently states: Land Transportation Co., 58 O.G. 2407
February 17, 1988, 158 SCRA 9.
(1960).

xxx xxx xxx 4 G.R. No. L-18994, June 29, 8 SCRA

18 Gutierrez vs. Villegas, G.R. No. L-
443.
17117, July 31, 1963, 8 SCRA 527.
. . . Levy shall be effected by writing upon
said certificate a description of the property
upon which levy is made. At the same
19 De la Paz vs. Panis, G.R. No. 57023,
June 22, 1995, 245 SCRA 242.

20 Court of Appeals Decision, pp. 12-

13, Rollo.

21 Affidavit of Service by the Revenue

Officer of the Collection and Enforcement
Division of the BIR, Annex "D",
Comment/Memorandum of the
Commissioner of Internal Revenue in the
Court of Appeals.
G.R. No. 123206             March 22, 2000 BIR praying that the estate tax payment in the amount of allowed as deductions from the gross estate of decedent in
P1,527,790.98, or at least some portion of it, be returned to the order to arrive at the value of the net estate.
heirs. 3
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. We answer this question in the affirmative, thereby upholding
COURT OF APPEALS, COURT OF TAX APPEALS and However, on August 15, 1989, without waiting for her protest to the decisions of the appellate courts.
JOSEFINA P. PAJONAR, as Administratrix of the Estate of be resolved by the BIR, Josefina Pajonar filed a petition for
Pedro P. Pajonar, respondents. review with the Court of Tax Appeals (CTA), praying for the
In its May 6, 1993 Decision, the Court of Tax Appeals ruled
refund of P1,527,790.98, or in the alternative, P840,202.06, as
thus:
erroneously paid estate tax. 4 The case was docketed as CTA
RESOLUTION
Case No. 4381.
Respondent maintains that only judicial expenses of
GONZAGA-REYES, J.: the testamentary or intestate proceedings are
On May 6, 1993, the CTA ordered the Commissioner of
allowed as a deduction to the gross estate. The
Internal Revenue to refund Josefina Pajonar the amount of
amount of P60,753.00 is quite extraordinary for a
Assailed in this petition for review on certiorari is the December P252,585.59, representing erroneously paid estate tax for the
mere notarial fee.
21, 1995 Decision1 of the Court of Appeals2 in CA-G.R. Sp. No. year 1988.5 Among the deductions from the gross estate
34399 affirming the June 7, 1994 Resolution of the Court of allowed by the CTA were the amounts of P60,753 representing
Tax Appeals in CTA Case No. 4381 granting private the notarial fee for the Extrajudicial Settlement and the amount This Court adopts the view under American
respondent Josefina P. Pajonar, as administratrix of the estate of P50,000 as the attorney's fees in Special Proceedings No. jurisprudence that expenses incurred in the
of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, 1254 for guardianship.6 extrajudicial settlement of the estate should be
representing erroneously paid estate taxes for the year 1988. allowed as a deduction from the gross estate. "There
is no requirement of formal administration. It is
On June 15, 1993, the Commissioner of Internal Revenue filed
sufficient that the expense be a necessary
Pedro Pajonar, a member of the Philippine Scout, Bataan a motion for reconsideration7 of the CTA's May 6, 1993 decision
contribution toward the settlement of the case." [ 34
Contingent, during the second World War, was a part of the asserting, among others, that the notarial fee for the
Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in
infamous Death March by reason of which he suffered shock Extrajudicial Settlement and the attorney's fees in the
Taxation, 10th Ed. (1990), p. 481]
and became insane. His sister Josefina Pajonar became the guardianship proceedings are not deductible expenses.
guardian over his person, while his property was placed under
the guardianship of the Philippine National Bank (PNB) by the x x x           x x x          x x x
On June 7, 1994, the CTA issued the assailed
Regional Trial Court of Dumaguete City, Branch 31, in Special
Resolution8 ordering the Commissioner of Internal Revenue to
Proceedings No. 1254. He died on January 10, 1988. He was
refund Josefina Pajonar, as administratrix of the estate of The attorney's fees of P50,000.00, which were
survived by his two brothers Isidro P. Pajonar and Gregorio
Pedro Pajonar, the amount of P76,502.42 representing already incurred but not yet paid, refers to the
Pajonar, his sister Josefina Pajonar, nephews Concordio
erroneously paid estate tax for the year 1988. Also, the CTA guardianship proceeding filed by PNB, as guardian
Jandog and Mario Jandog and niece Conchita Jandog.
upheld the validity of the deduction of the notarial fee for the over the ward of Pedro Pajonar, docketed as Special
Extrajudicial Settlement and the attorney's fees in the Proceeding No. 1254 in the RTC (Branch XXXI) of
On May 11, 1988, the PNB filed an accounting of the guardianship proceedings. Dumaguete City. . . .
decedent's property under guardianship valued at
P3,037,672.09 in Special Proceedings No. 1254. However, the
On July 5, 1994, the Commissioner of Internal Revenue filed x x x           x x x          x x x
PNB did not file an estate tax return, instead it advised Pedro
with the Court of Appeals a petition for review of the CTA's May
Pajonar's heirs to execute an extrajudicial settlement and to
6, 1993 Decision and its June 7, 1994 Resolution, questioning
pay the taxes on his estate. On April 5, 1988, pursuant to the The guardianship proceeding had been terminated
the validity of the abovementioned deductions. On December
assessment by the Bureau of Internal Revenue (BIR), the upon delivery of the residuary estate to the heirs
21, 1995, the Court of Appeals denied the Commissioner's
estate of Pedro Pajonar paid taxes in the amount of P2,557. entitled thereto. Thereafter, PNB was discharged of
petition.9
any further responsibility.
On May 19, 1988, Josefina Pajonar filed a petition with the
Hence, the present appeal by the Commissioner of Internal
Regional Trial Court of Dumaguete City for the issuance in her Attorney's fees in order to be deductible from the
Revenue.
favor of letters of administration of the estate of her brother. gross estate must be essential to the collection of
The case was docketed as Special Proceedings No. 2399. On assets, payment of debts or the distribution of the
July 18, 1988, the trial court appointed Josefina Pajonar as the The sole issue in this case involves the construction of section property to the persons entitled to it. The services for
regular administratrix of Pedro Pajonar's estate. 79 10 of the National Internal Revenue Code 11 (Tax Code) which the fees are charged must relate to the proper
which provides for the allowable deductions from the gross settlement of the estate. [34 Am. Jur. 2d 767.] In this
estate of the decedent. More particularly, the question is case, the guardianship proceeding was necessary
On December 19, 1988, pursuant to a second assessment by
whether the notarial fee paid for the extrajudicial settlement in for the distribution of the property of the late Pedro
the BIR for deficiency estate tax, the estate of Pedro Pajonar
the amount of P60,753 and the attorney's fees in the Pajonar to his rightful heirs.
paid estate tax in the amount of P1,527,790.98. Josefina
guardianship proceedings in the amount of P50,000 may be
Pajonar, in her capacity as administratrix and heir of Pedro
Pajonar's estate, filed a protest on January 11, 1989 with the
 x x x           x x x          x x x which the state paid P59,341.40 for the premiums. (See Annex of Legal Services of March 28, 1988 entered into between
"K")." [p. 17, CTA record.] Therefore, it would appear from the respondent Josefina Pajonar and counsel was presented in
records of the case that the only practical purpose of settling evidence for the purpose of showing that the amount of
PNB was appointed as guardian over the assets of
the estate by means of an extrajudicial settlement pursuant to P60,753.00 was for the notarization of the Extrajudicial
the late Pedro Pajonar, who, even at the time of his
Section 1 of Rule 74 of the Rules of Court was for the payment Settlement. It follows then that the notarial fee of P60,753.00
death, was incompetent by reason of insanity. The
of taxes and the distribution of the estate to the heirs. A fortiori, was incurred primarily to settle the estate of the deceased
expenses incurred in the guardianship proceeding
since our estate tax laws are of American origin, the Pedro Pajonar. Said amount should then be considered an
was but a necessary expense in the settlement of the
interpretation adopted by American Courts has some administration expenses actually and necessarily incurred in
decedent's estate. Therefore, the attorney's fee
persuasive effect on the interpretation of our own estate tax the collection of the assets of the estate, payment of debts and
incurred in the guardianship proceedings amounting
laws on the subject. distribution of the remainder among those entitled thereto.
to P50,000.00 is a reasonable and necessary
Thus, the notarial fee of P60,753 incurred for the Extrajudicial
business expense deductible from the gross estate
Settlement should be allowed as a deduction from the gross
of the decedent. 12 Anent the contention of respondent that the attorney's fees of
estate.
P50,000.00 incurred in the guardianship proceeding should not
be deducted from the Gross Estate, We consider the same
Upon a motion for reconsideration filed by the Commissioner of
unmeritorious. Attorneys' and guardians' fees incurred in a 3. Attorney's fees, on the other hand, in order to be deductible
Internal Revenue, the Court of Tax Appeals modified its
trustee's accounting of a taxable inter vivos trust attributable to from the gross estate must be essential to the settlement of the
previous ruling by reducing the refundable amount to
the usual issues involved in such an accounting was held to be estate.
P76,502.43 since it found that a deficiency interest should be
proper deductions because these are expenses incurred in
imposed and the compromise penalty excluded. 13 However,
terminating an inter vivos trust that was includible in the
the tax court upheld its previous ruling regarding the legality of The amount of P50,000.00 was incurred as attorney's fees in
decedent's estate. [Prentice Hall, Federal Taxes on Estate and
the deductions — the guardianship proceedings in Spec. Proc. No. 1254.
Gift, p. 120, 861] Attorney's fees are allowable deductions if
Petitioner contends that said amount are not expenses of the
incurred for the settlement of the estate. It is noteworthy to
testamentary or intestate proceedings as the guardianship
It is significant to note that the inclusion of the estate tax law in point that PNB was appointed the guardian over the assets of
proceeding was instituted during the lifetime of the decedent
the codification of all our national internal revenue laws with the the deceased. Necessarily the assets of the deceased formed
when there was yet no estate to be settled.
enactment of the National Internal Revenue Code in 1939 were part of his gross estate. Accordingly, all expenses incurred in
copied from the Federal Law of the United States. [ UMALI, relation to the estate of the deceased will be deductible for
Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, estate tax purposes provided these are necessary and ordinary Again, this contention must fail.
promulgated by Presidential Decree No. 1158, effective June 3, expenses for administration of the settlement of the estate. 14
1977, reenacted substantially all the provisions of the old law
The guardianship proceeding in this case was necessary for
on estate and gift taxes, except the sections relating to the
In upholding the June 7, 1994 Resolution of the Court of Tax the distribution of the property of the deceased Pedro Pajonar.
meaning of gross estate and gift. [ Ibid, p. 286. ]
Appeals, the Court of Appeals held that: As correctly pointed out by respondent CTA, the PNB was
appointed guardian over the assets of the deceased, and that
In the United States, [a]dministrative expenses, executor's necessarily the assets of the deceased formed part of his gross
2. Although the Tax Code specifies "judicial expenses of the
commissions and attorney's fees are considered allowable estate. . . .
testamentary or intestate proceedings," there is no reason why
deductions from the Gross Estate. Administrative expenses are
expenses incurred in the administration and settlement of an
limited to such expenses as are actually and necessarily
estate in extrajudicial proceedings should not be allowed. x x x           x x x          x x x
incurred in the administration of a decedent's estate.
However, deduction is limited to such administration expenses
[PRENTICE-HALL, Federal Taxes Estate and Gift Taxes
as are actually and necessarily incurred in the collection of the
(1936), p. 120, 533.] Necessary expenses of administration are It is clear therefore that the attorney's fees incurred in the
assets of the estate, payment of the debts, and distribution of
such expenses as are entailed for the preservation and guardianship proceeding in Spec. Proc. No. 1254 were
the remainder among those entitled thereto. Such expenses
productivity of the estate and for its management for purposes essential to the distribution of the property to the persons
may include executor's or administrator's fees, attorney's fees,
of liquidation, payment of debts and distribution of the residue entitled thereto. Hence, the attorney's fees incurred in the
court fees and charges, appraiser's fees, clerk hire, costs of
among the persons entitled thereto. [Lizarraga Hermanos vs. guardianship proceedings in the amount of P50,000.00 should
preserving and distributing the estate and storing or
Abada, 40 Phil. 124.] They must be incurred for the settlement be allowed as a deduction from the gross estate of the
maintaining it, brokerage fees or commissions for selling or
of the estate as a whole. [34 Am. Jur. 2d, p. 765.] Thus, where decedent. 15
disposing of the estate, and the like. Deductible attorney's fees
there were no substantial community debts and it was
are those incurred by the executor or administrator in the
unnecessary to convert community property to cash, the only
settlement of the estate or in defending or prosecuting claims The deductions from the gross estate permitted under section
practical purpose of administration being the payment of estate
against or due the estate. (Estate and Gift Taxation in the 79 of the Tax Code basically reproduced the deductions
taxes, full deduction was allowed for attorney's fees and
Philippines, T. P. Matic, Jr., 1981 Edition, p. 176). allowed under Commonwealth Act No. 466 (CA 466), otherwise
miscellaneous expenses charged wholly to decedent's estate.
known as the National Internal Revenue Code of 1939, 16 and
[Ibid., citing Estate of Helis, 26 T.C. 143 (A).]
which was the first codification of Philippine tax laws. Section
x x x           x x x          x x x
89 (a) (1) (B) of CA 466 also provided for the deduction of the
Petitioner stated in her protest filed with the BIR that "upon the "judicial expenses of the testamentary or intestate proceedings"
death of the ward, the PNB, which was still the guardian of the It is clear then that the extrajudicial settlement was for the for purposes of determining the value of the net estate.
estate, (Annex "Z"), did not file an estate tax return; however, it purpose of payment of taxes and the distribution of the estate Philippine tax laws were, in turn, based on the federal tax laws
advised the heirs to execute an extrajudicial settlement, to pay to the heirs. The execution of the extrajudicial settlement of the United States. 17 In accord with established rules of
taxes and to post a bond equal to the value of the estate, for necessitated the notarization of the same. Hence the Contract statutory construction, the decisions of American courts
construing the federal tax code are entitled to great weight in f. Time Deposit - PNB
the interpretation of our own tax laws. 18

Judicial expenses are expenses of g. Stocks and Bonds - PNB

administration. 19 Administration expenses, as an allowable Footnotes
deduction from the gross estate of the decedent for purposes
h. Money Market
of arriving at the value of the net estate, have been construed Entitled "Commissioner of Internal Revenue v.
1 

by the federal and state courts of the United States to include Josefina P. Pajonar, as Administratrix of the Estate
all expenses "essential to the collection of the assets, payment of Pedro P. Pajonar, and Court of Tax i. Cash Deposit
of debts or the distribution of the property to the persons Appeals." Rollo, 35-46.
entitled to it." 20 In other words, the expenses must be essential
to the proper settlement of the estate. Expenditures incurred for
the individual benefit of the heirs, devisees or legatees are not Eighth Division composed of J. Jaime M.
2 

deductible. 21 This distinction has been carried over to our Lantin, ponente; and JJ Eduardo G. Montenegro and
Jose C. De la Rama, concurring. GROSS ESTATE
jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed
the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a 3 
CA Records, 45-53. Less: Deductions:
trustee of the decedent's estate when it appeared that such
trustee was appointed for the purpose of managing the
decedent's real estate for the benefit of the testamentary heir.
4 
Ibid., 37-44. A a. Funeral expenses
In another case, the Court disallowed the premiums paid on the
bond filed by the administrator as an expense of administration 5 
The CTA made the following computations —
since the giving of a bond is in the nature of a qualification for b. Commission to Trustee (PNB)
the office, and not necessary in the settlement of the
estate. 23 Neither may attorney's fees incident to litigation Estate of Pedro P. Pajonar
incurred by the heirs in asserting their respective rights be Lagtangon, Siaton, Negros Oriental B c. Notarial Fee for the Extrajudicial Settlement
claimed as a deduction from the gross estate. 24 1âwphi1 Died January 10, 1988
d. Attorney's Fees in Special Proceeding No. 1254 for
Coming to the case at bar, the notarial fee paid for the I. Real Properties Guardianship
extrajudicial settlement is clearly a deductible expense since
such settlement effected a distribution of Pedro Pajonar's
estate to his lawful heirs. Similarly, the attorney's fees paid to II. Personal Properties e. Filing Fees in Special Proceeding No. 2399
PNB for acting as the guardian of Pedro Pajonar's property
during his lifetime should also be considered as a deductible
administration expense. PNB provided a detailed accounting of a. Refrigerator f. Publication of Notice to Creditors September 7, 14 and 2
decedent's property and gave advice as to the proper 1988 issues of the Dumaguete Star Informer
settlement of the latter's estate, acts which contributed towards
the collection of decedent's assets and the subsequent b. Wall Clock, Esso Gasul.
Tables and Chairs g. Certification fee for publication on the Bulletin Board of t
settlement of the estate.
Municipal Building of Siaton, Negros Oriental

We find that the Court of Appeals did not commit reversible c. Beddings, Stereo Cassette,
error in affirming the questioned resolution of the Court of Tax TV, Betamax h. Certification fee for Publication in the Capitol
Appeals.
d. Karaoke, Electric Iron, Fan, i. Certification fee for publication of Notice to Creditors
WHEREFORE, the December 21, 1995 Decision of the Court Transformer and Corner Set
of Appeals is AFFIRMED. The notarial fee for the extrajudicial
settlement and the attorney's fees in the guardianship
proceedings are allowable deductions from the gross estate of e. Toyota Tamaraw
Pedro Pajonar.1âwphi1.nêt NET ESTATE

SO ORDERED.
Additional Personal Properties: Estate Tax Due
Melo, Vitug, Panganiban and Purisima, JJ., concur.
 Less: Estate Tax Paid: This refers to the 1977 National Internal Revenue
11 
Carolina Industries, Inc. v. CMS Stock Brokerage,
18 

Code, as amended. On the date of decedent's death Inc., 97 SCRA 734 (1980).
(January 10, 1988), the latest amendment to the Tax
CB Confirmation Receipt Nos. Code was introduced by Executive Order No. 273, 19 
Lorenzo v. Posada, 64 Phil 353 (1937).
which became effective on January 1, 1988.

B 14268064 34A Am Jur 2d, Federal Taxation (1995), sec. 144,

20 
12 
Rollo, 78-79, 81-83.
288, citing Union Commerce Bank, trans, (1963) 39
TC 973, affd & revd on other issues (1964, CA6) 339
B 15517625 13 
Estate tax due P1,277,762.39 F2d 163, 65-1 USTC p 12279, 15 AFTR 2d 1281.

2,557.00 Ibid., sec. 144,272, citing Bretzfelder, Charles, exr

21 

Less: estate tax paid v. Com., (1936, CA2) 86 F2d 713, 36-2 USTC sec.
04.05.88 9548, 18 AFTR 653.
AMOUNT REFUNDABLE [CBCR No. 14268054]
22 
Lorenzo v. Posada, supra.
Deficiency estate tax P1,275,205.39

Rollo, 86-88.
23 
Sison vs. Teodoro, 100 Phil. 1055 (1957).
Add: Additions to tax
Interest on deficiency 24 
Johannes v. Imperial, 43 Phil 597 (1922).
6 
Ibid., 78-79, 81-83.
[Sec. 249 (b)] 04.12.88
to 12.19.88
7 
CA Records, 118-130. (1,275,205.39 x 20% x
252/365) 176,083.16
8 
Rollo, 47-56.

9 
Ibid., 35-46.
Total deficiency tax P1,451,288.55
Sec. 79 Computation of net estate and estate tax.
10 

— For the purpose of the tax imposed in this

Chapter, the value of the net estate shall be Less: estate tax paid
determined: 12.19.88

(a) In the case of a citizen or resident of [CBCR No. 15517625] 1,527,790.98

the Philippines, by deducting from the
value of the gross estate —

(1) Expenses, losses, indebtedness, and Amount refundable

taxes. — Such amounts — P76,502.43
===========

(A) For funeral expenses in an amount

equal to five per centum of the gross
estate but in no case to exceed Ibid., 54.
P50,000.00;
14 
Ibid., 49-51.
(B) For judicial expenses of the
testamentary or intestate proceedings; 15 
Ibid., 43-45.

x x x           x x x          x x x 16 
Approved on June 15, 1939.

17 
Wise & Co. v. Meer, 78 Phil 655 (1947),
G.R. No. L-43082             June 18, 1937 Hanley to be disposed of in the way he thinks most the testator, and not, as it should have been held,
advantageous. upon the value thereof at the expiration of the period
of ten years after which, according to the testator's
PABLO LORENZO, as trustee of the estate of Thomas
will, the property could be and was to be delivered to
Hanley, deceased, plaintiff-appellant, xxx     xxx     xxx
the instituted heir.
vs.
JUAN POSADAS, JR., Collector of Internal
8. I state at this time I have one brother living, named
Revenue, defendant-appellant. IV. In not allowing as lawful deductions, in the
Malachi Hanley, and that my nephew, Matthew
determination of the net amount of the estate subject
Hanley, is a son of my said brother, Malachi Hanley.
to said tax, the amounts allowed by the court as
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
compensation to the "trustees" and paid to them from
Office of the Solicitor-General Hilado for defendant-appellant.
The Court of First Instance of Zamboanga considered it proper the decedent's estate.
for the best interests of ther estate to appoint a trustee to
LAUREL, J.: administer the real properties which, under the will, were to
V. In not rendering judgment in favor of the plaintiff
pass to Matthew Hanley ten years after the two executors
and in denying his motion for new trial.
named in the will, was, on March 8, 1924, appointed trustee.
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity
Moore took his oath of office and gave bond on March 10,
as trustee of the estate of Thomas Hanley, deceased, brought
1924. He acted as trustee until February 29, 1932, when he The defendant-appellant contradicts the theories of the plaintiff
this action in the Court of First Instance of Zamboanga against
resigned and the plaintiff herein was appointed in his stead. and assigns the following error besides:
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, During the incumbency of the plaintiff as trustee, the defendant The lower court erred in not ordering the plaintiff to
and for the collection of interst thereon at the rate of 6 per cent Collector of Internal Revenue, alleging that the estate left by pay to the defendant the sum of P1,191.27,
per annum, computed from September 15, 1932, the date the deceased at the time of his death consisted of realty valued representing part of the interest at the rate of 1 per
when the aforesaid tax was [paid under protest. The defendant at P27,920 and personalty valued at P1,465, and allowing a cent per month from April 10, 1924, to June 30,
set up a counterclaim for P1,191.27 alleged to be interest due deduction of P480.81, assessed against the estate an 1931, which the plaintiff had failed to pay on the
on the tax in question and which was not included in the inheritance tax in the amount of P1,434.24 which, together with inheritance tax assessed by the defendant against
original assessment. From the decision of the Court of First the penalties for deliquency in payment consisting of a 1 per the estate of Thomas Hanley.
Instance of Zamboanga dismissing both the plaintiff's complaint cent monthly interest from July 1, 1931 to the date of payment
and the defendant's counterclaim, both parties appealed to this and a surcharge of 25 per cent on the tax, amounted to
The following are the principal questions to be decided by this
court. P2,052.74. On March 15, 1932, the defendant filed a motion in
court in this appeal: (a) When does the inheritance tax accrue
the testamentary proceedings pending before the Court of First
and when must it be satisfied? (b) Should the inheritance tax
Instance of Zamboanga (Special proceedings No. 302) praying
It appears that on May 27, 1922, one Thomas Hanley died in be computed on the basis of the value of the estate at the time
that the trustee, plaintiff herein, be ordered to pay to the
Zamboanga, Zamboanga, leaving a will (Exhibit 5) and of the testator's death, or on its value ten years later? (c) In
Government the said sum of P2,052.74. The motion was
considerable amount of real and personal properties. On june determining the net value of the estate subject to tax, is it
granted. On September 15, 1932, the plaintiff paid said amount
14, 1922, proceedings for the probate of his will and the proper to deduct the compensation due to trustees? (d) What
under protest, notifying the defendant at the same time that
settlement and distribution of his estate were begun in the law governs the case at bar? Should the provisions of Act No.
unless the amount was promptly refunded suit would be
Court of First Instance of Zamboanga. The will was admitted to 3606 favorable to the tax-payer be given retroactive effect? (e)
brought for its recovery. The defendant overruled the plaintiff's
probate. Said will provides, among other things, as follows: Has there been deliquency in the payment of the inheritance
protest and refused to refund the said amount hausted, plaintiff
tax? If so, should the additional interest claimed by the
went to court with the result herein above indicated.
defendant in his appeal be paid by the estate? Other points of
4. I direct that any money left by me be given to my
incidental importance, raised by the parties in their briefs, will
nephew Matthew Hanley.
In his appeal, plaintiff contends that the lower court erred: be touched upon in the course of this opinion.

5. I direct that all real estate owned by me at the time

I. In holding that the real property of Thomas Hanley, (a) The accrual of the inheritance tax is distinct from the
of my death be not sold or otherwise disposed of for
deceased, passed to his instituted heir, Matthew obligation to pay the same. Section 1536 as amended, of the
a period of ten (10) years after my death, and that
Hanley, from the moment of the death of the former, Administrative Code, imposes the tax upon "every transmission
the same be handled and managed by the
and that from the time, the latter became the owner by virtue of inheritance, devise, bequest, gift mortis causa, or
executors, and proceeds thereof to be given to my
thereof. advance in anticipation of inheritance,devise, or bequest." The
nephew, Matthew Hanley, at Castlemore,
tax therefore is upon transmission or the transfer or devolution
Ballaghaderine, County of Rosecommon, Ireland,
of property of a decedent, made effective by his death. (61 C.
and that he be directed that the same be used only II. In holding, in effect, that there was deliquency in
J., p. 1592.) It is in reality an excise or privilege tax imposed on
for the education of my brother's children and their the payment of inheritance tax due on the estate of
the right to succeed to, receive, or take property by or under a
descendants. said deceased.
will or the intestacy law, or deed, grant, or gift to become
operative at or after death. Acording to article 657 of the Civil
6. I direct that ten (10) years after my death my III. In holding that the inheritance tax in question be Code, "the rights to the succession of a person are transmitted
property be given to the above mentioned Matthew based upon the value of the estate upon the death of from the moment of his death." "In other words", said Arellano,
C. J., ". . . the heirs succeed immediately to all of the property (b) The transmission or delivery of the (b) The plaintiff contends that the estate of Thomas Hanley, in
of the deceased ancestor. The property belongs to the heirs at inheritance or legacy by the fiduciary heir so far as the real properties are concerned, did not and could
the moment of the death of the ancestor as completely as if the or legatee to the trustees. not legally pass to the instituted heir, Matthew Hanley, until
ancestor had executed and delivered to them a deed for the after the expiration of ten years from the death of the testator
same before his death." (Bondad vs. Bondad, 34 Phil., on May 27, 1922 and, that the inheritance tax should be based
(c) The transmission from the first heir,
232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. on the value of the estate in 1932, or ten years after the
legatee, or donee in favor of another
Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; testator's death. The plaintiff introduced evidence tending to
beneficiary, in accordance with the desire
Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, show that in 1932 the real properties in question had a
of the predecessor.
16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; reasonable value of only P5,787. This amount added to the
Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 value of the personal property left by the deceased, which the
Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 In the last two cases, if the scale of taxation plaintiff admits is P1,465, would generate an inheritance tax
Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First appropriate to the new beneficiary is greater than which, excluding deductions, interest and surcharge, would
Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 that paid by the first, the former must pay the amount only to about P169.52.
Phil., 654.) Plaintiff, however, asserts that while article 657 of difference.
the Civil Code is applicable to testate as well as intestate
If death is the generating source from which the power of the
succession, it operates only in so far as forced heirs are
SEC. 1544. When tax to be paid. — The tax fixed in estate to impose inheritance taxes takes its being and if, upon
concerned. But the language of article 657 of the Civil Code is
this article shall be paid: the death of the decedent, succession takes place and the right
broad and makes no distinction between different classes of
of the estate to tax vests instantly, the tax should be measured
heirs. That article does not speak of forced heirs; it does not
by the vlaue of the estate as it stood at the time of the
even use the word "heir". It speaks of the rights of succession (a) In the second and third cases of the decedent's death, regardless of any subsequent contingency
and the transmission thereof from the moment of death. The next preceding section, before entrance value of any subsequent increase or decrease in value. (61 C.
provision of section 625 of the Code of Civil Procedure into possession of the property. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and
regarding the authentication and probate of a will as a
Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs.
necessary condition to effect transmission of property does not
(b) In other cases, within the six months Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.)
affect the general rule laid down in article 657 of the Civil Code.
subsequent to the death of the "The right of the state to an inheritance tax accrues at the
The authentication of a will implies its due execution but once
predecessor; but if judicial testamentary or moment of death, and hence is ordinarily measured as to any
probated and allowed the transmission is effective as of the
intestate proceedings shall be instituted beneficiary by the value at that time of such property as passes
death of the testator in accordance with article 657 of the Civil
prior to the expiration of said period, the to him. Subsequent appreciation or depriciation is immaterial."
Code. Whatever may be the time when actual transmission of
payment shall be made by the executor or (Ross, Inheritance Taxation, p. 72.)
the inheritance takes place, succession takes place in any
event at the moment of the decedent's death. The time when administrator before delivering to each
the heirs legally succeed to the inheritance may differ from the beneficiary his share. Our attention is directed to the statement of the rule in
time when the heirs actually receive such inheritance. "Poco Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575)
importa", says Manresa commenting on article 657 of the Civil If the tax is not paid within the time hereinbefore that, in the case of contingent remainders, taxation is
Code, "que desde el falleimiento del causante, hasta que el prescribed, interest at the rate of twelve per centum postponed until the estate vests in possession or the
heredero o legatario entre en posesion de los bienes de la per annum shall be added as part of the tax; and to contingency is settled. This rule was formerly followed in New
herencia o del legado, transcurra mucho o poco tiempo, pues the tax and interest due and unpaid within ten days York and has been adopted in Illinois, Minnesota,
la adquisicion ha de retrotraerse al momento de la muerte, y after the date of notice and demand thereof by the Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule,
asi lo ordena el articulo 989, que debe considerarse como collector, there shall be further added a surcharge of horever, is by no means entirely satisfactory either to the estate
complemento del presente." (5 Manresa, 305; see also, art. twenty-five per centum. or to those interested in the property (26 R. C. L., p. 231.).
440, par. 1, Civil Code.) Thomas Hanley having died on May Realizing, perhaps, the defects of its anterior system, we find
27, 1922, the inheritance tax accrued as of the date. upon examination of cases and authorities that New York has
A certified of all letters testamentary or of varied and now requires the immediate appraisal of the
admisitration shall be furnished the Collector of postponed estate at its clear market value and the payment
From the fact, however, that Thomas Hanley died on May 27, Internal Revenue by the Clerk of Court within thirty forthwith of the tax on its out of the corpus of the estate
1922, it does not follow that the obligation to pay the tax arose days after their issuance. transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In
as of the date. The time for the payment on inheritance tax is
re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate
clearly fixed by section 1544 of the Revised Administrative
It should be observed in passing that the word "trustee", of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N.
Code as amended by Act No. 3031, in relation to section 1543
appearing in subsection (b) of section 1543, should read Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N.
of the same Code. The two sections follow:
"fideicommissary" or "cestui que trust". There was an obvious Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter.
mistake in translation from the Spanish to the English version. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.)
SEC. 1543. Exemption of certain acquisitions and California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
transmissions. — The following shall not be taxed:
The instant case does fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here But whatever may be the rule in other jurisdictions, we hold that
(a) The merger of the usufruct in the owner no fiduciary heirs, first heirs, legatee or donee. Under the a transmission by inheritance is taxable at the time of the
of the naked title. subsection, the tax should have been paid before the delivery predecessor's death, notwithstanding the postponement of the
of the properties in question to P. J. M. Moore as trustee on actual possession or enjoyment of the estate by the
March 10, 1924. beneficiary, and the tax measured by the value of the property
transmitted at that time regardless of its appreciation or by section 3 of Act No. 3606. But Act No. 3606 went into effect Statutory Construction, 361; Twine Co. vs. Worthington, 141 U.
depreciation. on January 1, 1930. It, therefore, was not the law in force when S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53
the testator died on May 27, 1922. The law at the time was Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State
section 1544 above-mentioned, as amended by Act No. 3031, vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised
(c) Certain items are required by law to be deducted from the
which took effect on March 9, 1922. Penal Code is not applicable to the case at bar, and in the
appraised gross in arriving at the net value of the estate on
absence of clear legislative intent, we cannot give Act No. 3606
which the inheritance tax is to be computed (sec. 1539,
a retroactive effect.
Revised Administrative Code). In the case at bar, the It is well-settled that inheritance taxation is governed by the
defendant and the trial court allowed a deduction of only statute in force at the time of the death of the decedent (26 R.
P480.81. This sum represents the expenses and C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The (e) The plaintiff correctly states that the liability to pay a tax
disbursements of the executors until March 10, 1924, among taxpayer can not foresee and ought not to be required to guess may arise at a certain time and the tax may be paid within
which were their fees and the proven debts of the deceased. the outcome of pending measures. Of course, a tax statute another given time. As stated by this court, "the mere failure to
The plaintiff contends that the compensation and fees of the may be made retroactive in its operation. Liability for taxes pay one's tax does not render one delinqent until and unless
trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, under retroactive legislation has been "one of the incidents of the entire period has eplased within which the taxpayer is
HH, JJ, LL, NN, OO), should also be deducted under section social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., authorized by law to make such payment without being
1539 of the Revised Administrative Code which provides, in 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute subjected to the payment of penalties for fasilure to pay his
part, as follows: "In order to determine the net sum which must should operate retroactively should be perfectly clear. (Scwab taxes within the prescribed period." (U. S. vs. Labadan, 26
bear the tax, when an inheritance is concerned, there shall be vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Phil., 239.)
deducted, in case of a resident, . . . the judicial expenses of the Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20
testamentary or intestate proceedings, . . . ." Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should
The defendant maintains that it was the duty of the executor to
be considered as prospective in its operation, whether it
pay the inheritance tax before the delivery of the decedent's
enacts, amends, or repeals an inheritance tax, unless the
A trustee, no doubt, is entitled to receive a fair compensation property to the trustee. Stated otherwise, the defendant
language of the statute clearly demands or expresses that it
for his services (Barney vs. Saunders, 16 How., 535; 14 Law. contends that delivery to the trustee was delivery to the cestui
shall have a retroactive effect, . . . ." (61 C. J., P. 1602.)
ed., 1047). But from this it does not follow that the que trust, the beneficiery in this case, within the meaning of the
Though the last paragraph of section 5 of Regulations No. 65
compensation due him may lawfully be deducted in arriving at first paragraph of subsection (b) of section 1544 of the Revised
of the Department of Finance makes section 3 of Act No. 3606,
the net value of the estate subject to tax. There is no statute in Administrative Code. This contention is well taken and is
amending section 1544 of the Revised Administrative Code,
the Philippines which requires trustees' commissions to be sustained. The appointment of P. J. M. Moore as trustee was
applicable to all estates the inheritance taxes due from which
deducted in determining the net value of the estate subject to made by the trial court in conformity with the wishes of the
have not been paid, Act No. 3606 itself contains no provisions
inheritance tax (61 C. J., p. 1705). Furthermore, though a testator as expressed in his will. It is true that the word "trust" is
indicating legislative intent to give it retroactive effect. No such
testamentary trust has been created, it does not appear that not mentioned or used in the will but the intention to create one
effect can begiven the statute by this court.
the testator intended that the duties of his executors and is clear. No particular or technical words are required to create
trustees should be separated. (Ibid.; In re Vanneck's Estate, a testamentary trust (69 C. J., p. 711). The words "trust" and
161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's The defendant Collector of Internal Revenue maintains, "trustee", though apt for the purpose, are not necessary. In
Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 however, that certain provisions of Act No. 3606 are more fact, the use of these two words is not conclusive on the
of his will, the testator expressed the desire that his real estate favorable to the taxpayer than those of Act No. 3031, that said question that a trust is created (69 C. J., p. 714). "To create a
be handled and managed by his executors until the expiration provisions are penal in nature and, therefore, should operate trust by will the testator must indicate in the will his intention so
of the period of ten years therein provided. Judicial expenses retroactively in conformity with the provisions of article 22 of the to do by using language sufficient to separate the legal from
are expenses of administration (61 C. J., p. 1705) but, in State Revised Penal Code. This is the reason why he applied Act No. the equitable estate, and with sufficient certainty designate the
vs. Hennepin County Probate Court (112 N. W., 878; 101 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) beneficiaries, their interest in the ttrust, the purpose or object of
Minn., 485), it was said: ". . . The compensation of a trustee, the surcharge of 25 per cent is based on the tax only, instead the trust, and the property or subject matter thereof. Stated
earned, not in the administration of the estate, but in the of on both the tax and the interest, as provided for in Act No. otherwise, to constitute a valid testamentary trust there must be
management thereof for the benefit of the legatees or devises, 3031, and (2) the taxpayer is allowed twenty days from notice a concurrence of three circumstances: (1) Sufficient words to
does not come properly within the class or reason for and demand by rthe Collector of Internal Revenue within which raise a trust; (2) a definite subject; (3) a certain or ascertain
exempting administration expenses. . . . Service rendered in to pay the tax, instead of ten days only as required by the old object; statutes in some jurisdictions expressly or in effect so
that behalf have no reference to closing the estate for the law. providing." (69 C. J., pp. 705,706.) There is no doubt that the
purpose of a distribution thereof to those entitled to it, and are testator intended to create a trust. He ordered in his will that
not required or essential to the perfection of the rights of the certain of his properties be kept together undisposed during a
Properly speaking, a statute is penal when it imposes
heirs or legatees. . . . Trusts . . . of the character of that here fixed period, for a stated purpose. The probate court certainly
punishment for an offense committed against the state which,
before the court, are created for the the benefit of those to exercised sound judgment in appointment a trustee to carry
under the Constitution, the Executive has the power to pardon.
whom the property ultimately passes, are of voluntary creation, into effect the provisions of the will (see sec. 582, Code of Civil
In common use, however, this sense has been enlarged to
and intended for the preservation of the estate. No sound Procedure).
include within the term "penal statutes" all status which
reason is given to support the contention that such expenses
command or prohibit certain acts, and establish penalties for
should be taken into consideration in fixing the value of the
their violation, and even those which, without expressly P. J. M. Moore became trustee on March 10, 1924. On that
estate for the purpose of this tax."
prohibiting certain acts, impose a penalty upon their date trust estate vested in him (sec. 582 in relation to sec. 590,
commission (59 C. J., p. 1110). Revenue laws, generally, Code of Civil Procedure). The mere fact that the estate of the
(d) The defendant levied and assessed the inheritance tax due which impose taxes collected by the means ordinarily resorted deceased was placed in trust did not remove it from the
from the estate of Thomas Hanley under the provisions of to for the collection of taxes are not classed as penal laws, operation of our inheritance tax laws or exempt it from the
section 1544 of the Revised Administrative Code, as amended although there are authorities to the contrary. (See Sutherland, payment of the inheritance tax. The corresponding inheritance
tax should have been paid on or before March 10, 1924, to That taxes must be collected promptly is a policy deeply We shall now compute the tax, together with the interest and
escape the penalties of the laws. This is so for the reason intrenched in our tax system. Thus, no court is allowed to grant surcharge due from the estate of Thomas Hanley inaccordance
already stated that the delivery of the estate to the trustee injunction to restrain the collection of any internal revenue tax with the conclusions we have reached.
was in esse delivery of the same estate to the cestui que trust, ( sec. 1578, Revised Administrative Code; Sarasola vs.
the beneficiary in this case. A trustee is but an instrument or Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
At the time of his death, the deceased left real properties
agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; Posadas (47 Phil., 461), this court had occassion to
valued at P27,920 and personal properties worth P1,465, or a
33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore demonstrate trenchment adherence to this policy of the law. It
total of P29,385. Deducting from this amount the sum of
accepted the trust and took possesson of the trust estate he held that "the fact that on account of riots directed against the
P480.81, representing allowable deductions under secftion
thereby admitted that the estate belonged not to him but to Chinese on October 18, 19, and 20, 1924, they were prevented
1539 of the Revised Administrative Code, we have P28,904.19
his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in from praying their internal revenue taxes on time and by mutual
as the net value of the estate subject to inheritance tax.
65 C. J., p. 692, n. 63). He did not acquire any beneficial agreement closed their homes and stores and remained
interest in the estate. He took such legal estate only as the therein, does not authorize the Collector of Internal Revenue to
proper execution of the trust required (65 C. J., p. 528) and, his extend the time prescribed for the payment of the taxes or to The primary tax, according to section 1536, subsection (c), of
estate ceased upon the fulfillment of the testator's wishes. The accept them without the additional penalty of twenty five per the Revised Administrative Code, should be imposed at the
estate then vested absolutely in the beneficiary (65 C. J., p. cent." (Syllabus, No. 3.) rate of one per centum upon the first ten thousand pesos and
542). two per centum upon the amount by which the share exceed
thirty thousand pesos, plus an additional two hundred per
". . . It is of the utmost importance," said the Supreme Court of
centum. One per centum of ten thousand pesos is P100. Two
The highest considerations of public policy also justify the the United States, ". . . that the modes adopted to enforce the
per centum of P18,904.19 is P378.08. Adding to these two
conclusion we have reached. Were we to hold that the taxes levied should be interfered with as little as possible. Any
sums an additional two hundred per centum, or P965.16, we
payment of the tax could be postponed or delayed by the delay in the proceedings of the officers, upon whom the duty is
have as primary tax, correctly computed by the defendant, the
creation of a trust of the type at hand, the result would be developed of collecting the taxes, may derange the operations
sum of P1,434.24.
plainly disastrous. Testators may provide, as Thomas Hanley of government, and thereby, cause serious detriment to the
has provided, that their estates be not delivered to their public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66;
beneficiaries until after the lapse of a certain period of time. In Churchill and Tait vs. Rafferty, 32 Phil., 580.) To the primary tax thus computed should be added the sums
the case at bar, the period is ten years. In other cases, the trust collectible under section 1544 of the Revised Administrative
may last for fifty years, or for a longer period which does not Code. First should be added P1,465.31 which stands for
It results that the estate which plaintiff represents has been
offend the rule against petuities. The collection of the tax would interest at the rate of twelve per centum per annum from March
delinquent in the payment of inheritance tax and, therefore,
then be left to the will of a private individual. The mere 10, 1924, the date of delinquency, to September 15, 1932, the
liable for the payment of interest and surcharge provided by
suggestion of this result is a sufficient warning against the date of payment under protest, a period covering 8 years, 6
law in such cases.
accpetance of the essential to the very exeistence of months and 5 days. To the tax and interest thus computed
government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. should be added the sum of P724.88, representing a surhcarge
ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., The delinquency in payment occurred on March 10, 1924, the of 25 per cent on both the tax and interest, and also P10, the
558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; date when Moore became trustee. The interest due should be compromise sum fixed by the defendant (Exh. 29), giving a
Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 computed from that date and it is error on the part of the grand total of P3,634.43.
Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. defendant to compute it one month later. The provisions cases
Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to is mandatory (see and cf. Lim Co Chui vs. Posadas, supra),
As the plaintiff has already paid the sum of P2,052.74, only the
pay taxes rests not upon the privileges enjoyed by, or the and neither the Collector of Internal Revenuen or this court
sums of P1,581.69 is legally due from the estate. This last sum
protection afforded to, a citizen by the government but upon the may remit or decrease such interest, no matter how heavily it
is P390.42 more than the amount demanded by the defendant
necessity of money for the support of the state (Dobbins vs. may burden the taxpayer.
in his counterclaim. But, as we cannot give the defendant more
Erie Country, supra). For this reason, no one is allowed to
than what he claims, we must hold that the plaintiff is liable only
object to or resist the payment of taxes solely because no
To the tax and interest due and unpaid within ten days after the in the sum of P1,191.27 the amount stated in the counterclaim.
personal benefit to him can be pointed out. (Thomas vs. Gay,
date of notice and demand thereof by the Collector of Internal
169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While
Revenue, a surcharge of twenty-five per centum should be
courts will not enlarge, by construction, the government's The judgment of the lower court is accordingly modified, with
added (sec. 1544, subsec. (b), par. 2, Revised Administrative
power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 costs against the plaintiff in both instances. So ordered.
Code). Demand was made by the Deputy Collector of Internal
Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place
Revenue upon Moore in a communiction dated October 16,
upon tax laws so loose a construction as to permit evasions on
1931 (Exhibit 29). The date fixed for the payment of the tax and Avanceña, C.J., Abad Santos, Imperial, Diaz and Concepcion,
merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1
interest was November 30, 1931. November 30 being an JJ., concur.
Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2
official holiday, the tenth day fell on December 1, 1931. As the Villa-Real, J., concurs.
Story, 369; Fed. Cas. No. 16,690, followed in Froelich &
tax and interest due were not paid on that date, the estate
Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle
became liable for the payment of the surcharge.
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. In view of the foregoing, it becomes unnecessary for us to
vs. Trinidad, 43 Phil., 803.) When proper, a tax statute should discuss the fifth error assigned by the plaintiff in his brief.
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.
G.R. No. L-36770             November 4, 1932 all his property according to a deed of gift (Exhibit D) formalities of the transfer on the eve of the latter's death. We
which includes all the property of Don Felix Dizon; do not know whether or not the father in this case left a will; in
any event, this appellant could not be deprived of his share of
LUIS W. DISON, plaintiff-appellant,
the inheritance because the Civil Code confers upon him the
vs. 3. That the plaintiff did not receive property of any
status of a forced heir. We construe the expression in section
JUAN POSADAS, JR., Collector of Internal kind of Don Felix Dison upon the death of the latter;
1540 "any of those who, after his death, shall prove to be his
Revenue, defendant-appellant.
heirs", to include those who, by our law, are given the status
4. That Don Luis W. Dison was the legitimate and and rights of heirs, regardless of the quantity of property they
Marcelino Aguas for plaintiff-appellant. only child of Don Felix Dison. may receive as such heirs. That the appellant in this case
Attorney-General Jaranilla for defendant-appellant. occupies the status of heir to his deceased father cannot be
questioned. Construing the conveyance here in question, under
It is inferred from Exhibit D that Felix Dison was a widower at the facts presented, as an advance made by Felix Dison to his
the time of his death. only child, we hold section 1540 to be applicable and the tax to
have been properly assessed by the Collector of Internal
The theory of the plaintiff-appellant is that he received and Revenue.
holds the property mentioned by a consummated gift and that
BUTTE, J.:
Act No. 2601 (Chapter 40 of the Administrative Code) being the This appeal was originally assigned to a Division of five but
inheritance tax statute, does not tax gifts. The provision directly referred to the court in banc by reason of the appellant's attack
This is an appeal from the decision of the Court of First here involved is section 1540 of the Administrative Code which upon the constitutionality of section 1540. This attack is based
Instance of Pampanga in favor of the defendant Juan Posadas, reads as follows: on the sole ground that insofar as section 1540 levies a tax
Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs,
upon gifts inter vivos, it violates that provision of section 3 of
Luis W. Dison, for the recovery of an inheritance tax in the sum
Additions of Gifts and Advances. — After the the organic Act of the Philippine Islands (39 Stat. L., 545) which
of P2,808.73 paid under protest. The petitioner alleged in his
aforementioned deductions have been made, there reads as follows: "That no bill which may be enacted into law
complaint that the tax is illegal because he received the
shall be added to the resulting amount the value of shall embraced more than one subject, and that subject shall
property, which is the basis of the tax, from his father before his
all gifts or advances made by the predecessor to any be expressed in the title of the bill." Neither the title of Act No.
death by a deed of gift inter vivos which was duly accepted and
of those who, after his death, shall prove to be his 2601 nor chapter 40 of the Administrative Code makes any
registered before the death of his father. The defendant
heirs, devises, legatees, or donees mortis causa. reference to a tax on gifts. Perhaps it is enough to say of this
answered with a general denial and with a counterdemand for
contention that section 1540 plainly does not tax gifts per
the sum of P1,245.56 which it was alleged is a balance still due
se but only when those gifts are made to those who shall prove
and unpaid on account of said tax. The plaintiff replied to the The question to be resolved may be stated thus: Does section to be the heirs, devisees, legatees or donees mortis causa of
counterdemand with a general denial. The court a quo held 1540 of the Administrative Code subject the plaintiff-appellant the donor. This court said in the case of Tuason and
that the cause of action set up in the counterdemand was not to the payment of an inheritance tax? Tuason vs. Posadas 954 Phil., 289):lawphil.net
proven and dismissed the same. Both sides appealed to this
court, but the cross-complaint and appeal of the Collector of
Internal Revenue were dismissed by this court on March 17, The appellant argues that there is no evidence in this case to When the law says all gifts, it doubtless refers to
1932, on motion of the Attorney-General.1awphil.net support a finding that the gift was simulated and that it was an gifts inter vivos, and not mortis causa. Both the letter
artifice for evading the payment of the inheritance tax, as is and the spirit of the law leave no room for any other
intimated in the decision of the court below and the brief of the interpretation. Such, clearly, is the tenor of the
The only evidence introduced at the trial of this cause was the Attorney-General. We see no reason why the court may not go language which refers to donations that took effect
proof of payment of the tax under protest, as stated, and the behind the language in which the transaction is masked in before the donor's death, and not to mortis
deed of gift executed by Felix Dison on April 9, 1928, in favor of order to ascertain its true character and purpose. In this case causa donations, which can only be made with the
his sons Luis W. Dison, the plaintiff-appellant. This deed of gift the scanty facts before us may not warrant the inference that formalities of a will, and can only take effect after the
transferred twenty-two tracts of land to the donee, reserving to the conveyance, acknowledged by the donor five days before donor's death. Any other construction would virtually
the donor for his life the usufruct of three tracts. This deed was his death and accepted by the donee one day before the change this provision into:
acknowledged by the donor before a notary public on April 16, donor's death, was fraudulently made for the purpose of
1928. Luis W. Dison, on April 17, 1928, formally accepted said evading the inheritance tax. But the facts, in our opinion, do
gift by an instrument in writing which he acknowledged before a warrant the inference that the transfer was an advancement ". . . there shall be added to the resulting amount the value of
notary public on April 20, 1928. upon the inheritance which the donee, as the sole and forced all gifts mortis causa . . . made by the predecessor to those
heir of the donor, would be entitled to receive upon the death of who, after his death, shall prove to be his . . . donees mortis
the donor. causa." We cannot give to the law an interpretation that would
At the trial the parties agreed to and filed the following
so vitiate its language. The truth of the matter is that in this
ingenious stipulation of fact:
section (1540) the law presumes that such gifts have been
The argument advanced by the appellant that he is not an heir made in anticipation of inheritance, devise, bequest, or
of his deceased father within the meaning of section 1540 of gift mortis causa, when the donee, after the death of the donor
1. That Don Felix Dison died on April 21, 1928;
the Administrative Code because his father in his lifetime had proves to be his heir, devisee or donee mortis causa, for the
given the appellant all his property and left no property to be purpose of evading the tax, and it is to prevent this that it
2. That Don Felix Dison, before his death, made a inherited, is so fallacious that the urging of it here casts a provides that they shall be added to the resulting amount."
gift inter vivos in favor of the plaintiff Luis W. Dison of suspicion upon the appellants reason for completing the legal
However much appellant's argument on this point may fit his
preconceived notion that the transaction between him and his
father was a consummated gift with no relation to the
inheritance, we hold that there is not merit in this attack upon
the constitutionality of section 1540 under our view of the facts.
No other constitutional questions were raised in this case.

The judgment below is affirmed with costs in this instance

against the appellant. So ordered.

Avanceña, C.J., Street, Malcolm, Ostrand, Abad Santos,

Vickers and Imperial, JJ., concur.
G.R. No. L-34937             March 13, 1933 ground that the afore- mentioned appellants did not really have consisted in those made completely independent of death or
a right of action. without regard to it.
CONCEPCION VIDAL DE ROCES and her husband,
MARCOS ROCES, and ELVIRA VIDAL DE In their brief, the appellants assign only one alleged error, to Said legal provision is not null and void on the alleged ground
RICHARDS, plaintiff-appellants, wit: that the demurrer interposed by the appellee was sustained that the subject matter thereof is not embraced in the title of the
vs. without sufficient ground. section under which it is enumerated. On the contrary, its
JUAN POSADAS, JR., Collector of Internal provisions are perfectly summarized in the heading, "Tax on
Revenue, defendant-appellee. Inheritance, etc." which is the title of Article XI. Furthermore,
The judgment appealed from was based on the provisions of
the constitutional provision cited should not be strictly
section 1540 Administrative Code which reads as follows:
construed as to make it necessary that the title contain a full
Feria and La O for appellants.
index to all the contents of the law. It is sufficient if the
Attorney-General Jaranilla for appellee.
SEC. 1540. Additions of gifts and advances. — After language used therein is expressed in such a way that in case
the aforementioned deductions have been made, of doubt it would afford a means of determining the legislators
IMPERIAL, J.: there shall be added to the resulting amount the intention. (Lewis' Sutherland Statutory Construction, Vol. II, p.
value of all gifts or advances made by the 651.) Lastly, the circumstance that the Administrative Code
predecessor to any those who, after his death, shall was prepared and compiled strictly in accordance with the
The plaintiffs herein brought this action to recover from the
prove to be his heirs, devisees, legatees, or provisions of the Jones Law on that matter should not be
defendant, Collector of Internal Revenue, certain sums of
donees mortis causa. overlooked and that, in a compilation of laws such as the
money paid by them under protest as inheritance tax. They Administrative Code, it is but natural and proper that provisions
appealed from the judgment rendered by the Court of First referring to diverse matters should be found. (Ayson and
Instance of Manila dismissing the action, without costs. The appellants contend that the above-mentioned legal Ignacio vs. Provincial Board of Rizal and Municipal Council of
provision does not include donations inter vivos and if it does, it Navotas, 39 Phil., 931.)
is unconstitutional, null and void for the following reasons: first,
On March 10 and 12, 1925, Esperanza Tuazon, by means of
because it violates section 3 of the Jones Law which provides
public documents, donated certain parcels of land situated in
that no law should embrace more than one subject, and that The appellants question the power of the Legislature to impose
Manila to the plaintiffs herein, who, with their respective
subject should be expressed in the title thereof; second that the taxes on the transmission of real estate that takes effect
husbands, accepted them in the same public documents, which
Legislature has no authority to impose inheritance tax on immediately and during the lifetime of the donor, and allege as
were duly recorded in the registry of deeds. By virtue of said
donations inter vivos; and third, because a legal provision of their reason that such tax partakes of the nature of the land tax
donations, the plaintiffs took possession of the said lands,
this character contravenes the fundamental rule of uniformity of which the law has already created in another part of the
received the fruits thereof and obtained the corresponding
taxation. The appellee, in turn, contends that the words "all Administrative Code. Without making express pronouncement
transfer certificates of title.
gifts" refer clearly to donations inter vivos and, in support of his on this question, for it is unnecessary, we wish to state that
theory, cites the doctrine laid in the case of Tuason and such is not the case in these instance. The tax collected by the
On January 5, 1926, the donor died in the City of Manila Tuason vs. Posadas (54 Phil., 289). After a careful study of the appellee on the properties donated in 1925 really constitutes
without leaving any forced heir and her will which was admitted law and the authorities applicable thereto, we are the opinion an inheritance tax imposed on the transmission of said
to probate, she bequeathed to each of the donees the sum of that neither theory reflects the true spirit of the aforementioned properties in contemplation or in consideration of the donor's
P5,000. After the estate had been distributed among the provision. The gifts referred to in section 1540 of the Revised death and under the circumstance that the donees were later
instituted legatees and before delivery of their respective Administration Code are, obviously, those donations inter instituted as the former's legatees. For this reason, the law
shares, the appellee herein, as Collector of Internal Revenue, vivos that take effect immediately or during the lifetime of the considers such transmissions in the form of gifts inter vivos, as
ruled that the appellants, as donees and legatees, should pay donor but are made in consideration or in contemplation of advances on inheritance and nothing therein violates any
as inheritance tax the sums of P16,673 and P13,951.45, death. Gifts inter vivos, the transmission of which is not made constitutional provision, inasmuch as said legislation is within
respectively. Of these sums P15,191.48 was levied as tax on in contemplation of the donor's death should not be understood the power of the Legislature.
the donation to Concepcion Vidal de Roces and P1,481.52 on as included within the said legal provision for the reason that it
her legacy, and, likewise, P12,388.95 was imposed upon the would amount to imposing a direct tax on property and not on
Property Subject to Inheritance Tax. — The
donation made to Elvira Vidal de Richards and P1,462.50 on the transmission thereof, which act does not come within the
inheritance tax ordinarily applies to all property within
her legacy. At first the appellants refused to pay the scope of the provisions contained in Article XI of Chapter 40 of
the power of the state to reach passing by will or the
aforementioned taxes but, at the insistence of the appellee and the Administrative Code which deals expressly with the tax on
laws regulating intestate succession or by gift inter
in order not to delay the adjudication of the legacies, they inheritances, legacies and other acquisitions mortis causa.
vivos in the manner designated by statute, whether
agreed at last, to pay them under protest. such property be real or personal, tangible or
Our interpretation of the law is not in conflict with the rule laid intangible, corporeal or incorporeal. (26 R.C.L., p.
The appellee filed a demurrer to the complaint on the ground down in the case of Tuason and Tuason vs. Posadas, supra. 208, par. 177.)
that the facts alleged therein were not sufficient to constitute a We said therein, as we say now, that the expression "all gifts"
cause of action. After the legal questions raised therein had refers to gifts inter vivos inasmuch as the law considers them
In the case of Tuason and Tuason vs. Posadas, supra, it was
been discussed, the court sustained the demurrer and ordered as advances on inheritance, in the sense that they are
also held that section 1540 of the Administrative Code did not
the amendment of the complaint which the appellants failed to gifts inter vivos made in contemplation or in consideration of
violate the constitutional provision regarding uniformity of
do, whereupon the trial court dismissed the action on the death. In that case, it was not held that that kind of gifts
taxation. It cannot be null and void on this ground because it
equally subjects to the same tax all of those donees who later
become heirs, legatees or donees mortis causa by the will of VILLA-REAL, J., dissenting:
the donor. There would be a repugnant and arbitrary exception
if the provisions of the law were not applicable to all donees of
I sustain my concurrence in Justice Street's dissenting opinion
the same kind. In the case cited above, it was said: "At any rate
in the case of Tuason and Tuason vs. Posadas (54 Phil., 289).
the argument adduced against its constitutionality, which is the
lack of Uniformity, does not seem to be well founded. It was
said that under such an interpretation, while a donee inter The majority opinion to distinguish the present case from
vivos who, after the predecessor's death proved to be an heir, above-mentioned case of Tuason and Tuason vs. Posadas, by
a legatee, or a donee mortis causa, would have to pay the tax, interpreting section 1540 of the Administrative Code in the
another donee inter vivos who did not prove to he an heir, a sense that it establishes the legal presumption juris tantum that
legatee, or a donee mortis causa of the predecessor, would be all gifts inter vivos made to persons who are not forced heirs
exempt from such a tax. But as these are two different cases, but who are instituted legatees in the donor's will, have been
the principle of uniformity is inapplicable to them." made in contemplation of the donor's death. Presumptions are
of two kinds: One determined by law which is also called
presumption of law or of right; and another which is formed by
The last question of a procedural nature arising from the case
the judge from circumstances antecedent to, coincident with or
at bar, which should be passed upon, is whether the case, as it
subsequent to the principal fact under investigation, which is
now stands, can be decided on the merits or should be
also called presumption of man (presuncion de hombre).
remanded to the court a quo for further proceedings. According
(Escriche, Vol. IV, p. 662.) The Civil Code as well as the code
to our view of the case, it follows that, if the gifts received by
of Civil Procedure establishes presumptions juris et de
the appellants would have the right to recover the sums of
jure and juris tantum which the courts should take into account
money claimed by them. Hence the necessity of ascertaining
in deciding questions of law submitted to them for decision.
whether the complaint contains an allegation to that effect. We
The presumption which majority opinion wishes to draw from
have examined said complaint and found nothing of that
said section 1540 of the Administrative Code can neither be
nature. On the contrary, it be may be inferred from the
found in this Code nor in any of the aforementioned Civil Code
allegations contained in paragraphs 2 and 7 thereof that said
and Code of Civil Procedure. Therefore, said presumption
donations inter vivos were made in consideration of the donor's
cannot be called legal or of law. Neither can it be called a
death. We refer to the allegations that such transmissions were
presumption of man (presuncion de hombre) inasmuch as the
effected in the month of March, 1925, that the donor died in
majority opinion did not infer it from circumstances antecedent
January, 1926, and that the donees were instituted legatees in
to, coincident with or subsequent to the principal fact with is the
the donor's will which was admitted to probate. It is from these
donation itself. In view of the nature, mode of making and
allegations, especially the last, that we infer a
effects of donations inter vivos, the contrary presumption would
presumption juris tantum that said donations were made mortis
be more reasonable and logical; in other words, donations inter
causa and, as such, are subject to the payment of inheritance
vivos made to persons who are not forced heirs, but who are
tax.
instituted legatees in the donor's will, should be presumed as
not made mortis causa, unless the contrary is proven. In the
Wherefore, the demurrer interposed by the appellee was well- case under consideration, the burden of the proof rests with the
founded because it appears that the complaint did not allege person who contends that the donation inter vivos has been
fact sufficient to constitute a cause of action. When the made mortis causa.
appellants refused to amend the same, spite of the court's
order to that effect, they voluntarily waived the opportunity
It is therefore, the undersigned's humble opinion that the order
offered them and they are not now entitled to have the case
appealed from should be reversed and the demurrer overruled,
remanded for further proceedings, which would serve no
and the defendant ordered to file his answer to the complaint.
purpose altogether in view of the insufficiency of the complaint.

Street, J., concurs.

Wherefore, the judgment appealed from is hereby affirmed,
with costs of this instance against the appellants. So ordered.

Avanceña, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers

and Buttes, JJ., concur.

Separate Opinions
G.R. No. L-11621             May 31, 1962 WHEREFORE, the decision appealed from is hereby Under date of November 13, 1950, possession of the land was
modified in the sense that defendant Marasigan shall delivered to Ronquillo. A motion for reconsideration filed by
not be compelled to assume his former position as Marasigan on November 17, 1950 was denied on the same
FELICISIMO RONQUILLO, deceased,
assistant manager in the business of the plaintiff date.
substituted by ANTONIA DE GUZMAN VDA. DE
unless he be willing to serve as such, with
RONQUILLO, ET AL., plaintiffs-appellants,
compensation at the rate of P60.00 per month. The
vs. A manifestation, with a proposed deed of lease, as called for in
decision is affirmed in all other respects, with the
FRANCISCO MARASIGAN, defendant-appellant. the decision of the Court of Appeals, was filed on November
understanding, however, that defendant Marasigan
27, 1950. On December 4, 1950, Marasigan filed a motion
shall pay to the plaintiff the damages that the latter
asking for authority to withdraw the P10,922.30 deposited by
Mariano G. Bustos and Angel G. Ronquillo for plaintiffs- may prove to have suffered if the provision regarding
Ronquillo, since plaintiff has already been placed in possession
appellants. the execution of a new contract of lease of and land
of the land in litigation. Plaintiff interposed no objection to the
Rosendo J. Tansinsin for defendant-appellee. could not be carried out for any legal impediment.
withdrawal, and on December 12, 1950, defendant Marasigan
Without pronouncement as to costs in this instance.
collected the amount.
PAREDES, J.:
Upon the finality of the decision in Civil Case No. 80, as
An approval of the deed of lease proposed by Marasigan
modified by the Court of Appeals, the case was remanded to
On December 1, 1941, Felicisimo Ronquillo and Francisco submitted on November 27, was urged by said Marasigan, in a
the lower court for execution of the judgment. Ronquillo
Marasigan, verbally entered into a contract of lease for ten (10) motion of December 19, 1950. An objection was interposed by
deposited the amount adjudged for him to pay, in the amount of
years, over a parcel of nipa-land, more particularly described plaintiff Ronquillo. Instead, he asked that Clerk of Court Palad
P10,922.31, as full payment of the rentals of the land for 10
under paragraph 3 of the complaint. Pursuant to said contract, be directed to execute the deed of lease, which he (plaintiff)
years. A writ of execution was ordered served on Marasigan by
the nipa-land was delivered and Ronquillo took possession attached to the opposition as, Annex A, inserting verbatim the
the Provincial Sheriff on September 13, 1950. On September
thereof until September 1, 1942, when Marasigan, in dispositive part of the decision rendered in Civil Case No. 80.
19, 1950, Marasigan thru counsel informed the Sheriff that
conspiracy with the laborers and men under the employ of The lower court, under date of January 18, 1950, issued the
delivery of the land to Ronquillo could not be undertaken
Ronquillo, invaded and took over possession of the land. As a following order —
because the co-defendants of Marasigan were holding the
result of the dispossession Ronquillo filed with the CFI of same as lessees and told said Sheriff that Ronquillo can avail
Bulacan, Civil Case No. 80, against Marasigan and on May 19, of the alternative provided for in the modified decision of the The Court is of the opinion, and so hold, that the
1943, he included as defendants 14 others, praying that Court of Appeals, that is, to prove his damages due to failure to judgment provides a deduction of five (5) years from
judgment be rendered, ordering the return of the nipa-land to deliver the land. the ten (10) years contract of lease beginning from
him, so that he may continue his lease right over it for 9 years
December 1, 1941, and that the five years should be
and 3 months more and that defendants be ordered, jointly and
counted from September 1, 1942 to August 31, 1947.
severally, to pay him P24,000.00 as yearly income from On October 3, 1950, Ronquillo presented a motion praying the
Therefore, the period of lease should be, according
September 1, 1942 until the land has actually been delivered. Court to order (1) the immediate delivery of the land in question
to the said dispositive part of the judgment, ten years
The lower court, on September 1, 1947, rendered judgment, to and the Sheriff to place Ronquillo in possession; (2) defendant
from the date the plaintiff was recently placed in
wit: — Marasigan to execute the deed of lease as provided for in the
possession of the land excluding the period from
decision of the CFI, and (3) that upon failure of Marasigan to
December 1, 1941 to August 31, 1942 or nine (9)
comply, to order his arrest for contempt.
That the defendant deliver immediately the months. It is clear and just that these five years,
possession of the land described in the amended which was not enjoyed by the lessee, must be
complaint to the plaintiff Ronquillo; that the defendant An opposition to the above motion was presented and on discounted and added to the period of lease which is
Marasigan execute a contract of lease covering the November 10, 1950, the following order was promulgated — to be executed now when the lessee will continue
said land for a period of 10 years in favor of the enjoying his right of the lease. . . .
plaintiff Ronquillo, as of December 1, 1941, by
The Court is of the opinion, and so hold that the
excluding therefrom the five years period from
opposition is groundless so that the Provincial Sheriff WHEREFORE, said contract of lease filed by the
September 1, 1942 to August 31, 1947, inclusive,
is hereby ordered to place immediately the plaintiff in defendant is hereby disapproved and the form of
with a consideration of P14,000.00 minus the amount
the possession of the property in question, and that contract of lease prepared by the Clerk of Court as
of P1,200.00, P1,277.70 and P600.00, the amount of
in view of the deposit made by the plaintiff of the sum authorized in the order dated November 10, 1950,
P1,227.70 being additional advances received by the
of P10,922.30 as consideration of the lease, said and filed by the plaintiff, attached to his opposition,
defendant Marasigan and the last amount of P600.00
defendant Francisco Marasigan is hereby ordered to may be approved by this Court, it being in conformity
being a reserve fund for the payment of the land
execute said deed of lease in the precise terms with the dispositive part of the judgment. (Exh. "F",
taxes; and that the defendant Marasigan will assume
specified in the dispositive part of the decision within Rec. on Appeal, pp. 9-11).
his former position as assistant manager with a
ten (10) days from the receipt of a copy thereof,
compensation of P60.00 monthly.
otherwise, and in pursuance of Section 10, Rule 39
Pursuant to the above order, Clerk of Court Palad and plaintiff
of the Rules of Court, the Clerk of Court, Mr.
Ronquillo executed, on January 22, 1951, the deed of lease in
Both parties appealed, and the Court of Appeals, on April 10, Leopoldo C. Palad, is hereby authorized to execute
the terms prescribed by the said order and by Urgent Motion of
1950, rendered judgment in the following manner — said deed of lease in the precise terms as specified
the same date, plaintiff prayed for the approval of the same.
in the said decision.
Defendant opposed the urgent motion anchoring his objection
on the allegation that the proposed deed leaves the end or The reason given above are not entirely without (b) Under the second cause of action, sentencing the
termination of the period of lease subject to further value or merit; but while they may entitle the lessee defendant to pay to the plaintiffs such moral, actual
interpretation of the parties, and that the order, instead of to some remedy, the one given in the appealed and compensatory damages which may be proved in
settling an issue, leaves the matter open to further litigation. On decision flies in the teeth of the procedural principle court plus reasonable attorney's fees and the costs
March 13, 1951, the lower court handed down the following of the finality of the judgments. When the decision of of this action; and
order: — the Court of Appeals on the first appeal was
rendered, modification thereof should have been
(c) Granting unto the plaintiff any other just and
sought by proper application to the court, in the
WHEREFORE, the order of January 18, 1951 is equitable relief in the premises.
sense that the period to be excluded from the ten-
hereby modified in the sense that the draft of the
year period of the lease (fixed by the judgment of the
contract of lease therein approved should provide
court of first instance to begin on September 1, 1942 Defendant Marasigan presented a Motion to Dismiss the
that, in accordance with the terms of the dispositive
and end on August 31, 1947), be extended up to the complaint on two grounds: Lack of cause of action and res
part of the decision of this Court, said lease should
date when the land was on be actually placed in the judicata, and/or estoppel by judgment. In argument, supporting
be for a period of ten (10) years, starting from
possession of the lessee. This full period should be the above contention, defendant claims that the period within
December 1, 1941, and running through and
excluded in the computation of the ten-year lease which the lease should commence to run and end has squarely
including August 31, 1942, and start to run again
because the delay in lessee's taking possession was been decided not only by the CFI of Bulacan, but also the
from September 1, 1947 up to and ending on
attributable to the lessor's fault. Whether the failure Court of Appeals and the Supreme Court. An opposition to the
December 1, 1956. . .
of the lessee to secure this modification in the motion to dismiss was registered by plaintiff Ronquillo, arguing
original judgment as above indicated is due to the that a valid cause of action exists and the complaint was filed in
A motion for a reconsideration of the above order, was denied oversight of the party, of the court, or of both, the view of the aforecited observations of the Supreme Court.
on April 19, 1951. On appeal, the Court of Appeals on May 13, omission or mistake certainly could no longer be
1952, rendered judgment, to wit — remedied by modification of the judgment after it bad
With the denial of the motion to dismiss, on March 16, 1955,
become final and executory.
defendant filed his answer which, after the customary
WHEREFORE, the orders of March 13, and April 19, admissions and denials, interposed Special Defenses and a
1951, are hereby set aside and the defendant As to the acceptance by the lessor of the full amount Counterclaim to wit —
Francisco Marasigan is hereby ordered to execute a of the price of the lease for a full ten-year period,
contract of lease embodying the conditions set forth from which acceptance the judgment infers an
"As Special Defenses:
in the decision of the lower court, with the acquiescence in a lease for fully ten years from
understanding that the contract should be for a November 10, 1950 (the date when lessee was
period of nine (9) years and three (3) months more, placed in possession after judgment), it must be 16. That the complaint states no cause of action;
to begin from November 10, 1950, until said period is stated that such act of acceptance was made after
covered in full. . . . the date of the final judgment, it may not be
permitted to justify its modification, or change, or 17. That it is barred by the statute of limitations; and
correction. Said act of acceptance may create new
Defendant Marasigan in turn brought the above judgment to rights in relation to the judgment, but the remedy to 18. That the judgment in Civil Case No. 80 affirmed
this Court on certiorari (appeal), docketed as G.R. No. L-5910 enforce such rights is not a modification of the by the Court of Appeals with slight modification in
and a judgment was rendered, the pertinent portions of which judgment, or its correction, but a new suit or action in CA-G.R. No. 2816-R and finally interpreted and
are reproduced hereunder: — which the new issue of its (acceptance) supposed decided by the Supreme Court in SC-G.R. No. L-
existence and effects shall be tried and decided. 5810 is res adjudicata between the parties to the
The change ordered by the Court of Appeals was (Exh. "I", pp. 6-8, Rec. on Appeal pp. 14-17). present action, the Court having taken into account
made when the judgment was already being the rental value of the premises at the time of the
executed; and it can not be said to merely correct a rendition of the decision.
Because of the observations of this Court in the above
clerical error because it provides for a contract of judgment, Ronquillo filed the present case (Civ. Case No. 977),
lease of nine years and three months duration, from against the defendant Marasigan over the same parcel of nipa- After trial, the CFI of Bulacan dismissed the complaint and
November 10, 1950, which is different from one to land, subject matter of the previous case between them (Civ. counterclaim, without costs, stalling —
ten years from December 1, 1941, excluding the Case No. 80). He prays that judgment be rendered: —
period from September 1, 1942 to Aug. 31, 1947.
The modification is, however, sought to be justified . . . Consequently, it is our sense that this suit is
by two circumstances, namely, the withdrawal by the (a) Under the first cause of action, declaring the barred by the decision of the Supreme Court in Civil
lessor of the amount of P10,922.30, which amount, plaintiff to be entitled to a continuation of the lease Case No. 80, affirming the orders of January 18 and
together with the other sums previously received, now existing between the parties over the nipa-land March 13, 1951, of this Court.
total P14,000.00, and which is the rental of a full ten- in litigation for a period of three (3) years, two (2)
year term, and the injustice caused the lessee months and nine (9) days more, and ordering the
because he was not placed in possession from defendant to execute the corresponding deed of At least, if the decision rendered by this Court in Civil
September 1, 1947 but on November 10, 1950, when lease in favor of the plaintiff; Case No. 80, (Exh. "A") as slightly modified by the
the court ordered the execution of the Court of Appeals and its orders of January 18, and
judgment.1äwphï1.ñët March 13, 1951, as affirmed by the Supreme Court,
do not constitute res judicata to the instant case, they
 operate as an estoppel by judgment. For indeed imperative and technicalities should not be resorted to in
there is identity of parties and subject matter in this derogation of the intent and purpose of the rules — the proper
case and in Civil Case No. 80 (Paccial v. Palermo, L- and just determination of a litigation. There is no vested right in
April 29, 1950, 47 O.G. 6184). technicalities (Alonzo v. Villamor, 16 Phil. 315). Furthermore,
We find no application of the doctrine of res judicata in this
case. At the bottom of things, the present complaint seeks
The acceptance by the defendant (lessor) of the
merely the implementation of the judgment in Civil Case No.
full ,mount of the lease for a full ten-year period may,
80, which ordered appellee Marasigan to deliver the nipa-land
as held by the Supreme Court "create new rights in
to Ronquillo and to execute a deed of lease for ten (10) years
relation to the judgment." But as it is said, "the
in his favor, to commence from December 1, 1941. And even if
remedy to enforce such rights is not a modification of
We grant, for purposes of argument, that res judicata is
the judgment . . .". This suit, in effect, seeks to
applicable, "it is always in the power of the Court to suspend its
modify the judgment of the Supreme Court holding
own rules, or to except a particular case from its operation,
that the lease shall end on December 1, 1956. (Exh.
whenever the purposes of justice require it" (Cf., Viuda de
"I"). Said court could not have in mind this suit as the
Ordeveza v. Raymundo, 63 Phil. 275). The fact that the
"new suit or action in which the new issue of its
decision which made the deductions on the period of lease has
(acceptance) supposed existence and effects shall
become final, does not preclude a modification or an alteration
be tried and decided."
thereof because even with the finality of judgment, when its
execution becomes impossible or unjust, as in the instant case,
Plaintiff, on May 16, 1956, filed a Notice of Appeal assailing the it may be modified or altered to harmonize the same with
above findings and conclusions. Defendant Marasigan filed a justice and the facts (Ocampo v. Sanchez, G.R. No. L-6933,
motion for reconsideration of the above judgment for failure to Aug. 30, 1955, 51 O.G. 4542).
award him the reserve fund of P600.00 claimed in his
counterclaim. Plaintiff as appellant urges a reversal of the
WHEREFORE, the Order dismissing the complaint and the
decision of the CFI of Bulacan on eight (8) assignments of
counterclaim in Civil Case No. 997, is hereby reversed, and the
errors, which can be consolidated into the following issues: —
case is remanded to the Court of origin, for further
proceedings. Without special pronouncement as to costs.
1. The interpretation of the decision of the Court of
Appeals in Civil case No. 80 (CA-G.R. No. 2816-R,
Padilla, Bautista Angelo, Reyes, J.B.L., Barrera and Dizon, JJ.,
April 20,1950 Exh. H);
concur.
Labrador and Concepcion, JJ., concur in the result.
2. Whether res judicata has set in; Bengzon, C.J., on leave, took no part.

3. The right to damages.

It is manifest that the complaint instituted by Ronquillo in Civil

Case No. 997 was principally based upon the observation of
this Court in the Certiorari case, where We stated that the
acceptance by Marasigan of the full amount of the rentals of
the land for ten (10) years was an acquiescence that the lease
should be for the whole period of ten (10) years, which act may
have created new rights in relation to the judgment which
should be enforced by a new suit. Having accepted the rentals
for the fall ten (10) years period, Marasigan is now estopped
from claiming that Ronquillo should be entitled to the leasehold
for less than the said period. Moreover, no one should enrich
himself at the expense of another. After stating that the act of
Marasigan created new rights which may be enforced in a new
suit, We can not, and should not, just cross our arms and stand
aloft to the predicament of herein appellant Ronquillo. To deny
this appeal on the principles of res judicata and/or estoppel by
judgment would be sacrificing justice to technicality. Their
application to the case, under the particular facts obtaining,
would amount to denial of justice and/or a bar to a vindication
of a legitimate grievance. In cases like the one under
consideration, a liberal interpretation of the rules becomes
G.R. No. L-46720             June 28, 1940 tax may be imposed upon their transmission by death, for the distribution is enforced and protected by not allowing one state
self-evident reason that, being a property situated in this to reach out and tax property in another. And these
country, its transfer is, in some way, defendant, for its considerations do not apply to the Philippines. Our status rests
WELLS FARGO BANK & UNION TRUST
effectiveness, upon Philippine laws. It is contended, however, upon a wholly distinct basis and no analogy, however remote,
COMPANY, petitioner-appellant,
that, as to intangibles, like the shares of stock in question, their cam be suggested in the relation of one state of the Union with
vs.
situs is in the domicile of the owner thereof, and, therefore, another or with the United States. The status of the Philippines
THE COLLECTOR OF INTERNAL REVENUE, respondent-
their transmission by death necessarily takes place under his has been aptly defined as one which, though a part of the
appellee.
domiciliary laws. United States in the international sense, is, nevertheless,
foreign thereto in a domestic sense. (Downes vs. Bidwell, 182
De Witt, Perkins and Ponce Enrile for appellant. U. S., 244, 341.)
Section 1536 of the Administrative Code, as amended,
Office of the Solicitor-General Ozaeta and Assistant Solicitor-
provides that every transmission by virtue of inheritance of any
General Concepcion for appellee.
share issued by any corporation of sociedad At any rate, we see nothing of consequence in drawing any
Ross, Lawrence, Selph and Carrascoso, James Madison Ross
anonima organized or constituted in the Philippines, is subject distinct between the operation and effect of the due-process
and Federico Agrava as amici curiæ.
to the tax therein provided. This provision has already been clause as it applies to the individual states and to the national
applied to shares of stock in a domestic corporation which were government of the United States. The question here involved is
MORAN, J.: owned by a British subject residing and domiciled in Great essentially not one of due-process, but of the power of the
Britain. (Knowles vs. Yatco, G. R. No. 42967. See Philippine Government to tax. If that power be conceded, the
also Gibbs vs. Government of P. I., G. R. No. 35694.) guaranty of due process cannot certainly be invoked to
An appeal from a declaratory judgment rendered by the Court Petitioner, however, invokes the rule laid down by the United frustrate it, unless the law involved is challenged, which is not,
of First Instance of Manila. States Supreme Court in four cases (Farmers Loan & Trust on considerations repugnant to such guaranty of due process
Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371; of that of the equal protection of the laws, as, when the law is
Birdie Lillian Eye, wife of Clyde Milton Eye, died on September Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, alleged to be arbitrary, oppressive or discriminatory.
16, 1932, at Los Angeles, California, the place of her alleged Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75
last residence and domicile. Among the properties she left her Law. ed., 131; First National Bank of Boston vs. Maine, 284 U.
Originally, the settled law in the United States is that
one-half conjugal share in 70,000 shares of stock in the S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401), to
intangibles have only one situs for the purpose of inheritance
Benguet Consolidated Mining Company, an anonymous the effect that an inheritance tax can be imposed with respect
tax, and that such situs is in the domicile of the decedent at the
partnership (sociedad anonima), organized and existing under to intangibles only by the State where the decedent was
time of his death. But this rule has, of late, been relaxed. The
the laws of the Philippines, with is principal office in the City of domiciled at the time of his death, and that, under the due-
maxim mobilia sequuntur personam, upon which the rule rests,
Manila. She left a will which was duly admitted to probate in process clause, the State in which a corporation has been
has been described as a mere "fiction of law having its origin in
California where her estate was administered and settled. incorporated has no power to impose such tax if the shares of
consideration of general convenience and public policy, and
Petitioner-appellant, Wells Fargo Bank & Union Trust stock in such corporation are owned by a non-resident
cannot be applied to limit or control the right of the state to tax
Company, was duly appointed trustee of the created by the decedent. It is to be observed, however, that in a later case
property within its jurisdiction" (State Board of
said will. The Federal and State of California's inheritance (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the
Assessors vs. Comptoir National D'Escompte, 191 U. S., 388,
taxes due on said shares have been duly paid. Respondent United States Supreme Court upheld the authority of the
403, 404), and must "yield to established fact of legal
Collector of Internal Revenue sought to subject anew the Federal Government to impose an inheritance tax on the
ownership, actual presence and control elsewhere, and cannot
aforesaid shares of stock to the Philippine inheritance tax, to transmission, by death of a non-resident, of stock in a domestic
be applied if to do so result in inescapable and patent
which petitioner-appellant objected. Wherefore, a petition for a (America) corporation, irrespective of the situs of the
injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 U. S., 83,
declaratory judgment was filed in the lower court, with the corresponding certificates of stock. But it is contended that the
91-92) There is thus a marked shift from artificial postulates of
statement that, "if it should be held by a final declaratory doctrine in the foregoing case is not applicable, because the
law, formulated for reasons of convenience, to the actualities of
judgment that the transfer of the aforesaid shares of stock is due-process clause is directed at the State and not at the
each case.
legally subject to the Philippine inheritance tax, the petitioner Federal Government, and that the federal or national power of
will pay such tax, interest and penalties (saving error in the United States is to be determined in relation to other
computation) without protest and will not file to recover the countries and their subjects by applying the principles of An examination of the adjudged cases will disclose that the
same; and the petitioner believes and t herefore alleges that it jurisdiction recognized in international relations. Be that as it relaxation of the original rule rests on either of two fundamental
should be held that such transfer is not subject to said tax, the may, the truth is that the due-process clause is "directed at the considerations: (1) upon the recognition of the inherent power
respondent will not proceed to assess and collect the same." protection of the individual and he is entitled to its immunity as of each government to tax persons, properties and rights within
The Court of First Instance of Manila rendered judgment, much against the state as against the national government." its jurisdiction and enjoying, thus, the protection of its laws; and
holding that the transmission by will of the said 35,000 shares (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed., 1339, (2) upon the principle that as o intangibles, a single location in
of stock is subject to Philippine inheritance tax. Hence, this 1349.) Indeed, the rule laid down in the four cases relied upon space is hardly possible, considering the multiple, distinct
appeal by the petitioner. by the appellant was predicated on a proper regard for the relationships which may be entered into with respect thereto. It
relation of the states of the American Union, which requires is on the basis of the first consideration that the case of
that property should be taxed in only one state and that Burnet vs. Brooks, supra, was decided by the Federal Supreme
Petitioner concedes (1) that the Philippine inheritance tax is not jurisdiction to tax is restricted accordingly. In other words, the Court, sustaining the power of the Government to impose an
a tax property, but upon transmission by inheritance application to the states of the due-process rule springs from a inheritance tax upon transmission, by death of a non-resident,
(Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that proper distribution of their powers and spheres of activity as of shares of stock in a domestic (America) corporation,
as to real and tangible personal property of a non-resident ordained by the United States Constitution, and such regardless of the situs of their corresponding certificates; and
decedent, located in the Philippines, the Philippine inheritance
on the basis of the second consideration, the case of upon any one of these grounds. . . . (See pages 396- over the subject matter are not confined to either
Cury vs. McCanless, supra. 397; 399.) state. . . .(p. 1347-1349.)

In Burnet vs. Brooks, the court, in disposing of the argument In Curry vs. McCanless, supra, the court, in deciding the . . . We find it impossible to say that taxation of
that the imposition of the federal estate tax is precluded by the question of whether the States of Alabama and Tennessee intangibles can be reduced in every case to the mere
due-process clause of the Fifth Amendment, held: may each constitutionally impose death taxes upon the transfer mechanical operation of locating at a single place,
of an interest in intangibles held in trust by an Alabama trustee and there taxing, every legal interest growing out of
but passing under the will of a beneficiary decedent domiciles all the complex legal relationships which may be
The point, being solely one of jurisdiction to tax,
in Tennessee, sustained the power of each State to impose the entered into between persons. This is the case
involves none of the other consideration raised by
tax. In arriving at this conclusion, the court made the following because in point of actuality those interests may be
confiscatory or arbitrary legislation inconsistent with
observations: too diverse in their relationships to various taxing
the fundamental conceptions of justice which are
jurisdictions to admit of unitary treatment without
embodied in the due-process clause for the
discarding modes of taxation long accepted and
protection of life, liberty, and property of all persons In cases where the owner of intangibles confines his
applied before the Fourteen Amendment was
— citizens and friendly aliens alike. Russian activity to the place of his domicile it has been found
adopted, and still recognized by this Court as valid.
Volunteer Fleet vs. United States, 282 U. S., 481, convenient to substitute a rule for a reason, cf. New
(P. 1351.)
489; 75 Law ed., 473, 476; 41 S. Ct., 229; York ex rel., Cohn vs. Graves, 300 U.S., 308, 313;
Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R.,
ed., 1184, 1192; 47 S. Ct., 710; 52 A. L. R., 1081; 721; First Bank Stock Corp. vs. Minnesota, 301 U. We need not belabor the doctrines of the foregoing cases. We
Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., believe, and so hold, that the issue here involved is controlled
772, 779; 52 S. Ct., 358. If in the instant case the 677; 113 A. L. R., 228, by saying that his intangibles by those doctrines. In the instant case, the actual situs of the
Federal Government had jurisdiction to impose the are taxed at their situs and not elsewhere, or shares of stock is in the Philippines, the corporation being
tax, there is manifestly no ground for assailing it. perhaps less artificially, by invoking the domiciled therein. And besides, the certificates of stock have
Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., maxim mobilia sequuntur personam. remained in this country up to the time when the deceased died
969, 996; 20 S. Ct., 747; MaGray vs. United States, Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., in California, and they were in possession of one Syrena
195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 749; S. Ct., 410, supra; Baldwin vs. Missouri, 281 U. McKee, secretary of the Benguet Consolidated Mining
1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. Company, to whom they have been delivered and indorsed in
U.S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 R., 1303, supra, which means only that it is the blank. This indorsement gave Syrena McKee the right to vote
S. Ct., 342; Ann. Cas., 1912B, 1312; identify owner at his domicile which gives jurisdiction the certificates at the general meetings of the stockholders, to
Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 to tax. But when the taxpayer extends his activities collect dividends, and dispose of the shares in the manner she
Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; with respect to his intangibles, so as to avail himself may deem fit, without prejudice to her liability to the owner for
414, Ann. Cas, 1917B, 713; United of the protection and benefit of the laws of another violation of instructions. For all practical purposes, then, Syrena
States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., state, in such a way as to bring his person or McKee had the legal title to the certificates of stock held in trust
439, 496; 39 S. Ct., 214. (Emphasis ours.) properly within the reach of the tax gatherer there, for the true owner thereof. In other words, the owner residing in
the reason for a single place of taxation no longer California has extended here her activities with respect to her
obtains, and the rule even workable substitute for the intangibles so as to avail herself of the protection and benefit of
And, in sustaining the power of the Federal Government to tax
reasons may exist in any particular case to support the Philippine laws. Accordingly, the jurisdiction of the
properties within its borders, wherever its owner may have
the constitutional power of each state concerned to Philippine Government to tax must be upheld.
been domiciled at the time of his death, the court ruled:
tax. Whether we regard the right of a state to tax as
founded on power over the object taxed, as declared
Judgment is affirmed, with costs against petitioner-appellant.
. . . There does not appear, a priori, to be anything by Chief Justice Marshall in McCulloch vs. Maryland,
contrary to the principles of international law, or 4 Wheat., 316; 4 Law. ed., 579, supra, through
hurtful to the polity of nations, in a State's taxing dominion over tangibles or over persons whose Avanceña, C.J., Imperial, Diaz and Concepcion, JJ., concur.
property physically situated within its borders, relationships are source of intangibles rights, or on
wherever its owner may have been domiciled at the the benefit and protection conferred by the taxing
time of his death. . . . sovereignty, or both, it is undeniable that the state of
domicile is not deprived, by the taxpayer's activities
elsewhere, of its constitutional jurisdiction to tax, and
As jurisdiction may exist in more than one consequently that there are many circumstances in
government, that is, jurisdiction based on distinct which more than one state may have jurisdiction to
grounds — the citizenship of the owner, his domicile, impose a tax and measure it by some or all of the
the source of income, the situs of the property — taxpayer's intangibles. Shares or corporate stock be
efforts have been made to preclude multiple taxation taxed at the domicile of the shareholder and also at
through the negotiation of appropriate international that of the corporation which the taxing state has
conventions. These endeavors, however, have created and controls; and income may be taxed both
proceeded upon express or implied recognition, and by the state where it is earned and by the state of the
not in denial, of the sovereign taxing power as recipient's domicile. protection, benefit, and power
exerted by governments in the exercise of jurisdiction
 [G.R. No. 43314. December 19, 1935.] is a citizen and resident of the State of New York,
United States of America. "IX. That on December 3, 1931, the committee on
A. L. VELILLA, administrator of the estate of claims and appraisals filed with the court its report,
Arthur Graydon Moody, Plaintiff-Appellant, v. "III. That on February 24, 1931, a petition for certified copy of which marked Exhibit KK is hereto
JUAN POSADAS, JR., Collector of Internal appointment of special administrator of the estate of attached and made a part hereof.
Revenue, Defendant-Appellee. the deceased Arthur Graydon Moody was filed by W.
Maxwell Thebaut with the Court of First Instance of "X. That on September 15, 1931, the Bureau of
Ohnick & Opisso for Appellant. Manila, the same being designated as case No. 39113 Internal Revenue addressed to the attorney for the
of said court. Copy of said petition marked Exhibit BB administratrix Ida M. Palmer a letter, copy of which
Solicitor-General Hilado for Appellee. is hereto attached and made a part hereof. marked Exhibit LL is hereto attached and made a part
hereof.
SYLLABUS "IV. That subsequently or on April 10, 1931, a petition
was filed by Ida M. Palmer, asking for the probate of "XI. That on October 15, 1931, the attorney for Ida M.
1. INHERITANCE TAX; DOMICILE OF TAXPAYER. — To said will of the deceased Arthur Graydon Moody, and Palmer answered the letter of the Collector of Internal
effect the abandonment of one’s domicile, there must the same was, after hearing, duly probated by the Revenue referred to in the preceding paragraph. Said
be a deliberate and provable choice of a new domicile, court in a decree dated May 5, 1931. Copies of the answer marked Exhibit MM is hereto attached and
coupled with actual residence in the place chosen, with petition and of the decree marked Exhibits CC and DD, made a part hereof.
a declared or provable intent that it should be one’s respectively, are hereto attached and made parts
fixed and permanent place of abode, one’s home. hereof. "XII. That on November 4, 1931, and in answer to the
There is a complete dearth of evidence in the record letter mentioned in the preceding paragraph, the
that M ever established a new domicile in a foreign "V. That on July 14, 1931, Ida M. Palmer was declared Bureau of Internal Revenue addressed to the attorney
country. to be the sole and only heiress of the deceased Arthur for Ida M. Palmer another letter, copy of which marked
Graydon Moody by virtue of an order issued by the Exhibit NN is hereto attached and made a part hereof.
2. INHERITANCE AND INCOME TAXES. — As M’s legal court in said case No. 39113, copy of which marked
domicile at the time of his death was the Philippine Exhibit EE is hereto attached and made a part hereof; "XIII. That on December 7, 1931, the attorney for Ida
Islands and his estate had its situs here, the and that during the hearing for the declaration of heirs, M. Palmer again replied in a letter, marked Exhibit OO,
inheritance and income taxes here involved were Ida M. Palmer presented as evidence a letter dated hereto attached and made a part hereof.
lawfully collected. February 28, 1925, and addressed to her by Arthur
Graydon Moody, copy of which marked Exhibit FF is "XIV. That the estate of the late Arthur Graydon Moody
hereto attached and made a part hereof. paid under protest the sum of P50,000 on July 22,
1931, and the other sum of P40,019,75 on January 19,
DECISION "VI. That the property left by the late Arthur Graydon 1932, making a total of P90,019,75, of which
Moody consisted principally of bonds and shares of P77,018.39 covers the assessment for inheritance tax
stock of corporations organized under the laws of the and the sum of P13,001.41 covers the assessment for
BUTTE, J.: Philippine Islands, bank deposits and other personal income tax against said estate.
properties, as are more fully shown in the inventory of
April 17, 1931, filed by the special administrator with "XV. That on January 21, 1932, the Collector of
This is an appeal from a judgment of the Court of First the court in said case No. 39113, certified copy of Internal Revenue overruled the protest made by Ida M.
Instance of Manila in an action to recover from the which inventory marked Exhibit GG is hereto attached Palmer through her attorney.
defendant-appellee as Collector of Internal Revenue and made a part hereof. This stipulation does not,
the sum of P77,018,39 as inheritance taxes and however, cover the respective values of said properties "XVI. The parties reserve their right to introduce
P13,001.41 as income taxes assessed against the for the purpose of the inheritance tax. additional evidence at the hearing of the present case.
estate of Arthur G. Moody, deceased.
"VII. That on July 22, 1931, the Bureau of Internal "Manila, August 15, 1933."cralaw virtua1aw library
The parties submitted to the court an agreed Revenue prepared for the estate of the late Arthur
statement of facts as follows:jgc:chanrobles.com.ph Graydon Moody an inheritance tax return, certified In addition to the foregoing agreed statement of facts,
copy of which marked Exhibit HH is hereto attached both parties introduced oral and documentary evidence
"I. That Arthur Graydon Moody died in Calcutta, India, and made a part hereof. from which it appears that Arthur G. Moody, an
on February 18, 1931. American citizen, came to the Philippine Islands in
"VIII. That on September 9, 1931, an income tax 1902 or 1903 and engaged actively in business in
"II. That Arthur Graydon Moody executed in the return for the fractional period from January 1, 1931 to these Islands up to the time of his death in Calcutta,
Philippine Islands a will, certified copy of which marked June 30, 1931, certified copy of which marked Exhibit India, on February 18, 1931. He had no business
Exhibit AA is hereto attached and made a part hereof, II is hereto attached and made a part hereof, was also elsewhere and at the time of his death left an estate
by virtue of which will, he bequeathed all his property prepared by the Bureau of Internal Revenue for the consisting principally of bonds and shares of stock of
to his only sister, Ida M. Palmer, who then was and still estate of the said deceased Arthur Graydon Moody. corporations organized under the laws of the Philippine
Islands, bank deposits and other intangibles and x       x       x without ticket, passport or tax clearance certificate.
personal property valued by the commissioners of The record does not show where Moody was during the
appraisal and claims at P609,767.58 and by the remainder of the year 1928. He lived with a friend in
Collector of Internal Revenue for the purposes of It is alleged in the complaint that at the time of his Paris, France, during the months of March and April of
inheritance tax at P653,657.47. All of said property at death, Arthur G. Moody was a "non-resident of the the year 1929 where he was receiving treatment for
the time of his death was located and had its situs Philippine Islands." The answer, besides the general leprosy at the Pasteur Institute. The record does not
within the Philippine Islands. So far as this record denial, sets up as a special defense that "Arthur G. show where Moody was in the interval between April,
shows, he left no property of any kind located Moody, now deceased, was and prior to the date of his 1929, and November 26, 1930, on which latter date he
anywhere else. In his will, Exhibit AA, executed without death, a resident in the City of Manila, Philippine wrote a letter, Exhibit B, to Harry Wendt of Manila,
date in Manila in accordance with the formalities of the Islands, where he was engaged actively in business." offering to sell him his interest in the Camera Supply
Philippine law, in which he bequeathed all his property Issue was thus joined on the question: Where was the Company, a Philippine corporation, in which Moody
to his sister, Ida M. Palmer, he legal domicile of Arthur G. Moody at the time of his owned 599 out of 603 shares. In this letter, among
stated:jgc:chanrobles.com.ph death? other things, he states: "Certainly I’ll never return
there to live or enter business again." In this same
"I, Arthur G. Moody, a citizen of the United States of The Solicitor-General raises a preliminary objection to letter he says:jgc:chanrobles.com.ph
America, residing in the Philippine Islands, hereby the consideration of any evidence that Moody’s
publish and declare the following as my last Will and domicile was elsewhere than in Manila at the time of "I wish to know as soon as possible now (as to the
Testament . . . ."cralaw virtua1aw library his death based on the proposition that as no such purchase) for I have very recently decided either to sell
objection was made before the Collector of Internal or put in a line of school or office supplies . . . before I
The substance of the plaintiff’s cause of action is stated Revenue as one of the grounds of the protest against go to the necessary investments in placing any side
in paragraph 7 of his complaint as the payment of the tax, this objection cannot be lines. I concluded to get your definite reply to this . . .
follows:jgc:chanrobles.com.ph considered in a suit against the Collector to recover the I have given our New York buying agent a conditional
taxes paid under protest. He relies upon the decision in order not to be executed until March and this will give
"That there is no valid law or regulation of the the case of W. C. Tucker v. A. C. Alexander, Collector you plenty of time . . . anything that kills a business is
Government of the Philippine Islands under or by virtue (15 Fed. [2], 356). We call attention, however, to the to have it peddled around as being for sale and this is
of which any inheritance tax may be levied, assessed fact that this decision was reversed in 275 U. S., 232; what I wish to avoid." He wrote letters dated
or collected upon transfer, by death and succession, of 72 Law. ed., 256, and the case remanded for trial on December 12, 1930, and January 3, 1931, along the
intangible personal properties of a person not the merits on the ground that the requirement that the same line to Wendt. As Moody died of leprosy less than
domiciled in the Philippine Islands, and the levy and action shall be based upon the same grounds, and only two months after these letters were written, there can
collection by defendant of inheritance tax computed such, as were presented in the protest had been be no doubt that he would have been immediately
upon the value of said stocks, bonds, credits and other waived by the collector. In the case before us no copy segregated in the Culion Leper Colony had he returned
intangible properties as aforesaid constituted and of the taxpayer’s protest is included in the record and to the Philippine Islands. He was, therefore, a fugitive,
constitutes the taking and deprivation of property we have no means of knowing its contents. We think, not from justice, but from confinement in the Culion
without due process of law contrary to the Bill of Rights therefore, the preliminary objection made on behalf of Leper Colony in accordance with the law of the
and organic law of the Philippine Islands."cralaw the appellee does not lie. Philippine Islands.
virtua1aw library
We proceed, therefore, to the consideration of the There is no statement of Moody, oral or written, in the
Section 1536 of the Revised Administrative Code (as question on the merits as to whether Arthur G. Moody record that he had adopted a new domicile while he
amended) provides as follows:jgc:chanrobles.com.ph was legally domiciled in the Philippine Islands on the was absent from Manila. Though he was physically
day of his death. Moody was never married and there present for some months in Calcutta prior to the date
"SEC. 1536. Conditions and rate of taxation. — Every is no doubt that he had his legal domicile in the of his death there, the appellant does not claim that
transmission by virtue of inheritance, devise, bequest, Philippine Islands from 1902 or 1903 forward during Moody had a domicile there although it was precisely
gift mortis causa or advance in anticipation of which time he accumulated a fortune from his business from Calcutta that he wrote and cabled that he wished
inheritance, devise, or bequest of real property located in the Philippine Islands. He lived in the Elks’ Club in to sell his business in Manila and that he had no
in the Philippine Islands and real rights in such Manila for many years and was living there up to the intention to live there again. Much less plausible, it
property; of any franchise which must be exercised in date he left Manila the latter part of February, 1928, seems to us, is the claim that he established a legal
the Philippine Islands; of any shares, obligations, or under the following circumstances: He was afflicted domicile in Paris in February, 1929. The record
bonds issued by any corporation or sociedad anonima with leprosy in an advanced stage and had been contains no writing whatever of Moody from Paris.
organized or constituted in the Philippine Islands in informed by Dr. Wade that he would be reported to the There is no evidence as to where in Paris he had any
accordance with its laws; of any shares or rights in any Philippine authorities for confinement in the Culion fixed abode that he intended to be his permanent
partnership, business or industry established in the Leper Colony as required by the law. Distressed at the home. There is no evidence that he acquired any
Philippine Islands or of any personal property located thought of being thus segregated and in violation of his property in Paris or engaged in any settled business on
in the Philippine Islands shall be subject to the promise to Dr. Wade that he would voluntarily go to his own account there. There is no evidence of any
following tax:" Culion, he surreptitiously left the Islands the latter part affirmative factors that prove the establishment of a
of February, 1928, under cover of night, on a freighter, legal domicile there. The negative evidence that he told
Cooley that he did not intend to return to Manila does Camera Supply Company. The only income tax
not prove that he had established a domicile in Paris. assessed against the estate was the additional tax or
His short stay of three months in Paris is entirely surtax that had not been paid by the Camera Supply
consistent with the view that he was a transient in Company for which the estate, having actually received
Paris for the purpose of receiving treatments at the the income, is clearly liable. As to the second alleged
Pasteur Institute. The evidence in the record indicates double taxation, it is clear that the inheritance tax and
clearly that Moody’s continued absence from his legal the additional income tax in question are entirely
domicile in the Philippines was due to and reasonably distinct. They are assessed under different statutes and
accounted for by the same motive that caused his we are not convinced by the appellant’s argument that
surreptitious departure, namely, to evade confinement the estate which received these dividends should not
in the Culion Leper Colony; for he doubtless knew that be held liable for the payment of the income tax
on his return he would be immediately confined, thereon because the operation was simply the
because his affliction became graver while he was conversion of the surplus of the corporation into the
absent than it was on the day of his precipitous property of the individual stockholders. (Cf. U. S. v.
departure and he could not conceal himself in the Phellis, 257 U. S., 171, and Taft v. Bowers, 278 U. S.,
Philippines where he was well known, as he might do in 460.) Section 4 of Act No. 2833 as amended, which is
foreign parts. relied on by the appellant, plainly provides that the
income from exempt property shall be included as
Our Civil Code (art. 40) defines the domicile of natural income subject to tax.
persons as "the place of their usual residence." The
record before us leaves no doubt in our minds that the Finding no merit in any of the assignments of error of
"usual residence" of this unfortunate man, whom the appellant, we affirm the judgment of the trial court,
appellant describes as a "fugitive" and "outcast", was first, because the property in the estate of Arthur G.
in Manila where he had lived and toiled for more than a Moody at the time of his death was located and had its
quarter of a century, rather than in any foreign country situs within the Philippine Islands and, second, because
he visited during his wanderings up to the date of his his legal domicile up to the time of his death was
death in Calcutta. To effect the abandonment of one’s within the Philippine Islands. Costs against
domicile, there must be a deliberate and provable the Appellant.
choice of a new domicile, coupled with actual residence
in the place chosen, with a declared or provable intent Malcolm, Villa-Real, and Imperial, JJ., concur.
that it should be one’s fixed and permanent place of
abode, one’s home. There is a complete dearth of Separate Opinions
evidence in the record that Moody ever established a
new domicile in a foreign country.
GODDARD, J., concurring:chanrob1es virtual 1aw
The contention under the appellant’s third assignment library
of error that the defendant collector illegally assessed
an income tax of P13,001.41 against the Moody estate I concur in the result. I think the evidence clearly
is, in our opinion, untenable. The grounds for this establishes that Moody had permanently abandoned
assessment, stated by the Collector of Internal his residence in the Philippine Islands. But even so, his
Revenue in his letter, Exhibit NN, appear to us to be estate would be liable for the taxes which the plaintiff-
sound. That the amount of P259,986.69 was received appellant seeks to recover in this action. Section 1536
by the estate of Moody as dividends declared out of of the Revised Administrative Code makes no
surplus by the Camera Supply Company is clearly distinction between the estates of residents and of
established by the evidence. The appellant contends non-residents of the Philippine Islands. The case of
that this assessment involves triple taxation: First, First National Bank of Boston v. State of Maine (284 U.
because the corporation paid income tax on the same S., 312; 76 Law. ed., 313), relied on by the appellant
amount during the years it was accumulated as is not in point because in that case the estate of the
surplus; second, that an inheritance tax on the same deceased was actually taxed in both the state of his
amount was assessed against the estate, and third, the domicile, Massachusetts, and in the state where the
same amount is assessed as income of the estate. As shares of stock had their situs, namely, the State of
to the first, it appears from the collector’s assessment, Maine. But in the case before us there is no evidence
Exhibit II, that the collector allowed the estate a whatever that the estate of Moody had been taxed
deduction of the normal income tax on said amount anywhere but in the Philippines. (Cf. Burnet,
because it had already been paid at the source by the Commissioner, v. Brooks, 288 U. S., 378.) .
G.R. No. L-69259 January 26, 1988 back of the title, as per stipulation of the The denial of the petition will work great
parties (Exhs. A to D-3 inclusive) injustice to the petitioners, in that:
DELPHER TRADES CORPORATION, and DELPHIN
PACHECO, petitioners, On January 3, 1976, a deed of exchange 1. Respondent Hydro Pipes Philippines,
vs. was executed between lessors Delfin and Inc, ("private respondent") will acquire from
INTERMEDIATE APPELLATE COURT and HYDRO PIPES Pelagia Pacheco and defendant Delpher petitioners a parcel of industrial land
PHILIPPINES, INC., respondents. Trades Corporation whereby the former consisting of 27,169 square meters or 2.7
conveyed to the latter the leased property hectares (located right after the
(TCT No.T-4240) together with another Valenzuela, Bulacan exit of the toll
parcel of land also located in Malinta expressway) for only P14/sq. meter, or a
Estate, Valenzuela, Metro Manila (TCT No. total of P380,366, although the prevailing
GUTIERREZ, JR., J.: 4273) for 2,500 shares of stock of value thereof is approximately P300/sq.
defendant corporation with a total value of meter or P8.1 Million;
P1,500,000.00 (Exhs. C to C-5, inclusive)
The petitioners question the decision of the Intermediate (pp. 44-45, Rollo)
Appellate Court which sustained the private respondent's 2. Private respondent is allowed to
contention that the deed of exchange whereby Delfin Pacheco exercise its right of first refusal even if
and Pelagia Pacheco conveyed a parcel of land to Delpher On the ground that it was not given the first option to buy the there is no "sale" or transfer of actual
Trades Corporation in exchange for 2,500 shares of stock was leased property pursuant to the proviso in the lease agreement, ownership interests by petitioners to third
actually a deed of sale which violated a right of first refusal respondent Hydro Pipes Philippines, Inc., filed an amended parties; and
under a lease contract. complaint for reconveyance of Lot. No. 1095 in its favor under
conditions similar to those whereby Delpher Trades
3. Assuming arguendo that there has been
Corporation acquired the property from Pelagia Pacheco and
Briefly, the facts of the case are summarized as follows: a transfer of actual ownership interests,
Delphin Pacheco.
private respondent will acquire the
land not under "similar conditions" by
In 1974, Delfin Pacheco and his sister, After trial, the Court of First Instance of Bulacan ruled in favor which it was transferred to petitioner
Pelagia Pacheco, were the owners of of the plaintiff. The dispositive portion of the decision reads: Delpher Trades Corporation, as provided
27,169 square meters of real estate in the same contractual provision invoked
Identified as Lot. No. 1095, Malinta Estate, by private respondent. (pp. 251-252, Rollo)
in the Municipality of Polo (now ACCORDINGLY, the judgment is hereby
Valenzuela), Province of Bulacan (now rendered declaring the valid existence of
Metro Manila) which is covered by Transfer the plaintiffs preferential right to acquire The resolution of the case hinges on whether or not the "Deed
Certificate of Title No. T-4240 of the the subject property (right of first refusal) of Exchange" of the properties executed by the Pachecos on
Bulacan land registry. and ordering the defendants and all the one hand and the Delpher Trades Corporation on the other
persons deriving rights therefrom to was meant to be a contract of sale which, in effect, prejudiced
convey the said property to plaintiff who the private respondent's right of first refusal over the leased
On April 3, 1974, the said co-owners may offer to acquire the same at the rate property included in the "deed of exchange."
leased to Construction Components of P14.00 per square meter, more or less,
International Inc. the same property and for Lot 1095 whose area is 27,169 square
providing that during the existence or after Eduardo Neria, a certified public accountant and son-in-law of
meters only. Without pronouncement as to
the term of this lease the lessor should he the late Pelagia Pacheco testified that Delpher Trades
attorney's fees and costs. (Appendix I;
decide to sell the property leased shall first Corporation is a family corporation; that the corporation was
Rec., pp. 246- 247). (Appellant's Brief, pp.
offer the same to the lessee and the letter organized by the children of the two spouses (spouses Pelagia
1-2; p. 134, Rollo)
has the priority to buy under similar Pacheco and Benjamin Hernandez and spouses Delfin
conditions (Exhibits A to A-5) Pacheco and Pilar Angeles) who owned in common the parcel
The lower court's decision was affirmed on appeal by the of land leased to Hydro Pipes Philippines in order to perpetuate
Intermediate Appellate Court. their control over the property through the corporation and to
On August 3, 1974, lessee Construction avoid taxes; that in order to accomplish this end, two pieces of
Components International, Inc. assigned real estate, including Lot No. 1095 which had been leased to
its rights and obligations under the contract The defendants-appellants, now the petitioners, filed a petition
Hydro Pipes Philippines, were transferred to the corporation;
of lease in favor of Hydro Pipes for certiorari to review the appellate court's decision.
that the leased property was transferred to the corporation by
Philippines, Inc. with the signed conformity virtue of a deed of exchange of property; that in exchange for
and consent of lessors Delfin Pacheco and
We initially denied the petition but upon motion for these properties, Pelagia and Delfin acquired 2,500 unissued
Pelagia Pacheco (Exhs. B to B-6 inclusive)
reconsideration, we set aside the resolution denying the no par value shares of stock which are equivalent to a 55%
petition and gave it due course. majority in the corporation because the other owners only
The contract of lease, as well as the owned 2,000 shares; and that at the time of incorporation, he
assignment of lease were annotated at he knew all about the contract of lease of Lot. No. 1095 to Hydro
The petitioners allege that:
Pipes Philippines. In the petitioners' motion for reconsideration, III, 1980 Edition, p. 430) It is significant that the Pachecos took ATTY. LINSANGAN:
they refer to this scheme as "estate planning." (p. 252, Rollo) no par value shares in exchange for their properties.
Q Mr. Neria, from the
Under this factual backdrop, the petitioners contend that there A no-par value share does not purport to point of view of
was actually no transfer of ownership of the subject parcel of represent any stated proportionate interest taxation, is there any
land since the Pachecos remained in control of the property. in the capital stock measured by value, but benefit to the spouses
Thus, the petitioners allege: "Considering that the beneficial only an aliquot part of the whole number of Hernandez and
ownership and control of petitioner corporation remained in the such shares of the issuing corporation. Pacheco in connection
hands of the original co-owners, there was no transfer of actual The holder of no-par shares may see from with their execution of
ownership interests over the land when the same was the certificate itself that he is only an a deed of exchange
transferred to petitioner corporation in exchange for the latter's aliquot sharer in the assets of the on the properties for
shares of stock. The transfer of ownership, if anything, was corporation. But this character of no par value shares of
merely in form but not in substance. In reality, petitioner proportionate interest is not hidden the defendant
corporation is a mere alter ego or conduit of the Pacheco co- beneath a false appearance of a given corporation?
owners; hence the corporation and the co-owners should be sum in money, as in the case of par value
deemed to be the same, there being in substance and in effect shares. The capital stock of a corporation
A Yes, sir.
an Identity of interest." (p. 254, Rollo) issuing only no-par value shares is not set
forth by a stated amount of money, but
instead is expressed to be divided into a COURT:
The petitioners maintain that the Pachecos did not sell the
stated number of shares, such as, 1,000
property. They argue that there was no sale and that they
shares. This indicates that a shareholder
exchanged the land for shares of stocks in their own Q What do you mean
of 100 such shares is an aliquot sharer in
corporation. "Hence, such transfer is not within the letter, or by "point of view"?
the assets of the corporation, no matter
even spirit of the contract. There is a sale when ownership is
what value they may have, to the extent of
transferred for a price certain in money or its equivalent (Art.
100/1,000 or 1/10. Thus, by removing the A To take advantage
1468, Civil Code) while there is a barter or exchange when one
par value of shares, the attention of for both spouses and
thing is given in consideration of another thing (Art. 1638, Civil
persons interested in the financial corporation in entering
Code)." (pp. 254-255, Rollo)
condition of a corporation is focused upon in the deed of
the value of assets and the amount of its exchange.
On the other hand, the private respondent argues that Delpher debts. (Agbayani, Commentaries and
Trades Corporation is a corporate entity separate and distinct Jurisprudence on the Commercial Laws of
the Philippines, Vol. III, 1980 Edition, p. ATTY. LINSANGAN:
from the Pachecos. Thus, it contends that it cannot be said that
Delpher Trades Corporation is the Pacheco's same alter ego or 107).
conduit; that petitioner Delfin Pacheco, having treated Delpher Q (What do you mean
Trades Corporation as such a separate and distinct corporate by "point of view"?)
Moreover, there was no attempt to state the true or current
entity, is not a party who may allege that this separate What are these
market value of the real estate. Land valued at P300.00 a
corporate existence should be disregarded. It maintains that benefits to the
square meter was turned over to the family's corporation for
there was actual transfer of ownership interests over the leased spouses of this deed
only P14.00 a square meter.
property when the same was transferred to Delpher Trades of exchange?
Corporation in exchange for the latter's shares of stock.
It is to be stressed that by their ownership of the 2,500 no par
shares of stock, the Pachecos have control of the corporation. A Continuous control
We rule for the petitioners. of the property, tax
Their equity capital is 55% as against 45% of the other
stockholders, who also belong to the same family group. exemption benefits,
and other inherent
After incorporation, one becomes a stockholder of a
benefits in a
corporation by subscription or by purchasing stock directly from
In effect, the Delpher Trades Corporation is a business conduit corporation.
the corporation or from individual owners thereof (Salmon,
of the Pachecos. What they really did was to invest their
Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton
properties and change the nature of their ownership from
[1912], 233 Pa., 609). In the case at bar, in exchange for their Q What are these
unincorporated to incorporated form by organizing Delpher
properties, the Pachecos acquired 2,500 original unissued no advantages to the said
Trades Corporation to take control of their properties and at the
par value shares of stocks of the Delpher Trades Corporation. spouses from the point
same time save on inheritance taxes.
Consequently, the Pachecos became stockholders of the of view of taxation in
corporation by subscription "The essence of the stock entering in the deed of
subscription is an agreement to take and pay for original As explained by Eduardo Neria: exchange?
unissued shares of a corporation, formed or to be formed."
(Rohrlich 243, cited in Agbayani, Commentaries and
xxx xxx xxx A Having fulfilled the
Jurisprudence on the Commercial Laws of the Philippines, Vol.
conditions in the
income tax law, A There is flexibility in A Yes, sir. (pp. 3-5,
providing for tax free using no par value tsn., December 15,
exchange of property, shares as the value is 1981)
they were able to determined by the
execute the deed of board of directors in
The records do not point to anything wrong or objectionable
exchange free from increasing
about this "estate planning" scheme resorted to by the
income tax and capitalization. The
Pachecos. "The legal right of a taxpayer to decrease the
acquire a corporation. board can fix the value
amount of what otherwise could be his taxes or altogether
of the shares
avoid them, by means which the law permits, cannot be
equivalent to the
Q What provision in doubted." (Liddell & Co., Inc. v. The collector of Internal
capital requirements of
the income tax law are Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S.
the corporation.
you referring to? 465, 7 L. ed. 596).

Q Now also from the

A I refer to Section 35 The "Deed of Exchange" of property between the Pachecos
point of taxation, is
of the National Internal and Delpher Trades Corporation cannot be considered a
there any flexibility in
Revenue Code under contract of sale. There was no transfer of actual ownership
the holding by the
par. C-sub-par. (2) interests by the Pachecos to a third party. The Pacheco family
corporation of the
Exceptions regarding merely changed their ownership from one form to another. The
property in question?
the provision which I ownership remained in the same hands. Hence, the private
quote: "No gain or loss respondent has no basis for its claim of a light of first refusal
shall also be A Yes, since a under the lease contract.
recognized if a person corporation does not
exchanges his die it can continue to
WHEREFORE, the instant petition is hereby GRANTED, The
property for stock in a hold on to the property
questioned decision and resolution of the then Intermediate
corporation of which indefinitely for a period
Appellate Court are REVERSED and SET ASIDE. The
as a result of such of at least 50 years.
amended complaint in Civil Case No. 885-V-79 of the then
exchange said person On the other hand, if
Court of First Instance of Bulacan is DISMISSED. No costs.
alone or together with the property is held by
others not exceeding the spouse the
four persons gains property will be tied up SO ORDERED.
control of said in succession
corporation." proceedings and the
Fernan (Chairman), Bidin and Cortes, JJ., concur.
consequential
payments of estate
Q Did you explain to
and inheritance taxes Feliciano, J., took no part.
the spouses this
when an owner dies.
benefit at the time you
executed the deed of
exchange? Q Now what
advantage is this
continuity in relation to
A Yes, sir
ownership by a
particular person of
Q You also, testified certain properties in
during the last hearing respect to taxation?
that the decision to
have no par value
A The property is not
share in the defendant
subjected to taxes on
corporation was for
succession as the
the purpose of
corporation does not
flexibility. Can you
die.
explain flexibility in
connection with the
ownership of the Q So the benefit you
property in question? are talking about are
inheritance taxes?
G.R. No. L-12189             April 29, 1960 In its order denying the claim for exemption set up by the another. Petition of Robbins, 140 A. 366, 367, 126
defendant, the lower court expressed itself as follows: Me. 555.
FRANCISCA GALLARDO, plaintiff-appellee,
vs. Upon a perusal of the authorities cited by the parties, An insurance on life is a contract by which the
HERMENEGILDA S. MORALES, defendant-appellant. this Court is fully convinced that there is a insurer, for a stipulated sum, engages to pay a
fundamental distinction between life insurance, and certain amount of money if another dies within the
accident insurance, and the insurance policy issued time limited by the policy. Cason vs. Owens, 26 S. E.
Cajulis and Dolorfino for appellee.
to Luis G. Morales, husband of herein defendant, 75, 76, 100 Ga. 142.
Filemon Cajator for appellant.
was undoubtedly an accident insurance, as
distinguished from a life insurance. As conceded by
Life insurance includes in which the payment of the
CONCEPCION, J.: the facts appearing in the pleadings, the personal
insurance money is contingent upon the loss of life.
accident policy, part of the proceeds of which is
Bowless vs. Mutual Ben. Health & Accident Ass'n,
under garnishment, was for P50,000.00 and yet the
The issue before us is whether a personal accident insurance C.C.A. Va. 99F. 2d 44. 48, 49.
annual premium was for P15.00. If it were an
which "insures for injuries and/or death as a result of murder or ordinary life insurance policy, taking into account that
assault or attempt thereat" is a life insurance, within the the insured, Luis G. Morales, was 38 years of age A contract for life insurance is really a contract for
purview of Rule 39, section 12, subdivision (k) of the Rules of and the amount of the policy was for P50,000.00 the insurance for one year in consideration of an
Court, exempting from execution. annual premium would have been around P1,206.00. advanced premium, with the right of assured to
Besides, the period for the policy was stipulated for continue it from year to year upon payment of a
All moneys, benefits, privileges, or annuities accruing one year, and considerations as to age, health, premium as stipulated. Mutual Life Ins. Co. 100 Pa
or in any manner growing out of any life insurance, if occupation and other personal circumstances were 172, 180.
the annual premiums paid do not exceed five not taken into account in an accident insurance
hundred pesos, and if they exceed that sum a like policy. Even the certification issued by the insurance
In its broader sense, "life insurance" includes
exemption shall exist which shall bear the same commissioner on August 23, 1956, marked as Annex
accident insurance, since life is insured under either
proportion to the moneys, benefits, privileges, and "1" of the opposition, shows that the Capital
contract. American Trust & Banking Co. vs. Lessly,
annuities so accruing or growing out of such Insurance and Surety Company Inc. is a non-life
106 S.W. 2d. 551, 552, 171 Tenn. 561, 111 A.L.R.
insurance that said five hundred pesos bears to the insurance company and that the only authority
59.
whole annual premiums paid. granted to it to transact business covers fire, marine,
surety, fidelity, accident, motor car, and
miscellaneous insurance, except life insurance. From Under statute providing that 'any life insurance' on
In accordance with a compromise agreement between the this circumstance alone, not to mention many others, life of husband shall insure to benefit of widow and
parties in the above-entitled case, a decision was rendered there are abundant indications that there exists a children exempt from husband's debt, proceeds of
therein by the Court of First Instance of Manila, on February 3, fundamental distinction between life insurance and policy insuring against death by accident insured to
1956, sentencing defendant Hermenegilda S. Morales to pay to accident insurance. As counsel for oppositor has widow's benefit free from husband's debts. Code
plaintiff Francisca Gallardo the sum of Seven Thousand Pesos clearly pointed out, an accident policy merely insures 1932, B 8456. American Trust & Banking
(P7,000.00). In due course, the corresponding writ of execution the person from injury and or death resulting from Co. vs. Lessly, 106 S.W. 2d 551, 171 Tenn. 511 III
was issued and delivered to the Sheriff of Manila, who, on murder, assault, or an attempt thereat, while in life A.L.R. 59.
August 8, 1956, garnished and levied execution on the sum of insurance policy, what is insured is the life of the
P7,000.00, out of the P30,000.00 a due from the Capital subject for a definite number of years. From the
Insurance & Surety Co., Inc., to said defendant, as beneficiary authorities quoted by the oppositor, this Court is fully Insurance policy, providing for payment in case of
under a personal accident policy issued by said company to convinced that an accident policy is fundamentally accidental death, is "life insurance policy" to such
defendant's husband, Luis Morales, who died, on August 26, different from a life insurance policy, especially if this extent within state statue prescribing in-contestable
1950, by assassination. Invoking the above-quoted provision of Court takes into account that accident insurance is period for policies. Code S.C. 1932 ss 7986, 7987.
the Rules of Court, defendant asked the sheriff to quash and lift an indemnity or casualty contract, while life Pacific Mut. Life Ins. Co. of California vs. Parker,
said garnishment or levy on execution. Upon denial of this insurance is an investment contract. C.C.A.S.C., 71 F. 2d 872, 875.
request by the sheriff, defendant filed a motion praying that the
aforementioned sum of P7,000.00 be declared exempt from
It is not disputed that a life insurance is, generally speaking, "Life insurance" includes all policies of insurance in
execution under said provision of the Rules of Court, and that
distinct and different from an accident insurance. However, which payment of insurance money is contingent
the Sheriff of Manila be ordered to quash or lift said
when one of the risks insured in the latter is the death of the upon loss of life. . . . Smith vs. Equitable Life Assur.
garnishment or levy on execution. This motion was denied by
insured by accident, then there are authorities to the effect that Soc. of U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477.
an order dated October 18, 1956. Hence, the present appeal
by the defendant, who maintains that the policy in question is a such accident insurance may, also, be regarded as a life
life insurance policy, within the purview of the aforementioned insurance. Insurance policy including a death benefit and a
exemption, for it insured her husband ". . . for injuries and/or health or accident disability benefit constituted a "life
death as a result of murder or assault or attempt thereat." insurance policy" within meaning of laws 1926, c.
"Life insurance" is a contract whereby one party
insures a person against loss by the death of 118, S. 134, imposing privilege tax on insurance
companies with different rates as between life
 insurance companies and other companies, in view inclined to believe that the exemption there established applies Paras, C.J., Bengzon, Bautista Angelo, Labrador, Endencia,
of provisions of Code 1906, ss 2576, 2598 to ordinary life insurance contracts, as well as to those which, Barrera and Gutierrez David, JJ., concur.
(Hemingway's Code 1927, ss 5830, 5856), and Law although intended primarily to indemnify for risks arising from
1924, c. 191, s I (Hemingway's Code 1927, s 5995); accident, likewise, insure against loss of life due, either to
it being immaterial that in some policy forms the accidental causes, or to the willful and criminal act of another,
health and disability feature was more valuable asent which, as such, is not strictly accidental in nature. Indeed, it
a showing that death provision was inserted to avoid has been held that statutes of this nature seek to enable the
the higher tax. Universal Life Ins. Co. vs. State, 121 head of the family to secure his widow and children from
Footnotes
So. 849, 850, 155 Miss. 358." (25 Words & Phrases becoming a burden upon the community and, accordingly,
260, 261, 262.) should merit a liberal interpretation.
a
 The policy was for P50,000.00, but defendant had
assigned her rights, as regards the sum of
When the application was made, Harris W. Rimmer The object of this statue was to enable a husband,
P20,000.00, to another person.
carried life insurance with the Equitable Life when death deprived wife and children of his
Assurance Society, for $10,000, payable upon proof support, to secure them from want and to prevent
of death, with a provision that upon death by them from becoming a charge upon the public.
accident the amount of insurance payable would be Necessities of the wife and children and the public
increased to $20,000. The plaintiff insisted that this interest are none the less if the death of the husband
was life insurance, a disclosure of which was not be brought about by accident rather than by disease.
called for in question 10, while the defendant insisted The intent of the legislature in the enactment of this
it was accident insurance that should have been statute would not be advanced by the construction of
disclosed and further insisted that, it being a fact the law upon which the petitioners insist. (American
material to the risk the failure to disclose the policy in Trust & Banking Co. vs. Lessly et al., Supreme Court
the Equitable Life Assurance Society rendered the of Tenn., 106 S.W. 2d, 551, 552.)
policy issued to the applicant void. . . .
Under statutes providing to that effect, the proceeds
The court might have gone further and held that the of life insurance are exempt from the claims of
failure of the applicant to characterize the insurance creditors, a limitation being sometimes imposed as to
in the Equitable Life Assurance Society as accident amount, see infra Sec. 40, or as to the beneficiaries
insurance did not constitute a false answer to the entitled to the exemption, see infra subdivision of this
inquiry of what accident or health insurance he was section. Statutes exempting life insurance are
carrying. The policy in the Equitable Life Assurance regarded as exemption laws, and not as part of the
Society covered loss of life from natural as well as insurance from law of the state, nor as designed
external and accidental causes, and was life simply to protect insurer from harassing
insurance. The mere addition of the double indemnity litigation. Such statutes should be construed liberally
clause providing for increased insurance upon proof and in the light of, and to give effect to, their purpose
of death by accident did not divest the policy of its of enabling an individual to provide a fund after his
character of insurance on life, or make the contract death for his family which will be free from the claims
other than life insurance, for insurance on life of creditors. The exemption privilege is created not
includes all policies of insurance in which the by contract but by legislative grant, and grounds for
payment of the insurance money is contingent upon the exemption of the proceeds of insurance policies
the loss of life. Logan vs. Fidelity & Casualty Co., must be found in the statutes. (35 C.J.S. pp. 53-54.)
146 Mo. 114, 47 S.W. 948. See also
Johnson vs. Fidelity & Guaranty Co., 148 Mich. 406,
By weight of authority, exemption statutes or rules
151 N.W. 593, L.R.A. 1916A, 475;
should be liberally construed with a view to giving
Zimmer vs. Central Accidental Co., 207 Pa. 472, 56
effect to their beneficent and humane purpose. To
A. 1003; Wright vs. Fraternities Health & Accident
this end, every reasonable doubt as to whether a
Ass'n. 107 Me. 418, 78A. 475, 32 L.R.A. (N.S.)461;
given property is or is not exempt should be resolved
Metropolitan Life Ins. Co. vs. Ins. Com'r 208 Mass.
in favor of exemption. (Comments on the Rules of
386, 94 N.E. 477; Standard Life & Accident Ins.
Court by Moran [1957 ed.] Vol. 1, p. 564.)
Co. vs. Caroll, 86 F. 567, 41 L.R.A. 194;
Wahl vs. Interstate Business Men's Accident Ass'n
201 Iowa; 1355, 207 N.W. 395, 50 A.L.R. 1377." Wherefore, the order appealed from is reversed, and the
(Provident Life & Accident Ins. Co. vs. Rimmer, 12 S. garnishment in dispute hereby set aside and quashed, with the
W. 2d Series, 365, 367.) costs of this instance against plaintiff Francisca Gallardo. It is
so ordered.
For this reason, and because the above-quoted provision of the
Rules of Court makes reference to "any life insurance," we are
G.R. No. L-27059             February 14, 1928 however, that said deed was null and void, in view of the fact The land in question was acquired by Buenventura Balboa as
that it was executed before the lapse of five years from the homestead under the provisions and pursuant to the
date of the issuance of the certificate of title in favor of requirements of Act No. 926. He filed his application and
BUENAVENTURA BALBOA, plaintiff-appellant,
Buenventura Balboa, in violation of the prohibition contained in complied with all of the requisites to the acquisition of said
vs.
section 116 of Act No. 2874. homestead, in conformity with the provisions of said Act No.
CECILIO L. FARRALES, defendant-appellant.
926. In 1918 and prior to the repeal of said Act he submitted
his final proof, showing his residence upon, and cultivation of
The pertinent parts of the decision read as follows:
Ernesto Zaragoza for plaintiff-appellant. the land, as well as his compliance with all of the other
Alejo Labrador for defendant-appellant. requirements of the law, and said final proof was approved by
Como cuestion basica, se discute en el presente the Director of Lands on February 15, 1918. In other words,
asunto la validez del documento Exhibit 2, o sea el Buenaventura Balboa, had shown, to the satisfaction of the
JOHNSON, J.:
traspaso hecho por el demandante al demandado Government, that he had performed all of the acts required of
referente al terreno en cuestion. El demandante an applicant for homestead, and, under the provisions of
The material facts in this case, as disclosed by the record, may sostiene que, bajo el articulo 116 de la Ley 2874, el section 3 of Act no. 926, he became entitled to a homestead
be briefly stated as follows. traspaso el nulo por cuanto tuvo lugar el 11 de patent or certificate of title to the land covered by his
agosto de 1924, esto es sin haber transcurrido application.
todavia los cinco anos siguientas a la fecha en que
(1) Sometime in the year 1913, the plaintiff Buenaventura fue expedidol el certificado de titulo No. 91 que lo fue
Balboa filled with the Bureau of Lands an application for Section 3 of Act No. 926 provides, inter alia, that upon the filing
el 10 de septiembre de 1920; el demandado, por el
homestead, No. 10619, under the provisions of Act No. 926, of final proof by the applicant and the approval thereof by the
contrario, sostiene, como punto de discusion legal,
covering a tract of land situated in the barrio of Culis, Director of Lands, "he (the applicant) shall be entitled to a
que el documento de traspaso exhibit 2 no cae bajo
municipality of Hermosa, Province of Bataan, containing 14 patent" or certificate of title. Therefore, on February 15, 1918,
las disposiciones de la Ley No. 2874, sino dentro de
hectares, 49 ares and 77 centares. after Buenaventura Balboa had submitted his final proof and
las disposiciones de la Ley No. 926 y que bajo esta
after the same had been approved by the Government, and
Ley no existia tal limitacion de venta dentro de los
while Act No. 926 was still in force, he became the owner of the
(2) Five years thereafter, or in 1918, Balboa submitted proof, cinco años siguientes a la fecha de la expedicion del
land and "entitled to a patent." At least on that date his right to
showing his residence upon, and cultivation of said land, as titulo de homestead, y que habiendo sido la solicitud
the land, as owner, ripened into a vested right. It was no longer
well as his compliance with all of the other requirements of de homestead aprobada 15 de febrero de 1918, aun
expectant as depending on the continuance of existing
section 3 of said Act No. 926, which final proof was approved contado los cinco anos siguientes, resultaria que
circumstances, or contingent as depending on some events or
by the Director of Lands on February 15, 1918 (Exhibit 3). On desde el 15 de febrero de 1918 hasta el 11 de
the performance of some conditions.
July 1, 1919, said Act No. 926 was repealed by Act No. 2874. agosto de 1924 han transcurrido mas de cinco años.

Rights are vested when the right to enjoyment,

(3) On September 10, 1920, or over a year after Act No. 2874 xxx     xxx     xxx
present or prospective, has become the property of
had gone into effect, the homestead patent for said land, some particular person or persons as a present
otherwise known as certificate of title No. 91 (Exhibit A) was interest. (12 C. J., sec. 485, p. 955.)
De lo expuesto, el Juzgado Ilega a la conclusion de
issued n favor of Buenventura Balboa by the Governor-General que el Exhibit 2 es nulo e ineficaz, por cuanto que la
of the Philippine Islands. venta fue otorgada fuera de lo prescrito en el articulo
Vested right "is some right or interest in property which has
116 de la Ley No. 2874, que procede declarar nulo
become fixed and established and is no longer open to doubt
(4) On August 11, 1924, said Buenaventura Balboa, for and in dicho documento Exhibit 21, y, consiguintemente, el
or controversy." (Downs vs. Blount, 170 Fed. Rep., 15, 20.)
consideration of the sum of P950, sold said land to the certificado de transferencia de titulo 650.
defendant Cecilio L. Farrales (Exhibit 2); and on October 16,
1924, the latter secured in his name transfer certificate of title The fact the homestead patent or certificate of title No. 91 was
In accordance with the foregoing conclusion the trial judge
No. 650 of said land (Exhibit B). issued on September 10, 1920, after the repeal of Act No. 926,
rendered a judgment in favor of the plaintiff and against the
and under the provisions of section 116 of the repealing Act
defendant, ordering the latter to return to the plaintiff the land in
No. 2874, cannot prejudice the vested right acquired by
On March 6, 1926, the plaintiff commenced the present action question, and the plaintiff to return to the defendant the price
Buenventura Balboa under the provisions of the former Act.
for the purpose of having said sale declared null and void on received for said land, aggregating P652.69, with interest at the
The issuance of the certificate of title was a mere ministerial
the ground of lack of consent on his part and fraud on the part rate of 12 per cent. From the judgment both parties appealed.
act, and the certificate, an outward symbol of his vested right to
of the defendant, and on the further ground that said sale was the land, of which he was virtually recognized as owner by the
contrary to, and in violation of the provisions of section 116 of Government on February 15, 1918.
The principal question raised in this appeal is whether the
Act No. 2874. validity of the sale of the land in question should be determined
under the provisions of Act No. 926 or under those of Act No.
In the case of United States vs. Freyberg (32 Fed. Rep., 195),
After a careful consideration of the evidence adduced during 2874. In other words, which of the two Acts — 926 and 2874 —
where the right of a homesteader was involved, it was held that
the trial of the cause the Honorable Leopoldo Rovira, judge, shall be applied in determining whether the sale in question is
where the right to a patent for land has become vested in a
arrived at the conclusion that the deed of sale in question valid or not?
purchaser the Government holds the legal title in trust for the
(Exhibit 2) had been duly executed by the plaintiff. He held, purchaser until the patent is issued. Again in the case of Stark
vs. Starr (6 Wallace [U. S.], 402), the Supreme Court of the The state has no power to divest or to impair vested of Act No. 2874 cannot be invoked for the purpose of defeating
United States held that where the right to a patent is once rights, whether such an attempt to do so be made by the vested right acquired by the appellant before its adoption.
vested, it is treated by the Government, when dealing with legislative enactment, by municipal ordinance, or by
public lands, as equivalent to a patent issued. a change in the constitution of the estate. This result
For all of the foregoing reasons, the judgment appealed from
follows from prohibitions contained in the constitution
should be and is hereby reversed, and it is hereby ordered and
or particularly all the states. Before the adoption of
A party who was has complied with all the terms and decreed that the defendant be absolved from all liability under
the fourteenth amendment there was no prohibition
conditions which entitle him to a patent for a the complaint, with costs against the plaintiff-appellant. So
in the Constitution of the United States which would
particular tract of public land acquires a vested ordered.
prevent the states from passing laws divesting
interest therein, and is to be regarded as the
vested rights, unless these laws also impaired the
equitable owner thereof. (Wirth vs. Branson, 98 U. S.
obligation of contact, or were ex post facto laws; but Malcolm, Villamor, Ostrand and Villa-Real, JJ., concur.
118.)
vested property rights are now protected against
state action by the provision of the fourteenth
Where the right to a patent has once become vested amendment that no state "shall deprive any person
in a purchaser of public lands, it is equivalent so far of life, liberty or property without due process of law."
as the Government is concerned, to a patent actually (12 C. J., sec. 486, pp. 956, 957.)
issued. The execution and delivery of the patent after
Separate Opinions
the right to it has become complete are the mere
Section 3, paragragh 1, of the Jones Law provides:
ministerial acts of the officers charged with that duty.
(Simmons vs. Wagner 101 U. S., 260.) STREET, J., concurring:
"That no law shall be enacted in said Islands which shall
deprive any person of life, liberty, or property without due
The moment the plaintiff had received a certificate from the I concur and wish to point out the difference between the
process of law, etc." Thus, in this jurisdiction, vested rights are
Government and had done all that was necessary under the present case and that of Beach vs. Pacific Commercial Co. and
also protected from impairment by express constitutional
law to secure his patent, his right had become vested before Sheriff of Nueva Ecija (49 Phil., 365), which turned upon the
provision. Therefore, the right vested in Buenaventura Balboa
the patent was issued. His right had already vested prior to the interpretation of the same provisions of law as those that are
by Act No. 926 cannot be divested, impaired or restricted by
issuance of the patent, and his rights to the land cannot be decisive of the present case, namely, section 4 of Act No. 926
section 116 of Act No. 2874. Said right should be governed
affected by a subsequent law or by a subsequent grant by the and section 116 of Act No. 2874.
entirely and exclusively by the provisions of Act No. 926, which
Government to any other person. (Herron vs. Dater, 120 U. S.,
it was acquired.
464.)
The difference is that in the Beach case an attempt was made
to seize the property under process of law to satisfy an
Now, the vested right of Buenaventura Balboa to his
The delay in the issuance of the patent cannot affect the vested obligation created within five years after the issuance of a
homestead land necessarily carries with it the right to alienate
right of the homesteader. (Murphy vs. Packer, 152 U. S., 398; patent; and we held that, under section 116 of Act No. 2874,
and dispose of the same. The only prohibition contained in Act
Belk vs. Meagher, 104 U. S., 279; Sullivan vs. Iron Silver the property was attempt. In the case before us the owner of
No. 926 against alienation of homestead acquired under said
Mining Co., 143 U. S., 431; McDaniel vs. Apacible and Cuisia, the land, in the exercise of his power as such, had voluntarily
law, appears in section 4 thereof, which reads as follows: "No
42 Phil., 749.) alienated the property; and the court now holds that the act of
lands acquired under the provisions of this chapter shall in any
alienation was effective notwithstanding the immunity conferred
event become liable to the satisfaction of any debt contracted
by section 116 of Act No. 2874. Though the distinction thus
A perfected valid appropriation of public land operates as a prior to the issuance of a patent therefor." It follows, therefore
involved may appear to be somewhat refined, I believe it to be
withdraw of the tract from the body of the public domain and, that the sale of the land in question by the plaintiff Buenventura
sound, and I have no hesitation in giving my adherence to the
so long as such appropriation remains valid and subsisting the Balboa to the defendant Cecilio L. Farrales does not infringe
present decision, especially in view of the fact hat soon after
land covered thereby is deemed private property. A perfected said prohibition, and consequently said sale is valid and
Act No. 2874 was passed the Attorney-General ruled that a
homestead, under the law, is property in the highest sense, binding, and should be given full force and effect.
voluntary alienation of a homestead, under the conditions
which may be sold and conveyed and will pass by descent. It
involved in this case, would be valid. A ruling contrary to that
has the effect of a grant of the right to present and exclusive
Section 116 of Act No. 2874, which prohibits the sale of now made by us would have the been acquired in good faith by
possession of said land. A valid and subsisting perfected
homestead land during the period of five years subsequent to purchasers relying upon the interpretation thus placed upon the
homestead, made and kept up in accordance with the
the issuance of the patent or certificate of title upon which rests law by the Attorney-General.
provisions of the statute, has the effect of a grant of the present
the decision of the court a quo, cannot be invoked to annul the
and exclusive possession of the land. Even without a patent, a
sale in question. Said prohibition, if applied in the present case,
perfected homestead is a property right in the fullest sense, In the opinion in Beach vs. Pacific Commercial Co. and Sheriff
would impair and diminish the vested rights acquired under Act
unaffected by the fact that the paramount title to the land is in of Nueva Ecija, supra, we used the following language in
No. 926, contrary to the uniform doctrine followed in the United
the Government. Such land may be conveyed or inherited. calling attention to the difference between the situation then
States, and in violation of the express provisions of section 3 of
before and the court and that presented in the case now before
the Jones Law.
us:
In the United States and in each and every State of the Union
vested rights are safeguarded by the 4th Amendment to the
The right, title and interest of the appellant having become
Federal Constitution, which provides that no State "shall The error underlying the contention of the appellee
vested under the provisions of Act No. 926, his rights cannot be
deprive any person of life, liberty or property without due possibly has its origin in a failure to distinguish
affected by any law passed subsequent thereto. The provisions
process of law." between two entirely different ideas expressed in
 section 116 of Act No. 2874. The first has reference
to the power of the homesteader to encumber or
alienate to the homestead by his voluntary act, while
the second has reference to the subjection of the
property to the satisfaction of debts against the will of
the homesteader. There might possibly be something
in the contention of the appellee that the
homesteader's right became vested when he
submitted his final proof if the case were one where
he had attempted to alienate the property by
voluntary exercise of the power of an owner; but we
are not called upon to pass upon this point. We are
here concerned exclusively with power of the creditor
to seize the property of the owner against his will.
That the property cannot be so taken follows in our
opinion necessarily from the language of section
116.

Our present decision recognizes the validity of this distinction

suggested in the paragraph above quoted, and it with thus be
seen that there is no inconsistency between the decision now
made and the conclusion reached in the case cited.
G.R. No. L-27745 October 18, 1977 c) to my gardener, the probate court in an order dated June 25, 1966
CRISANTO SALIPOT, (subsequently clarified in an order dated August 11, 1966).
JR. — Five Hundred
MISAEL P. VERA, as Commissioner of Internal
Pesos (P500.00);
Revenue, petitioner, On July 9, 1966, the Commissioner filed with the probate court
vs. a proof of claim for the sum "of P192,364.00 as income tax for
Hon. Judge PEDRO C. NAVARRO, in his capacity as Judge d) the balance of my 1965 and 1% monthly interest due from the d Elsie M.
of the Court of First Instance of Pasig, Rizal (Branch V estate in the Gaches."
MAGDALENA ABANTO and CAMILO ERIBAL, as voluntary Philippines shall then
residual heirs of the Estate of the deceased ELSIE M. be divided in half;
On July 19, 1966, Judge Tan filed with the probate court a
GACHES; DELIA P. MEDINA, as attorney-in-fact of said One-half (1/2) to be
motion praying for authority to make the following additional
heirs; BIENVENIDO A. TAN, SR., as Executor of the Estate given to CAMILO
advance payments — (1) To Abanto and Eribal, P150,000.00;
of ELSIE M. GACHES; PHILIPPINE NATIONAL BANK; ERIBAL and the other
(2) To Bess Lauer, $75,000.00; (3) To Judge Tan as advance
PHILIPPINE BANKING CORPORATION; THE OVERSEAS half to MISS
executor's fees, P50,000.00; and (4) To Attys. Medina and
BANK OF MANILA; and BANCO FILIPINO SAVINGS AND MAGDALENA
Bienvenido Tan, Jr., P75,000.00 each as advance attomey's
MORTGAGE BANK, respondents. ABANTO;
fees. In this motion, Judge Tan claimed that the estate was
very liquid and that "any claims whatsoever against the Estate
e) to MISS and the Government shall be amply protected since over
CONSUELO L. TAN P7,000,000.00 worth of shares shall still remain to answer
— My office table and therefor (Sec. 1, Rule 90, Rules of Court)." The respondent
CASTRO, C.J.:têñ.£îhqwâ£
chair now in the library Judge granted Judge Tan's prayer in an order dated July 23,
of my house, and one 1966,
This is a petition for certiorari, mandamus, prohibition and of the carpets in my
injunction filed by the herein petitioner Misael P. Vera, in his house to be selected
In a letter, dated November 4, 1966, the Commissioner advised
capacity as Commissioner of Internal Revenue (hereinafter by her;'
Judge Tan to Pay to the Bureau of Internal Revenue the sum of
referred to as "Commissioner"), against the Honorable Judge
P1,398,436.30 as estate tax and P7,140,060.69 as inheritance
Pedro C. Navarro, in his capacity as Judge of the Court of First
4. All my property in the United States tax, the investigation of his office having allegedly disclosed
Instance of Pasig, Rizal (hereinafter referred to as "respondent
consisting of furs, jewelry and stocks I that the next value of the testate estate was
Judge"), on account of three orders dated June 5, 8 and 9,
leave to my sister BESS LAUER widow, P10,212,899.20. 1 Judge Tan disputed the correctness of the
1967, which the latter issued in Special Proceedings No. 5249
and at present a resident of San assessment in a letter sent to the Commissioner.
entitled "In the Matter of the Testate Estate of Elsie M. Gaches
Francisco, California.
— Bienvenido Tan, Executor," which the Commissioner
maintains were issued without or in excess of jurisdiction or On November 26, 1966, the Commissioner filed with the
with grave abuse of discretion. On March 11, 1966, the herein respondent Judge Bienvenido probate court a proof of claim for the death taxes stated in the
Tan, Sr. (hereinafter referred to as "Judge Tan") filed with the assessment notice sent to Judge Tan. On the same date, the
Court of First instance of Pasig, Rizal a petition for the probate Commissioner also submitted to the probate court for its
It appears that one Elsie M. Gaches died on March 9, 1966
of the aforesaid will On Aped 21, Judge Tan was appointed as resolution a motion praying: (1) for the revocation of the court's
without a child. The deceased, however, left a last will and
executor of the testate estate of Elsie M. Gaches without a orders dated June 25, July 6, July 23 and August 11, 1966 and
testament in which she made the following relevant disposition
bond. all other orders granting the payment of advance inheritance,
of her estate, to wit: ñé+.£ªwph!1
allowances and fees; (2) for the appointment of a co-
administrator of the estate to represent the Government; and
In a letter, dated June 3, 1966, Judge Tan informed the
3. After payment of my just debts and (3) for the non-disbursement of funds of the estate without prior
Commissioner that the testate estate was worth about ten
funeral expenses I intact that the balance notice to the Commissioner. Although the records do not
million (P10 million) pesos and that the estate and inheritance
of my property, both real and personal in disclose that the probate court specifically disposed of this
taxes due thereon were about P9.5 million.
the Philippines, he distributed as motion, the said court, from its subsequent actuations, may be
follows: ñé+.£ªwph!1 considered to have impliedly denied the Commissioner's
On June 11, 1966, the herein respondent Atty. Delia P. Medina prayers for the appointment of a co-administrator and the non-
(hereinafter referred to as "Atty. Medina"), representing herself payment of advance allowances and fees.
'a) to my driver,
as the attorney-in-fact of the herein respondents Camilo Eribal
PACITO TROCIO —
and Magdalena Abanto, filed with the probate court a motion
Ten Thousand Pesos On January 19, 1967, the probate court authorized the
praying that the executor of the estate be authority to give a
(P10,000.00); conversion of the amount of P75,000.00 previously ruled to be
monthly allowance to the voluntary heirs Abanto and Eribal
paid to Atty. Medina as advance attomey's fees in its order of
from the month of May, 1966 until "the receipt of the
July 23, 1966 into allowances for Eribal and Abanto.
b) to my lavandero, recommended advance of inheritance of P100,000.00 each
VICENTE JERODIAS recommended by the Executor in his motion of June 6, 1966
— One Thousand and/or final distribution has been made to said heirs of their On April 14, 1967, with the Probate court's approval, Judge
Pesos (P1,000.00); respective shares in the estate." This prayer was granted by Tan paid to the Bureau of Internal Revenue the amount of ?
185,286.93 as estate tax and, on April 24, 1967, the amount of Amended Final Accounting and Project of A. BANK DEPOSITS:
P1,055,776.00 as inheritance tax. These payments were based Partition dated May 27, 1967 may be
on a tax return filed by Atty. Medina on March 8, 1967 with the approved, subject Lo this following, terms
Bureau of Internal Revenue. and conditions: .
1
Philippine Banking 559
Corporation
On June 3, 1967, Judge Tan submitted to the probate court for 1. The Executor is hereby discharged from
approval a final accounting and project of partition of the any and all responsibilities that lie has 2. Philippine National 238
testate estate. Acting thereon, the respondent Judge issued an pertaining to the estate; Bank
order, dated June 5, 1967, for the partial distribution of the
estate as follows: ñé+.£ªwph!1 3. Overseas Bank of 700
2. The voluntary heirs Magdalena Abanto Manila
and Camilo Eribal shill be responsible for
Submitted for resolution of this Court is the all taxes of any nature whatsoever which
4. Banco Filipino 581
Amended Final Accounting and Project of may be due the government arising out of
Savings & Mortgage
Partition dated May 27, 1967, presented the transaction of the properties ol' the
Bank
by The executor. estate and the environment can, if it so
desires, register its tax lien in the
remaining assets after a partial distribution 5. Refund from 32,
Atty. Paredes manifested that he has no expenses
of the estate;
objection to the approval thereof provided
that certain items enumerated therein be
corrected or modified, as follows: the 3. Bess Lauer, sister and heir of the B. HOUSE AND LOT LOCATED AT NO.
amount of shares in the Lepanto deceased shall be fully for, all United 50 TAMARIND ROAD, FORBES PARK,
consolidated Mining Co. should be States taxes pertaining to her share in the MAKATI, RIZAL;
6,105,429 instead of 6,015,429, as estate.
reported; the amount of P11,537.60
reported as expenses made on January C. SHARES OF STOCK IN THE
WHEREFORE, subject to the above terms and conditions, FOLLOWING:
30, 1967 should be cancelled or excluded .
entitled Final Accounting and Project of Partition dated May 27,
. . and that the time appearing as
1967 submitted by the Executor. as modified in the,
expenses made on May 10, 1967 payable
manifestation of Atty. Paredes and Saidajeno, is hereby . Lepanto Consolidated Mining Co.
1
1,105
to Apolonio manifastation illegal should be
approved. share
only P114,000.00 instead of P135,000.00 .
. . which manifestations were also adopted
by Atty. Virgilio Saldajeno of the Bureau of 2. San Miguel Corp. 16,69
Internal Revenue, and in addition, he P10,000.00 share
objected in principle to the Executor Fees
and to the Attorney's Fees as excessive 1,000.00 (com
but left the matter to the discretion of the
Court. 3. To Vicente Crisanto salipot, Jr. 500.00 3. San Miguel Corp. 500
share
4. To Magdalena Abanto and Camilo Eribal, share 2,330.00
Considering, further, the manifestations of
and share alike thru their attorney-in-fact Delia P. (prefe
Atty. Saidajeno that him has no objection
Medina, cash in the amont of
to the partial distribution of the estate as
long as it an he shown that the rights and 4. Central Azucarera del Pilar 17,75
5. To Judge
interests of the government can beBienvenido
full A. Tan, Sr. 120,000.00 share
protected, and it appearing from the
subsequent manifestation 6. ToofAtty.
Atty.Bienvenido
Paredes, A. Tan, Jr. 150,000.00 5. Manufacturas Textile Industriales de 10,36
counsel for the heirs, that sufficient assets Filipinas, Inc. share
with a nutrient market value of at least
P8,000,000.00 will be left to the estate The aforesaid amount is hereby ordered to 6. Consolidated Mines, Inc. 85,85
even if a partial distribution in the amount be taken from the funds of the estate share
of P3,000,000.00 is made for which reason deposited with the Philippine National
the rights of the government to collect bank.
7. Mayon Metal Corporation 5,000
whatever deficiency, taxes, if any may be share
asses it may be assessed in the future the As to the other properties remaining after
heirs have already paid in good faith even this partial distribution, consisting of the 8. Soliangco & Co Inc. 25 sh
ahead of its due dates transfer taxes in the following:
total amount of P1,241,062.93, the
 On June 16, 1967, the Commissioner filed a motion for (1) The Commissioner's notice of assessment, dated
9. San Juan Heights reconsideration (supplemented on June 22, 1967) of the orders November 10, 966, was based on wrong premises and
of the probate court dated June 5, 8 and 9, 1967. On July 6, valuation of the assets in question; in fact, the Commissioner
10. Metropolitan Insurance Co. 1967, however, the Commissioner, on the belief that the had agreed during the pretrial conference in the probate court
probate court's resolution on its motion was not legally to reconsider certain items therein;
necessary, filed with this Court the instant petition for certiorari,
11. Realty Investment Inc. mandamus, prohibition and injunction against the aforesaid
(2) The allowance granted to Abanto and Eribal were taken
orders of the respondent Judge. The petition at bar is based on
solely from the income of the estate, a fact admitted by Atty.
the following propositions:
Saldajeno of the Bureau of Internal Revenue; it is claimed that
(10 shares, management & 642 common) in 1965 the estate had an income of P41 1,000.00 and over
(1) That the distributive shares of an heir can only be paid after P750,000.00 in 1966, which could more than cover the
full payment of the death taxes. As this case subsequently questioned allowances;
The same shall be turned over and progressed before this Court, the position of the Commissioner
delivered to the attorney-in-fact of the would seem to be that the deficiency income taxes due and
voluntary heirs. Atty. Delia P. Medina, to (3) Eribal and Abanto are willing and bound themselves to
payable during the lifetime of the deceased should also be paid
be held by her to answer for whatever assume the responsibility for the payment of the taxes due
first.
deficiency estate and inheritance taxes against the estate except for the properties located in the
may still be due from the estate and the United States which should be charged against Bess Lauer;
heirs in favor of the government. (2) While partial distribution of the estate of a deceased may
allowed, a bond must be filed by the distributees to secure the
(4) The Commissioner does not object to the partition of the
payment of the transfer taxes. Subsequently, however, the
SO ORDERED. estate in question provided that enough assets are left to pay
Commissioner changed his position, stating that such distribute
the taxes against the estate;
may be made so long as the payment of the taxes due the
government is "provided for," citing section 1, rule go of the
Pasig, Rizal, June 5,1967.ñé+.£ªwph!1
Rules of Court in relation to sections 95 (c), 97, 103, 106 and (5) The estate has sufficient assets with which to pay the taxes
107 (c) the National lnternal Revenue Code. being claimed by the government;
(Sgd.) PEDRO C. NAVARRO
(3) That the executor of an estate cannot be discharged without (6) There was nothing unusual in the institution of Abanto and
Judge the payment of estate and inheritance taxes. The Eribal as residual heirs of the deceased; Abanto was the
Commissioner later modified his stand on this ProPosition in testator's special nurse, companion, secretary and cook from
line with the view that it is sufficient if the payment of the said 1945 until Elsie M. Gaches death in March, 1966; Eribal, on the
On the same day (that is, June 5, 1967), the Commissioner,
taxes is "Provided for.,, other hand, was the deceased's cook, caretaker, companion
having been informed in advance about the foregoing order by
and driver since 1929;
certain undisclosed sources, issued warrants of garnishment
against the funds of the estate deposited with the Philippine (4) That the delivery of properties of the estate to a stranger
National Manial, the overseas Bank of Manila, and the [that is, to the voluntary heirs herein] is not sanctioned by law. (7) The grant of allowances was never contested below and
Philippine Banking Corporation, on the strength of sections Later, as the case at bar Progressed, and in view of a cannot now be raised in the-instant proceedings;
315-330 of the National Internal Revenue Code. compromise offer made by the respondents Abanto and Eribal
to pay the taxes being claimed by the Bureau of Internal
(8) Adequate safeguards were specified in the probate court's
Revenue, the Commissioner advanced the view that this
On June 7, 1967, Atty. Medina filed in the probate court a order of June 5, 1967 to cover the tax claims; and
proposition is already moot and academic.
petition for the discharge of the writs of punishment issued by
the commissioner. On June 8, 1967, the respondent Judge
issued an order lifting the wants in question. (9) There had been no full distribution of the estate in question
(5) That the respondent Judge has no authority to quash or
without payment of the transfer taxes since the said taxes are
dissolve writs of garnishment issued by the Commissioner.
being disputed by the heirs.
Subsequently, however, the Commissioner reversed his stand
On June 9, 1967, the Philippine National Bank filed a motion in
on this point and stated that the probate court may so dissolve
the probate court praying that it be authority to deposit with the
said writs of punishment as the assets in question were then in In a reply filed on September 7, 1967, the Commissioner stated
said court the money in its hands in view of the conflicting
custodia legis, citing Collector vs. Vda. de Codeniera L-9675, that he had issued a revised assessment dated August 24,
claims of the parties over the funds in dispute. On the same
Sept. 28, 1957. 1967 and that, furthermore, there were due from the estate
day (that is, June 9, 1967), the respondent Judge issued an
order denying the said motion and threatening the bank deficiency income taxes for the years 1961 to 1965 in the total
officials who refuse to implement its orders of June 5 and 8, sum of P1,182,296.16, for which reason the estate should not
Taking stock of the Commissioner's complaint that the disputed
1967 with contempt. Atty. Medina was consequently able to be ordered distributed until the same is fully satisfied. In a
orders Were issued without or in excess of jurisdiction or with
withdraw the sum of P2,330,000.00 from the PNB. A copy of rejoinder, Judge Tan claimed that the August 24, 1967
grave abuse of discretion, the herein respondents Atty. Medina
this order of June 9, 1967 as well as the orders of June 5 and assessment could still be reduced considerably. The contents
and Judge Tan put up a number of factual and legal
8, 1967 were received by the Commissioner on June 13, 1967. of the mentioned revised assessment which was addressed to
arguments, the material ones of which may be stated, in sum,
Atty. Medina are, inter alia, as follows: ñé+.£ªwph!1
as follows:
 Madam: On Sepember 9, 1967, Atty. Medina riled with this Court a memorandum on May 25, 1968, the important items and
pleading captioned "Compliance and Offer of Compromise to figures described in which may be summed up comparatively
Terminate this Case" in which she stated the following:ñé+. as follows: ñé+.£ªwph!1
... I have the honor to advise that in a
£ªwph!1
reinvestigation conducted by this Office,
for transfer tax purposes, it was E
ascertained that she left real and personal xxx xxx xxx S
properties in the sums of P377,912.50 and T
P5,963,822.31 respectively, or a gross A
4. Although respondents voluntary heirs
estate of P9,341,734.81. The amounts of T
intend to assail and question the
P193,892.38, P462,022.83 and E
correctness of said assessment only
Pl,226,783.53, representing accrued O
insofar as the same has disallowed the
household and medical expenses, funeral F
deductions claimed by them for personal
expenses and income taxes (1961-1965) E
services rendered by various persons in
payable, respectively, or a total of L
the total sum of P366,800.00, foregoing
P1,882,198.74, were allowed as SI
thereby other possible objections to the
deductions resulting in a net taxable estate E
other items just so this case can be earlier
in,the sum of P7,459.536.07 subject to R
disposed of, said repondents,
estate and inheritance taxes. G
nevertheless, are willing to pay even
A
before these due dates the entire amount-
C
In view thereof, there are hereby further assessed the sums of specified in said assessment, but under
H
P891,673.68 and P4,353,972.87 as deficiency estate and protest insofar as the same has
E
inheritance taxes and penalty still due on the transmission of disallowance is concerned, in order to
S
the decedent's estate, after, crediting the sums of P185,286.73 already terminate and dispose of this case
and P1,055,776.00, which were paid on April 4, 1967 and April before this Honorable Court.
24, 1967, details of which are shown hereunder:
ASSETS ORIGINAL
To pay the taxes in question, Atty. Medina prayed in her offer
of that she and Abanto and Eribal be authorize to make use of   ASSESSMENT
Estate tax Pl,076.960.41
the funds of the estate on deposit with the Philippine National
(P238,500.00), the Banking Corporation (P559,147.41), the Cash in bank -  
Less: Amount Paid 185,286.7
Banco Filipino savings and Mortgage Bank (P581.00), and the
Bank of Manila (P700,000.00), and to gradually dispose of and
Total P891,673.69 Philippine Pl,172.635.62
sell the shares of stock representing of the delegate with an
estimated market value of P2,154,026.36. Also included among
  the assets for which authority to sell was being procured in the Foreign (US$ P3.95) 559,335.00
said offer of were 2,442,000 Lepanto Consolidated Co. which
Inheritance tax Abanto and Eribal with the probate court niether this Court
5,448.87 Cars-  
issued a pre injunction in the case at bar on july 10, 1967
Corporation CPA Certificate ordering, among others, Atty. Medina, Abanto and Eribal to
300.00 Lincoln — Pl8,000.00  
restore to the court a quo the amount of P2,330,000.00
Total withdrawn from the Philippine National Bank pursuant to the
P5,409,748.87 Volkswagen 7,000.00  
questioned orders of the probate court, and every other money
or property revived by them by of said questioned orders. The (Vauxhalll) 25.000.00
  mentioned Lepanto shares had then an estimated market value
of P2,588,520.00. It should bear mention, at this point, that the Furnitures 30,000.00
Less Amount Paid 1,055,776.00
money withdrawn from the Philippine National Bank was not
returned by Atty. Medina, Abanto or Eribal to the probate court,
Deficiency Inheritance Tax & Penalty P4,353,972.87 Shares of stock 7,923,576.23
these respondents having prayed this Court that the deposit of
the mentioned stocks be as full compliance by them with the
writ of pre injunction issued by this Court. Forbes Park lot —  
xxx xxx xxx
(at P144.73/sq. in.) 383,202.35
On September 19, 1967, this Court issued a resolution
The deadlines for the payment of the aforementioned transfer requiring the Commissioner to submit a memorandum on how (at P97.50/sq.m.)  
taxes without penalty were December 9, 1967 for the estate tax he arrived at his original assessment of more than ?8.83 million
and March 9, 1968 for the inherit tax. and the revised assessment of only about ?6.48 million,
House ------- P111,850.00  
showing a reduced difference of more than P2 million. The
Commissioner submitted to this Court the required
 A
Swimming Pool — 5,000.00   Total inheritanceXTax due P 7,140,060.69 P5,409,448.87
E
Fence -------- 2,200.00 119,050.00 Add: Estate Tax S
Due P 1,398,436.30 Pl,076,960.41
P
TOTAL ASSETS P10,212,899.20 A    
Y
A P8,538,496.99 P6,486,409.28
 ñé+.£ªwph!1 B
L
E On November 17, 1967, this Court authorized the herein
LI
A respondents Abanto, Eribal and Atty. Medina to withdraw funds
BI of the estate deposited with the Philippine Banking Corporation
LI Gross Estate P10,212,899.20 (P191,673,68) and the Overseas Bank of Manila (P700,000.00)
TI in the form of cashier's checks payable to the Commissioner for
E Less: Laibs. & Deductions 610,190.60 the payment of the estate tax still unpaid under the terms of the
S revised assessment.
A Net Taxable Estate P9,602,708.60
N On November 23, 1967, the Solicitor General filed with this
D Less Estate'tax Due P 1,398,436.30 court a manifestation expressing his conformity, in behalf of the
D Commissioner, to the offer of compromise dated September 9,
E Estate Subj. to Inh. Tax P 8,204,272.30 1967 made by Atty. Medina, subject to certain conditions, such
D as, that the cash in the banks of the estate as well as the
U proceeds to be realized from the sale of the shares of stock
C Distribution of Hereditary should be turned over to the Commissioner for the payment of
TI the taxes due against the estate and the heirs thereof. This
O manifestation was first opposed by the Acting Commissioner of
N     Internal Revenue on the ground that the Commissioner (who
S was then abroad) had actually requested the Solicitor General
C. Salipot, Jr. P 500.00 P 500.00 not to agree to the mentioned offer of compromise; however,
the Solicitor General subsequently said that the
    Commissioner's conformity was given to him orally.
V. Jerodias 1,000.00 1,000.00
P192,364.00   On December 5, 1967, Atty. Medina filed with this Court a
P. Trocio 10,000.00 10,000.00
petition to declare the Overseas Bank of Manila in contempt for
  P1,882,783.53 allowing the renewal, without court authority, of the time
Bess Lauer 672,305.00 672,305.00
deposit of P700,000.00 with the said bank for another year. In
13,000.00)   a supplemental motion filed on December 8, 1967, Atty.
M. Abanto 3,760,233.65 2,849,385.33
Medina also prayed that the said bank and those responsible
73,320.00) 193,392.38 for extending the maturity date of said time deposit be held
C. Eribal 3,760,233.65 2,849,385.33 liable for the payment of whatever surcharges, interest and
331,026.40 462,022.83 penalties may be imposed as a consequence of the late
Inheritance Tax Due     payment of the balance of the estate tax assessed against the
    estate. It appears that the time deposit in question was held by
C. Salipot, Jr. P10.00 P 10.00 the said bank under two certificates, one for P100,000.00 to
P610,190.60 P1,882,198.74 mature on May 12, 1967, and the other, for P600,000.00 to
V. Jerodias 20.00 20.00   mature on June 16, 1967. Judge Tan, however, extended the
maturity date of said time deposits to May 12, 1968. The
600.00 600.00 certificates of time deposit covering the said funds had been
T
endorsed in favor of the Commissioner in payment of the
R
BessALauer 192,186.75 192,186.75 unpaid balance of the estate then December 7, 1967)
amounted to P700,000.00.
N
M. Abanto
S 3,473,621.97 2,608,316.06
F Commmoner, however. mentioned the respondents End an
E 3,473,621.97 2,698,316.06 Abanto through their counsel that his Office - ñé+.£ªwph!1
R
T
 ... regrets that the same cannot be the other, filed with this Court a joint manifestation which, inter On February 6, 1968, this Court, acting on the abovement
accepted as payment of the deficiency alia, reads as follows:ñé+.£ªwph!1 manifestation of Atty. Medina and the at manifestation of the
estate tax in this case since they cannot, at Parties, issued a resolution authorizing Atty. Medina to pay,
present or on before December 9, 1967, amt, under at, the transfer and in taxes collectible from the
l. That the respondent taxpayers will pay
be. converted into cash. However, we are estate, including the accopanying delinquency penalties. A
the estate, inheritance and deficiency
holding said certificates of time deposit for Medina was given the necessary authority to collect and
income taxes covered by existing
possible application in payment of the receive funds payable to the estate in question and to sell such
assessments; which are due and
unpaid balance of the deficiency estate tax a thereof as may be necessary.
collectible from the estate of Elsie M.
in this case as soon as said certificates
Gaches, including the delinquency
can be converted into cash. It will be
penaltiesthereon, but without prejudice to On February 10, 1968, a motion to declare in contempt
understood in this connection that if the
any right of the taxpayer to contest or Lepanto Consolidated Mining Co. was filed by Atty. Medina on t
balance of the deficiency estate tax in this
protest the said assessments at the proper ground that the said corporation refused to tum over to
case is not paid on or before December 9,
time and in the proper court; dividends payable to the testate estate unless the
1967, the same shall be subject to the
Commissioner first lifted his garnishment order on said
interest on deficiency, 5% surcharge and
dividends.
1% monthly interest for deliquency. 2. That the respondents Delia P. Medina,
Magdalena Abanto and Camilo Eribal shall
submit to this Honorable Court an On February 16, 1968, this Court issued a resolution suspendi
According to Judge Tan, he caused the extension of the
inventory of all the properties and assets of the writs to preliminary junction issued by this Court on July
maturity date of the said deposit but that in doing so he acted in
the estate ... ; and 17, 1967 and all warrants of garnishment issued by the
good faith in that the testate estate then had ample funds and
Commissioner relative to the estate of Elsie M. Gaches, said
assets and the said time deposit earned a higher interest than
suspension to be effective until such time that Atty. Medina,
a savings deposit; that he needed no specific court authority for 3. That is order to generate the necessary
End and Abanto shall save fully paid the transfer and income
the purpose; and that he had a gentleman's agreement with the funds for the purpose of paying the said
tax including the penalties thereon, covered by existing
officials of the bank that said deposit could be withdrawn in taxes and delinquency penalties, so much
assessment Atty. Medina thereafter submitted to this Court
advance, such being the custom in banking circles. The of the assets of the estate ... shall be
performance reports on her activities relative to the authority
Overseas Bank of Manila, on the other hand, in answer to Atty. sold ...
given her.
Medina's mentioned petition, claimed that the deposit in
question was renewed before the bank received any letter
4. That respondent Delia P. Medina, . and.
demanding its release. In view of this impasse and the fast On March 9, 1968, Atty. Medina filed with this Court
Mr. Rodolfo U. Arrano Supervising
approaching deadline for the payment of the estate tax, Atty. manifestation stating that she received a demand letter dated
Revenue Examiner of the Bureau of
Medina requested the Commissioner to credit P700,000.00 to March 9, 1968 from the Commissioner for the payment of the
Internal Revenue, ... are hereby proposed
the amount previously paid as inheritance tax; but, apparently, following 1'756 900- 00 as estate tax, including penalties; (2)
to be constituted as the authorized agents
this request was not honored by the Commissioner. P192,186.75 as inheritance tax corresponding to the share of
of the parties herein to effect the sale ...;
Bess Lauer; and (3) P451.435.91 as balance of the income tax
for the years 1961 to 1965 Atty. Medina claimed the said
On January 26, 1968, Atty. Medina filed with this Court a
5. That the said agents shall be direct to demands to be erroneous for the following reasons' (1) as to
manifestation in which she alleged that even as the proposed
sell the assets of the estate ... ; the estate tax, the time deposit in the Overseas Bank of Manila
joint manifestation between the parties which was supposed to
of P700,000.00 plus interest earned of P60,000.00 as of March
describe the matters agreed upon between them and the
9, 1968 would more than cover the said tax and the certificates
Commissioner during a conference hearing held on January 6. That all negotiations and transactions of time deposits were already endorsed to the Cmmissioner on
24, 1968 had not yet been shown to her, she already wished to for the sale of the assets of the estate shall December 6, 1967; (2) as to the inheritance tax, she (that is. he
express her principals, conformity to pay, but under protest, the be made jointly by the authorized agents ... principals Abanto and Eribal) was not responsible therefore, as
deficiency estate tax of P700,000.00 plus surcharges, interest ; the resolution of this Court dated February 6, 1968 required her
and penalties due thereon and the inheritance tax in the
"to pay only the estate, inheritance and in income taxes, under
amount of P4,161,986.12 appearing, to Atty. Medina, in the
7. That no disposition of any property or protest covered by existing assessments, against the Estate,
mentioned assessment notice dated August 24, 1967; that she
assets of the estate shall be effected and against the heirs Magdalena Abanto and Camilo Eribal;" in
was likewise agreeable to pay, under protest however, the
except for the foregoing purpose; a supplemental motion, Atty. medina further argued that Bess
income taxes for 1961 to 1965 against the estate in the
Lauer alone was solely responsible for the payment of the
demand letter of the Commissioner dated August 29, 1967 in
inheritance tax on her share and not the decedent's estate in
the amount of P1,175,974.51 plus whatever interest, 8. That this case shall not be terminated the Philippines, and that the properties of the testate estate in
surcharges and penalties were due'thereon; and that she was until ... the above mentioned ... taxes and the United States of America which consisted of shares of
also agreeable to being authority to sell such properties of the delinquency penalties are fully paid; and stock and deposits in banks, being personal properties, were to
estate as may be necessary for the mentioned - liquidated; be excluded from the computation of the gross estate of the
deceased in the Philippines and the computation of the
On the following day, however, that is, January 27, 1968, the 9. That the parties pray for the approval of Philippine estate and inheritance taxes because, under
herein respondents Eribal, Abanto and Atty. Medina, on the the foregoing propositions. philippine law, the sites of those properties is the place where
one hand, and the Commissioner and the Solicitor General, on they are located, citing Article 16 of the new Civil Code which
she she argued, abandoned the doctrine of mobilia sequuntur
personal embodied in Article 19 of the old Civil Code; and (3) (x) pIus 5% surcharge and 1% monthly
as to tile deficiency income tax for 1961-1965, she had paid the interest thereon from December 9, 1967 interest thereon from March 8, 1968  
same in the total amount of P1,182,296.16 as of March 9, until full payment thereof; (xx) plus 5%
1968, which was the amount stated in the assessment letter of surcharge and 1%, monthly interest until full payment.  
the Commissioner cited August 9, 1967. According to Atty. thereon, if the same is not paid in full on or
Medina, the payment of the taxes was made in the following before March 9, 1968; (xxx) plus 5% Deficiency Income Taxes  
manner: on February 27, she paid a total of ?838,518.62 as surcharge and 1% monthly interest
follows: the income tax (P715,619.46) in full; interest thereon from August 29, 1967 until full Deficiency income taxes from 1961  
(P106,855.29) in full, compromise penalty (P5.,000.00) in full payment thereof; and (xxxx) pIus
and surcharges P1,052.07) in. part only; and, on March 8, additional 1% monthly interest from to 1965 per letter of demand dated  
1968. the amount of P343,773.54 as payment of the remaining September 29, 1967 until full payment
surcharges, Consequently, she argued the the surcharges and thereof. August 29, 1967 plus 5% surcharge and  
interest, if any were still due, could legally, accrue only from
September 29, 1967 up to February 27, 1968 and only on the 1% monthly interest up to March 1968 P1,289,81
Further, the Commissioner alleged that after taking into
tax proper.
consideration the payments made by Atty. Medina, the
balances as of March 9, 1968 of the death and income taxes Less: Payments made on February  
On April 16, 1968, a counter-manifestation was filed with this still compatible were as follows:
court by the Commissiorner to the above-metioned 27, 1968 and March 8, 1968 under O.R.  
manifestation according to the Commissioner, (that is under
existing assessments that is under the letter of demand of Estate Tax   207001 and 207002 P1,182,29
August 24 and 29, 1967)
Balance of the estate tax P700,000.00
Deficiency income taxes still due  
Estate tax (Balance- P700,000.00 (x) 5%, surcharge 35,000.00
and collectivele P107,522.
Inheritance tax 4,353,927.87 (xx) 1% monthly interest from   plus additional 1% monthly interest  
Total Estate and   12/9/67 to 3/9/68 21,000.00
thereon from March 8, 1968 until full  
Inheritance taxes   Total P 756,000.00
payment.  
Deficiency income taxes   plus additional 1% monthly interest  
 
for 1961 to 1965 P1,175,974.51 (xxx)
from March 9, 1968 until full payment  

Delinquency penalties for late filing   The Commissioner also explained that the i taxes paid by Atty.
thereof.   Medina in the total amount of P1,182,296.16 "included only the
1/2% monthly interest On deficiency with respect to the
of income tax return and late payment of   Inheritance Tax   deficiency income taxes for 1961 to 1965 and the 1% monthly
Interest for delinquency up to September 29, 1967 with respect
income tax for 1965 per return filed- 6,321.65 (xxxx) Inheritance tax due and collectible   to the income tax for 1965 which was paid per return, Out did
not include the 5% surcharge and 1% monthly interest for
Total deficiency income taxes for   per letter of demand dated August 24,   delinquency from August 29, 1967 until full Payment with
respect to the income tax for the 1965 return." The
1961 to 1965 and the delinquency   1967 (Annex "A") Commissioner consequently prayed that Atty. Medina be
P4,353,972.87
ordered to pay: ñé+.£ªwph!1
penalties of income tax 1965 per   Less: Payments of inheritance Tax  
(1) The amount of P756,000.00 as balance
return   on March 1 and March 6, 1968 per O.R.   of the estate tax, 5% surcharge and 1%
monthly interest from December 9, 1967 to
GRAND TOTAL   2519938 and 2520026, respectively 4,161,986.12 March 9, 1968, plus additional 1% monthly
interest from March 9, 1968 until full
Inheritance taxs due and collectible P191,986.75 payment;
 ñé+.£ªwph!1
plus 5% surcharge and 1% monthly   (2) The amount of P191,986.75 as balance
of the inheritance tax, plus 5% surcharge
 and 1% monthly interest thereon from claiming they signed and sent the same without knowing and (6) What should be a reasonable fee for the counsel of the
March 9, 1968 until full payment; and understanding its effect and consequences. respondents Atty. Medina, Eribal and Abanto for professional
services rendered In connection with the settlement of the
estate of Elsie M. Gaches?
(3) The amount of P107,522.01 as balance A perusal in depth of the facts of the instant case discloses
of the deficiency income taxes, 5% quite plainly that the respondent Judge committed a grave
surcharge and 1% monthly interest for abuse of discretion amounting to lack of jurisdiction in issuing 1. On the matter of the authority of a probate court to allow
delinquency up to M arch 8, 1968, plus its orders of June 5, 8 and 9, 1967. Section 103 of the National distribution of an estate prior to the complete Nuidation of the
additional 1% monthly interest thereon Internal Revenue Code (hereinafter referred to as "Tax Code") inheritance tax, the Tax Code apparently lacks any provision
from March 8, 1968 until full payment ... ; unequivocally provides that "No judge shall authorize the substantially Identical to the mentioned Section 103 thereof.
executor or judicial administrator to deliver a distributive share There are provisions of the Tax Code, e.g., Section 104, which
to any party interested in the estate unless it shall appear that makes it the duty of registers of deeds not to register the
On August 23, 1968, Atty. Medina filed a manifestation with this
the estate tax has been paid." 3 The aforesaid orders of the transfer to any new owner of a hereditary estate unless
Court adverting to the refusal of the Overseas Bank of Manila
respondent Judge are clearly in diametric opposition to the payment of the death taxes sham be shown; Section 106,
to permit the withdrawal of the time deposit of the testate estate
mentioned Section 103 of the Tax Code and, consequently, the which imposes a similar obligation on business establishments;
in the said bank in spite of the fact that the extended maturity
same cannot merit approval of this Court. and Section 107, which penalizes the executor who delivers to
date of said deposit had may expired. Atty. Medina payed that
an heir or devise, and the officers and employees of business
the bank Ida as one boss able the deposit of the funds of is
establishments who transfer in their books to any new owner,
well as the who made i of the estate of Elsie M. Gaches with While this Court thus holds that the questioned orders are not
any property forming part of a hereditary estate without the
the said bank be declared in contempt. on September 18, in accordance with statutory requirements, the fundamental
payment of the death taxes first being shown; but those
1968, the Central Bank Of the Philippines filed with this Court a question raised herein regarding the objectionable character of
provisions by themselves do not clearly establish that the
comment on the urgent manifestation of Atty. Medina the probate court's mentioned orders has opened other issues
purchase and object of the statute is to make the payment of
concerning the deposit in question. The Central Bank, which which, not alone their importance to jurisprudence, but the
the inheritance tax a pre-condition to an order for the
according to the Overseas Bank of Manila had restrained it indispensability of forestalling needless delays when those
distribution and delivery of the decedent's estate to the lawful
from paying its time deposits to the bank's depositors, averred issues are raised anew, have, perforce, persuaded this Court
heirs there. The cloud of vagueness in the statute, however, is
that this Court's resolution of November 17, 1967 merely that their complete and final adjudication here and now is
not entirely unreachable. Section 1, Rule 90 of the Rules of
authorized Atty. Medina to withdraw the deposit from the said properly called for. Said issues may be specificaly framed as
Court erases this hiatus in the statute by providing thus: ñé+.
bank and did not order the bank to pay the time deposit in follows:
£ªwph!1
question. Moreover, according to the Central Bank, the
nonpayment of the said deposit was not wilful as the Overseas
(1) Should the herein respondent heirs be required to pay first
Bank of Manila was in a state of insolvency. A comment was Section 1. When order for distribution of
the inheritance tax before the probate court may authorize the
filed on October 11 1968 by the Overseas Bank of Manila residue made. — When the debts, funeral
delivery of the hereditary share pertaining to each of them?
stating that the majority stockholders of the bank filed a petition charges, and expenses of administration,
against the Central Bank for certiorari. prohibition and the allowance to the widow, and
mandamus in this Court in L-29352 entitled "Emerito M. (2) Are the respondent heirs herein who are citizens and inheritance tax, if any, chargeable to the
Ramos, et at. vs. Central Bank;" 2 that the time deposit in residents of the Philippines liable for the payment of the estate in accordance with law, have been
question was an unrecorded transaction; and that the Central Philippine inheritance tax corresponding to the hereditary share paid, the court, on the application of the
Bank prohibited the bank to do business due to its distressed of another heir who is a citizen and resident of the United executor or administrator, or of a person
financial condition, for which reason it could not give States of America. said share of the latter consisting of interested in the estate, and after hearing
preference of the payment of the said deposit as it might personal (cash deposits and, shares) properties located in the upon notice, shall assign the residue of the
prejudice other creditors of the bank. mentioned court estate to the persons entitled to the same,
naming them and the proportions, or parts,
to which each is entitled, and such persons
On November 11, 19681, Atty. Medina filed with this Court a M. (3) Does the assignment of a certificate of time deposit to the may demand and recover their respective
motion ,- reiterating a previous one to allow the payment of the comissioner of Internal Revenue for the purpose of paying t I shares from the executor or administrator,
announced of P6.000.00 to Atty. Manuel M. Paredes whom she hereby the estate tax constitute payment of such tax? or any person having the same in his
and tile other herein respondent herein — Abanto and Eribal —
possession. If there is a controversy before
hired as counsel in collection with the settlement proceedings
(4) Should the herein respondent heirs be held liable for the the court as to who are the lawful heirs of
of Elsie M. Gaches estate. On March 29, 1969. pursuant to a
payment of surcharge and interest on the amount the deceased person or as to the
resolution of this Court, Atty. Paredes ssubmitted knitted a
(P700,000.00) representing the face value of time deposit distributive shares to which each person is
memorandum on the nature and extent for the legal services
certificates assigned to the Commissioner which could not be entitled under the law, the controversy
he had rendered to tile herein respondents Atty. Medina Eribal
converted into cash? shall be beard and decided as in ordinary
and Abanto.
cases.
Aside from the foregoing, there are also other incidental
On June 26, 1971, Abanto and Eribal Jointly wrote the Chief
questions which are raised in the present recourse, viz., No distribution shall be allowed until the
Justice, expressing willingness and agreement to pay the
payment of the obligations above
amount due tile government as taxes against the estate and
mentioned has been made or provided for,
the heirs thereof, however, the two respondents herein (5) What should be the liability of the respondents herein on the unless the distributees, or any of them,
subsequently retracted their statement in the said letter, contempt charges respectively lodged against them? give a bond, in a sum to be fixed by the
 court, conditioned for the payment of said is an imposition created by law on the privilege to receive In the second place, a time deposit certificate is a mercantile
obligations within such time as the court property. 4 Consequently, the scope and subjects of this tax document and is essentially a promissory note. 5 By the
directs. and other related matters in which it is involved must be traced express terms of Article 1249 of the Civil Code of the
and sought in the law itself. An analysis of our tax statutes Philippines, the use of this medium to clear an obligation will
supplies no sufficient indication that the inheritance tax, as a "produce the effect of payment only when they have been
Under the provisions Of the aforequoted Rule, the distribution
rule, was meant to be the joint and solidary liability of the heirs cashed, or when through the fault of the creditor they have
of a decedent's assets may only be ordered under any of the
of a decedent. Section 95(c) of the Tax Code, in fact, indicates been impaired." From the records of the case at bar, the
following three circumstances, namely, (1) when the
that the general presumption must be otherwise. The said Commissioner as well as the herein respondents Atty. Medina,
inheritance tax, among others, is paid; (2) who bond a suffered
subsection reads thus: ñé+.£ªwph!1 Eribal and Abanto spared no time trying to collect the value of
bond is given to meet the payment of the tax and all the other
said certificates from the Overseas Bank of Manila but all to no
options of the nature enumerated in the above-cited provision;
avail. Consequently, the value of the said certificates
or (3) when the payment of the said tax and at the other (c) xxx xxx xxx
(P700,000.00) should still be considered outstanding.
obligations mentioned in the said Rule has been provided for
one of these thru camar as the satisfaction of the when tax due
The inheritance tax imposed by Section 86
from the festate is were present when the question orders were 4. The estate of Elsie M. Gaches is likewise liable for the
shall, in the absence of contrary
issued in the case at bar. Although the respondent Judo did payment of the interest and surcharges on the said amount of
disposition by the predecessor, be charged
make a condition in its order of June 5, 1967 that the P700.000.00 imposed under Section 101 (a) (1) and (c),
to the account of each beneficiary, in
distribution of the estate of Elsie M. Gaches (except the cash respectively, of the Tax Code. 6
proportion to the value of the benefit
deposits of more than P2 million) shall be trusted to Atty.
received, and in accordance with the scale
Medina for the payment of whatever taxes may be due to the
fixed for the class or group to which is The Interest charge for 1% per month imposed under Section
government from the estate and the heirs them to, this Court
pertains: Provided, That in cases where 101 (a) (1) of the Tax Code is essentially a commotion to the
cannot subscribe to the proposition that the payment of the tax
the heirs divide extrajudicially the property State for delay in the payment of the tax due thereto7 As for the
due was thereby adequately provided for. In the first place, the
left to them by their predecessor or accountant use by the tax payer of funds that nightday shall be
order of June 5, l967 was, for all intents and , a complete
otherwise convey, sell, transfer, mortgage, in the government's funds. 8 As the indorsement and delivery of
distribution of the estate to the heirs for, the executor who is
or encumber the same without being the the mentioned time deposit certificates to the did not result in
supposed to take care of the estate was absolutely discharged
estate or inheritance taxes within the the payment of the estate tax (for which it was in the
the attorney's fees for the of a lawyer who presumably acted as
period prescribed in the preceding respondents estate is fluently liable for the interest charge
legal counsel for the estate in the court below were ordered
subsections (a) and (b), they shall be imposed in the Tax Code.
paid as were also the fees for the executor's the cash funds of
solidarity liable for the payment of the said
the estate were red paid to the cash and the non-cash (real
taxes to the extent of the estate they have
property and shares of stock) properties were likewise ordered The estate cannot likewise be exempted from the payment of
received.
delivered to Atty. Medina whose participation in the said the 5% surcharge imposed by Section 101 (c) of the Tax Code.
proceedings was in the capacity of an attorney-in-fact of the While there are cases in this jurisdiction holding that a
herein respondent Eribal and Abanto. In short, the probate The statute's enumeration of the specific cases when the heirs surcharge shall not be visited upon a taxpayer whose failure to
court virtually withdrew its custodial jurisdiction over the estate may be held solidarity liable for the payment of the inheritance pay the tax on time is in good faith, 9 this element does not
which is the subject of settlement before it. In the second place tax is, in the opinion of this Court, a clear indication that beyond appear to be present in the case at bar. The Commissioner, as
the respondent Judge, in the distribution of the properties of the those cases, the payment of the inheritance tax should be aforesaid, fully informed the respondents Atty. Medina, Eribal
estate in question, relief solely upon the mere mandestation of taken as'the individual responsibility, to the extent of the and Abanto of the condition to this acceptance of the said time
the counsel for the heirs Eribal and Abanto that them were benefits received, of each heir. deposit certificates. The Commissioner, in fact, advised them in
affiant of the estate with which to pay the taxes due to the the same letter that "It will be understood in this connection that
government. There is no evidence on record that would show if the balance of the deficiency estate tax in this case is not
3. And the effect of the indorsement of the time deposit
that the probate court ever made a serious attempt to de what paid on or before December 9, 1967, the name shall be subject
certificates to the Commissioner, the same cannot be held to
the values of the different assets the correctness of that such to the interest on deficiency, 5% surcharge and 1% monthly
have extinguished the estate's liability for the estate tax. In the
properties shall be preserved for the satisfaction of those case interest for deficiency." Moreover, Judge Tan himself, as
first place,in accepting the indorsement and delivery of the said
In the third place that main of pesos taxes were being called by executor of the estate of Elsie M. Gaches, specifically admitted
certificates, the Commissioner expressly gave notice that his
the Bureau of Inc. Revenue, the least reasonable thing that the that he was the one who caused the extension (and
Office — ñé+.£ªwph!1
probate court should have done was to require the heirs to consolidation) of the maturity dates of the two time deposit
deposit the amount of inheritance tax being claimed in a certificates in question (one for P100,000.00 to mature on May
suitable institution or to authorize the sale of non-cash assets ... Regrets that the same cannot be 12, 1967 and the other for P600,000.00 to mature on June 16,
under the court's control and supervision. accepted as payment of the deficiency 1967) to May 12, 1968,
estate tax in this case may they cannot, at
present or on or therefore December 9,
The record is likewise bereft of any evidence to show that It will be worthwhile to mention also, in this connection, that
1967, be converted into cash. However,
sufficient bond has been filed to meet this particular when Atty. Medina applied to this Court for authorize to the
we are holding said certificates of time
outstanding obligation. amount of P700,000.00 from the Overseas Bank of Manila on
deposit for possible application in payment
September 9, 1967, the resolution of this Court dated
of the unpaid balance of the deficiency
November 17, 1967, approve her request authorized her to
2. The liability of the herein respondents Eribal and Abanto to estate tax in this case ,is soon as said
withdraw the said amount in the form of cashier's checks
pay the inheritance tax corresponding to the share of Bess certificates can be converted into cash. ...
payable to the Commissioner. Apparently, because the
Lauer in the inheritance must be negated, The inheritance tax
Overseas Bank of Manila refused to issue such checks or to (b) The contempt charges against the officials of the Overseas probate court shares of stock with a fairly stable liquidity value
allow her to withdraw said amount in view of the extension of Bank of Manila likewise merit dismissal. In the case of the of P2,588,520.00. In any case, the main objective of the instant
the nuturity date of the deposit in question, Atty. Medina renewal of the term of the time deposits in question, the said petition is to assure the State that the assessed tax obligations
thought that by simply assigning the time deposit certificates to extension was made by no less than the executor of the estate shall be paid and, from the records, more than P2 million had
the Commissioner, she would be deemed to have paid the himself- The renewal of said term may be considered as purely already been paid to the State during the pendency of the
estate's obligation in its corresponding amount. However, as an act of administration for the enhancement (due to the higher instant proceeding, in this Court.
aforesaid the Commissioner was also unable to convert said interest rates) of the value of the estate, and the officials of the
amount to cash and he gave announce to that effect to Atty. bank cannot consequently be blamed or acting favorably on the
6. With reference to the attorney's fees to be paid to Atty.
Medina. Since the refusal of the Overseas Bank of Manila to executor's application. Judge Tan himself explained that he did
Manuel M. Paredes, this court is of the opinion, after a careful
snow the withdrawal of the said deposit was then well-known to what he did honest the belief that it would redound to the
study of the statement of services rendered by said counsel to
the parties, it saw to reas that the tentatives of the estate who benefit of the estate on the account of the higher interest rate
the respondents Eribal and Abanto which was submitted to this
stand to be benefited. therefrom, such as the respondents on time deposits.
Court, that the amount of Fifty Thousand Pesos (P50,000.00) is
Eribal and Abanto, should have forthwith asked for authority to
fair and reasonable. The payment of this amount, however, is
pay the from other funds of the estate. Atty. Medina was, in
With reference, to the refuse of the bank's officials to allow the the personal liability of the said respondents Eribal and Abanto.
fact, given the authority by this Court to sell assets of the estate
witldrawal of time deposit in question after the extended term and not that of the estate of Elsie M. Gaches, as the said
for the payment of the taxes due to the State, but she never
expired on May 12, 1968, this Court takes notice of the fact, as counsel was hired by the said respondents to give legal aid to
tried to pay the equivalent amount of P700,000.00 in question
stated in our decision in Ramos vs. Central Bank (L-293250, them in connection with the settlement of the various claims
from the proceeds of the Wm she made afterwards. Moreover,
Oct. 4, 1971; 41 SCRA 565), that as early as November 20, preferred in the probate court and in this Court.
it will also be noted that the respondents EAbal and Abanto,
1967 the Central Bank required the Overseas Bank of Manila,
during the pendency of this case, had in their actual ion at least
in view of its distressed financial condition, to execute a voting
P2.3 million (the amount they were able to withdraw from the 7. The Court's intended adjudication of the main issue has
trust agreement in order to bail it out through a change of
Philippine National Bank on account of the questioned orders) been rendered academic by supervening events which dictate
management and the promise of fresh funds to replenish the
which they could have very well used for the payment of the that the court refrain from issuing any further order relating
bank's financial portfolio. The Overseas Bank of Manila was not
estate tax. They, however, opted to put the same to other uses. thereto. On July 18, 1977 a "Manifestation and Compliance"
able to normalize its operations in spite of the voting trust
was filed by the, respondent Delia P. Medina which states that
agreement — for, on July 31, 1968, it was excluded by the
a compromise payment of P700,000 as all estate tax, evidence
5. We now consider the several petitions for contempt riled in Central Bank from inter-bank clearing; on August 1, 1968, its
by an official receipt (annex A of the Manifestation), was
the case at bar, namely, (a) against the Philippine National operations were suspended; and on August 13, 1968, it was
accepted and duly approved by Acting Commissioner of
Bank on account for allowing Atty. Medina to withdraw completely forbidden by the Central Bank to do business
Internal Revenue Efren I. Plana (annex B of the same
P2,330,000.00 in contravention of the writ of punishment preparatory to its forcible liquidation. Under the circumstances,
Manifestation), and that "with the said compromise payment of
issued by the Commissioner; (b) against the officer of the this Court is satisfied with the explanation that to allow Atty.
P700,000, all estate, inheritance and deficiency income
Overseas Bank of Manila for allowing the extension of the Medina to withdraw the said time deposits after the extended
taxes . . . including pertinent delinquency penalties thereof
maturity date of the mentioned time deposit of P700,000.00 term would have worked an undue prejudice to the other
have been fully paid and liquidated, aggregating to
and for refusing to pay the same after the extended term depositors and creditors of the bank.
P7,929,498.55 ..." No objection thereto was interpored by any
expired; (c) against Judge Tan who renewed the maturity date
of this parties concerned despite due notice thereof. This was
of the said time deposits; (d) against the Lepanto Consolidated
(c) The contempt charge against Judge Tan is also not further supplemented by a communication, dated July 19,
Mining Co. for refusing to turn over dividends payable to the
meritorious. There is no sufficient and convincing evidence to 1977, of Deputy Commissioner Conrado P. Diaz, informing the
estate of Elsie M. Gaches unless the Commissioner first lifted
show that he renewed the maturity date of the time deposits in Register of Deeds of Pasig, Metro Manila, that the Gaches
his punishment order; and (e) against the herein respondents
question maliciously or to the prejudice of the interest of the estate has already paid all the estate and inheritance taxes
Atty. Medina, Eribal and Abonto for citing shares of stock with
estate. assessed against it, and that, consequently, the notice of tax
the probate court instead of the cash amount of P2,330,000.00
then inscribed on the property and property rights of the estate
which they withdrew from the renewed National Bank on
can now be considered cancelled. With the full settlement of
account of the questioned orders of the probate court, contrary (d) The Lepanto Consolidated Mining Company is likewise
the tax claims, the requirements of the law have been fully met,
to the resolutions of this Court dated July 10 and 17, 1967. entitled to exoneration from the contempt charge lodged
and it has unnecessary for the Court to issue orders relative to
against it. It is refusing to turn over to Atty. Medina stock
the main issue.
dividends payable to the estate of Elsie M. Gaches, it is evident
(a) The contempt charge against the officials of the Philippine
that the said corporation acted in good faith in view of the writ
National Bank is without merit, it appearing to the satisfaction
of garnishment issued to it by the Commissioner. Moreover, on ACCORDINGLY, the respondent Delia P. Medina is to deliver
of this Court that they excited reasonable efforts not to disobey
February 16, 1968, this Court passed a resolution suspending the remaining assets of the estate to the voluntary heirs in the
the writ of garnishing issued by the Commissioner. Indeed, said
temporarily the warrants of punishment issued by the proportions adjudicated in the will and to submit a report of
officials merely acted in obedience to the order of the probate
Commissioner, and it does not appear that thereafter the compliance. On the incidental issues, the Court renders
court which threatened them with contempt of court after they
turnover of the stock dividends to the estate was refused. judgment as for:
moved to be allowed to deposit with the said probate court the
money of the of Elsie Gaches deposited with the said bank.
The commssioner himself, through the Solicitor General, (e) With reference to the charge for contempt against the (1) The amount of FIFTY THOUSAND (P50,000.00) PESOS is
admitted later that its writ of garnishment cannot be superior to respondents Atty. Medina, Eribal and Abanto, although hereby awarded to Manuel M. Paredes as legal fee for his
that of the probate court,s order as the estate in Question was admittedly the resolutions of this Court dated July 10 and 17, services,
then in custodia legis. 1967 were not strictly complied with by the said respondents, it
appears clearly that they immediately deposited with the
the same to be Paid by the respondent End will the estate of   Surcharge. — If any amount of the taxes
Abanto, now included in the notice and demand from
the Commissioner of Internal Revenue is
Separate Opinions
not full within thirty days after such notice
(2) The contempt charges against the officials of the Philippine
and demand, there shall be collected in
National Bank and the Overseas Bank of Manila, Judge
TEEHANKEE, J., concur: addition to the interest prescribed herein
Bienvenido Tan, Sr., and Lepanto Consolidated Co. are hereby
and in Section 99 and 100 and as part of
ordered dismissed;
the taxes a surcharge of five per centum
I concur in the disposition of the incidental issues regarding the the unpaid amount. "
payment of Atty. Paredes' attorney's fees due from
(3) The authority given to the respondent Delia P. Medina in
respondents Eribal and Abanto's estate and the contempt
the resolution of the court dated February 6, 1968, to pay the
charges as set forth in the Court's judgment. 7 Republic vs. Heras, L-26742, April
death and income taxes, including delinquency penalties,
30,1970.
claimed by the State and, for that, to withdraw all cash deposits
in various banks and sell such properties of the estate as my I reserve my vote as to the Court's "intended adjudication of the
be necessary, is hereby terminated; and main issues (Nos.[1] to [4] as discussed in the Chief Justice's 8 Castro vs. Collector of Int. Revenue, L-
main opinion at pages 25- 33), since as stated in the main 12174, December 28, 1962.
opinion itself (at page 36) the said issues have been rendered
(4) The writs of preliminary injunction issued by the Court
academic with the full settlement of the Internal Revenue
pursuant to its resolutions dated July 10 and 17, 1967 are 9 Connel Bros. Co. (Phil.), Inc. vs.
Commissioner's tax claims and it has therefore become
hereby dissolved. Collector of Int. Revenue, L-15470, Dec.
unnecessary to advance an opinion thereon or resolve the
26, 1963, aff'd. on reconsideration in L-
same.
15470, Mar. 31 1964; Insular Lumber Co.
No costs.
vs. Collector of Int. Revenue, L-7190, April
Footnotesñé+.£ªwph!1 28, 1956.
Antonio, Muñ;oz Palma, Concepcion Jr., Martin, Santos,
Fernandez and Guerrero, JJ., concur.1äwphï1.ñët
1 After deducting the sum of P610,190.60
representing the income tax for 1965 and
Fernando, J., is on leave. allowable expenses.

Aquino, Makasiar, JJ., took no part. 2 This case was decided Court on October
4, 1971. See 41 SCRA 517
 
3 A similar provision may be found in Sec.
95(c) of the Tax Code.
 

4 See Maxwell vs. Bugbee, 250 U.S. 525,

Separate Opinions
40 Ct 2.

 
5 See 3 R.C.L. 573.

TEEHANKEE, J., concur:
6 Section 101 of the tax Code provides:
"Sec. 101. Additions to the the tax case of
I concur in the disposition of the incidental issues regarding the non-payment — (a) That of the rate (1)
payment of Atty. Paredes' attorney's fees due from date extended.— Where the amount of the
respondents Eribal and Abanto's estate and the contempt taxes imposed by the Chapter, or any part
charges as set forth in the Court's judgment. of such amount is not paid on the due date
of the taxes, their shall be collected as a
part of the taxes, interest upon such
I reserve my vote as to the Court's "intended adjudication of the unpaid amount at the rate of one per
main issues (Nos.[1] to [4] as discussed in the Chief Justice's centum a month from due until it is paid.
main opinion at pages 25- 33), since as stated in the main
opinion itself (at page 36) the said issues have been rendered
academic with the full settlement of the Internal Revenue (c) xxx xxx xxx
Commissioner's tax claims and it has therefore become
unnecessary to advance an opinion thereon or resolve the
same.
G.R. No. L-17455             August 31, 1964 31. That as a result of the plaintiff's failure to transfer 12126, since he was not a party to the deed of assignment —
and convey the properties mentioned and described his participation in connection with the contract was merely to
in subparagraphs (a), (b), (c), (d), (e), (f), (j) and (k) comply with the order of the probate court — a fact which is
ROMAN OZAETA (as executor of the Testate Estate of
of paragraph 19 of this Answer, free from all liens admitted in appellant's own allegations.
Carlos Palanca y Tanguinlay,
and encumbrances and the fact that those properties
Sp. Proc. No. 12126, Court of First Instance of
were not free from all liens and encumbrances as
Manila), plaintiff-appellee, On a sale of a decedent's property under order of
they are in fact in the name and actual possession of
vs. court, there is no implied warranty, either or title or
third parties, the herein defendant was consequently
SEBASTIAN C. PALANCA and LIBERTY INS. quality" (34 C.J.S. 618; Nutt vs. Anderson, 87 S. W.
deprived of ownership and possession of said
CORP., defendants; 2d, 760).
properties, as the said third-parties claim title over
SEBASTIAN C. PALANCA, defendant-appellant.
the said properties and refuse to surrender to the
herein defendant the possession thereof, and So, an order of the Court made by virtue of its lawful
Lichauco, Picazo and Agcaoili for plaintiff-appellee. consequently suffered damages in the amount of discretion, authorizing the representative to sell
Alberto R. de Joya for defendant-appellant. P1,000,000.00, representing the actual market value property will ordinarily protect the representative who
of these properties at the time of the filing of the acts in pursuance of the order (34 C.J.S., p. 635;
complaint in this case. Goldsborough vs. De Witt, 189 Atl., 226, 171 Md.,
REYES, J.B.L., J.:
225).
AS SECOND COUNTERCLAIM
This is an appeal from the order, dated 29 June 1959, of the
Thus, defendant Sebastian Palanca's remedy, if any, lies only
Court of First Instance of Manila, Branch XI, in its Civil Case
against the persons with whom he has contracted by virtue of
No. 39686, dismissing, for failure to state a cause of action, the 32. That the herein defendant hereby reproduces
the Deed of Assignment (Annex "A" of the complaint), even
first and second counterclaims of the defendant- each and every allegation made and contained in
assuming that he could still relitigate these same issues that he
counterclaimant, Sebastian C. Palanca, against the plaintiff, each and every paragraph above made and makes
had already submitted to the probate court on 9 May 1957 and
Roman Ozaeta, executor of the testate estate of Carlos them an integral part of this second counterclaim;
which were rejected by the order of the same court dated 20
Palanca y Tanguinlay. Apellant directed his appeal to the Court
June 1957, already final for non-appeal therefrom (Rec. on
of Appeals, but the latter court certified the same to the
3. That the properties mentioned in sub-paragraphs Appeals, pp. 85, 100).
Supreme Court as one which involves no question of fact but
(a), (b), (c), (d), (e), (j) and (k) of paragraph 19
purely to law.
above, which were not conveyed and delivered to the
Finally, it is well to note that an adverse possession by another
herein defendant have been planted to coconuts,
is not an "incumbrance" in law, and does not contradict the
Predicating the counterclaims are admissions of Sebastian abaca and rice, consisting of a total area of
condition that the property be free from encumbrance (Yuson,
Palanca in his answer to the complaint that on 24 June 1956 approximately 150 hectares;
et al. v. Diaz, 42 Phil. 22) ; nor is it a "lien", which connotes
he executed with, and in favor of, his other co-heirs a deed of
security for a claim (Shanghai Banking Corp. v. Rafferty, 39
assignment over his shares and participation in the estate of
34. That by reason of the failure of the plaintiff to Phil. 145).
his father, Carlos Palanca y Tanguinlay, and in the estate of his
convey and deliver the title and possession of the
late sister, Marciana Palanca de Santos, under certain terms
said properties, the herein defendant was not able to
and conditions, in consideration of the adjudication and transfer Therefore, the court below correctly declared that the first and
collect the yearly harvest or income from said
to him of certain properties in Sorsogon; that in Special second counterclaims state no cause of action against the
properties which is conservatively estimated at
Proceeding No. 12126 of the Court of First instance of Manila, plaintiff Executor.
P75,000.00 annually from and after July 31, 1956 up
Branch IV, in which the estate of Carlos Palanca y Tanguinlay
to the time that plaintiff shall have effected a delivery
is under probate, the court, on 3 July 1956, approved the said
of said properties free from all liens and WHEREFORE, the order appealed from is affirmed. Costs
deed of assignment and directed the executor, herein appellee,
encumbrances to the herein defendant. against appellant, Sebastian C. Palanca.
to deliver the properties to the appellant; and that the executor,
on 31 July 1956, in pursuance of the court order, executed a
deed of conveyance on the said properties in favor of the Wherefore, the parties respectfully pray that the Bengzon, C.J., Bautista Angelo, Concepcion, Regala, and
appellant. foregoing stipulation of facts be admitted and Makalintal, JJ., concur.
approved by this Honorable Court, without prejudice
to the parties adducing other evidence to prove their
The appellant's counterclaims are quoted hereunder:
case not covered by this stipulation of
facts. 1äwphï1.ñët
AS FIRST COUNTERCLAIM
In short, therefore, the appellant alleges that he has rights
30. That the herein defendant, Sebastian C. Palanca, under the deed of assignment which have been violated and
hereby reproduces each and every allegation above for which he seeks the alternative reliefs of performance or
made, and makes them an integral part of this first damages. Theoretically admitting the truth of the allegations in
counterclaim; the counterclaim, there is no cause of action against Roman
Ozaeta, in his capacity as executor in Special Proceeding No.
G.R. No. L-9271             March 29, 1957 The lower court did not consider the premiums paid on the Procedure does not authorize the executor or
bond filed by the administrator as an expense of administration administrator to charge against the estate the money
taking into account undoubtedly the ruling laid down in the case spent for the presentation, filing, and substitution of a
In the matter of the testate estate of the late DA.
of Sulit vs. Santos, 56 Phil., 626. That is a case which also bond.
MARGARITA DAVID. CARLOS MORAN SISON, Judicial
involves the payment of certain premium on the bond put up by
Administrator, petitioner-appellant,
the judicial administrator and when he asked the court that the
vs. It is true that the Sulit case may be differentiated from the
same be considered as an expense of administration, it was
NARCISA F. TEODORO, heiress, oppositor-appellee. present in the sense that, in the former the administrator
disapproved for the same reasons advanced by the trial court.
accepted the trust with the emolument that the law allows,
In sustaining this finding, this Court ruled that the "expense
whereas in the latter the administrator accepted the same
Teodoro R. Dominguez for appellant. incurred by an executor or administrator to produce a bond is
without compensation, but this difference is of no moment, for
Manuel O. Chan for appellee. not a proper charge against the estate. Section 680 of the
there is nothing in the decision that may justify the conclusion
Code of Civil Procedure (similar to section 7, Rule 86) does not
that the allowance or disallowance of premiums paid on the
authorize the executor or administrator to charge against the
BAUTISTA ANGELO, J.: bond of the administrator is made dependent on the receipt of
estate the money spent for the presentation, filing, and
compensation. On the contrary, a different conclusion may be
substitution of a bond." And elaborating on this matter, the
inferred considering the ratio decidendi on which the ruling is
On December 20, 1948, the Court of First Instance of Manila, Court made the following comment:
predicated. Thus, it was there stated that the position of an
which has jurisdiction over the estate of the late Margarita executor or administrator is one of trust: that it is proper for the
David, issued an order appointing Carlos Moran Sison as The aforementioned cases, in reality, seem law to safeguard the estates of deceased persons by requiring
judicial administrator, without compensation, after filing a bond superfluous in ascertaining the true principle. The the administrator to give a suitable bond, and that the ability to
in the amount of P5,000. The next day, Carlos Moran Sison position of an executor or administrator is one of give this bond is in the nature of a qualification for the office. It
took his oath of office and put up the requisite bond which was trust. In fact, the Philippine Code of Civil Procedure is also intimated therein that "If an individual does not desire to
duly approved by the court. On the same day, letters of so mentions it. It is proper for the law to safeguard assume the position of executor or administrator, he may
administration were issued to him. the estate of deceased persons by requiring the refuse to do so," and it is far-fetched to conclude that the giving
executor or administrator to give a suitable bond. of a bond by an administrator is an necessary expense in the
On January 19, 1955, the judicial administrator filed an The ability to give this bond is in the nature of a care, management and settlement of the estate within the
accounting of his administration which contains, among others, qualification for the office. The execution and meaning of the law, because these expenses are incurred
the following disbursement items: approval of the bond constitute a condition precedent "after the executor or administrator has met the requirement of
to acceptance of the responsibilities of the trust. If an the law and has entered upon the performance of his duties."
individual does not desire to assume the position of Of course, a person may accept the position of executor or
13. Paid to Visayan Surety & Insurance Corporation on August 6, executor of administrator, he may refuse to do so. administrator with all the incident appertaining thereto having in
1954, as renewal premiums on the Administrator's bond of Judicial On the other hand, when the individual prefers an mind the compensation which the law allows for the purpose,
Administrator Carlos Moran Sison covering the period from adequate bond and has it approved by the probate but he may waive this compensation in the same manner as he
December 20, 1949 to December 20, 1954, court, he thereby admits the adequacy of the may refuse to serve without it. Appellant having waived
inclusive ................................. compensation which is permitted him pursuant to compensation, he cannot now be heard to complain of the
law. It would be a very far-fetched construction to expenses incident to his qualification.
15. Paid to Visayan Surety & Insurance Corporation on December deduce the giving of a bond in order to qualify for the
21, 1954, for premiums due on the Administrator's bond of judicial office of executor or administrator is a necessary
Administrator Carlos Moran Sison for the period from December The orders appealed from are hereby affirmed, without costs.
expense in the care, management, and settlement of
21, 1954 to December 21, the estate within the meaning of section 680 of the
1955 ............................................................... Code of Civil Procedure, for these are expenses Paras. C.J., Bengzon, Reyes, A., Labrador, Concepcion,
incurred after the executor of administrator has met Reyes, J.B.L., Endencia and Felix, JJ., concur.
the requirements of the law and has entered upon
Narcisa F. Teodoro, one of the heirs, objected to the approval
the performance of his duties. (See In re Eby's
of the above- quoted items on the grounds that they are not
Estate [1894], 30 Atl., 124.)
necessary expenses of administration and should not be
charged against the estate. On February 25, 1955, the court
approved the report of the administrator but disallowed the We feel that the orders of Judge Mapa in this case
items objected to on the ground that they cannot be considered rested on a fine sense of official duty, sometimes
as expenses of administration. The administrator filed a motion lacking in cases of this character, to protect the
for reconsideration and when the same was denied, he took residue of the estate of a deceased person from
the present appeal. unjustifiable inroads by an executor, and that as
these orders conform to the facts and the law, they
are entitled to be fortified by an explicit
The only issue to be determined is "whether a judicial
pronouncement from this court. We rule that the
administrator, serving without compensation, is entitled to
expense incurred by an execution or administrator to
charge as an expense of administration the premiums paid on
procure a bond is not a proper charge against the
his bond."
estate, and that section 680 of the Code of Civil
G.R. No. L-31364 March 30, 1979 the estate of Luis D. Tongoy was filed contract, express or implied, whether the same be due, not due
beyond the period provided in Section 2, or contingent, all claim for funeral expenses and expenses for
Rule 86 of the Rules of Court. the last sickness of the decedent and judgment for money
MISAEL P. VERA, as Commissioner of Internal Revenue,
against the decedent." Under the familiar rule of statutory
and JAIME ARANETA, as Regional Director, Revenue
construction of expressio unius est exclusio alterius, the
Region No. 14, Bureau of Internal Revenue, petitioners, 2. The lower court erred in holding that the
mention of one thing implies the exclusion of another thing not
vs. claim for taxes of the government was
mentioned. Thus, if a statute enumerates the things upon
HON. JOSE F. FERNANDEZ, Judge of the Court of First already barred under Section 5, Rule 86 of
which it is to operate, everything else must necessarily, and by
Instance of Negros Occidental, Branch V, and FRANCIS A. the Rules of Court.
implication be excluded from its operation and effect (Crawford,
TONGOY, Administrator of the Estate of the late LUIS D.
Statutory Construction, pp. 334-335).
TONGOY respondents.
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
In the case of Commissioner of Internal Revenue vs. Ilagan
of the government for unpaid taxes, still within the period of
Electric & Ice Plant, et al., G.R. No. L-23081, December 30,
limitation prescribed in Section 331 and 332 of the National
1969, it was held that the assessment, collection and recovery
Internal Revenue Code.
DE CASTRO, J.: of taxes, as well as the matter of prescription thereof are
governed by the provisions of the National Internal revenue
Section 5, Rule 86, as invoked by the respondent Administrator Code, particularly Sections 331 and 332 thereof, and not by
Appeal from two orders of the Court of First Instance of Negros
in hid Oppositions to the Motion for Allowance of Claim, etc. of other provisions of law. (See also Lim Tio, Dy Heng and Dee
Occidental, Branch V in Special Proceedings No. 7794,
the petitioners reads as follows: Jue vs. Court of Tax Appeals & Collector of Internal Revenue,
entitled: "Intestate Estate of Luis D. Tongoy," the first dated G.R. No. L-10681, March 29, 1958). Even without being
July 29, 1969 dismissing the Motion for Allowance of Claim and specifically mentioned, the provisions of Section 2 of Rule 86 of
for an Order of Payment of Taxes by the Government of the All claims for money against the decedent, the Rules of Court may reasonably be presumed to have been
Republic of the Philippines against the Estate of the late Luis arising from contracts, express or implied, also in the mind of the Court as not affecting the aforecited
D. Tongoy, for deficiency income taxes for the years 1963 and whether the same be due, not due, or Section of the National Internal Revenue Code.
1964 of the decedent in the total amount of P3,254.80, contingent, all claims for funeral expenses
inclusive 5% surcharge, 1% monthly interest and compromise and expenses for the last sickness of the
penalties, and the second, dated October 7, 1969, denying the decedent, and judgment for money against In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was
Motion for reconsideration of the Order of dismissal. the decedent, must be filed within the time even more pointedly held that "taxes assessed against the
limited in they notice; otherwise they are estate of a deceased person ... need not be submitted to the
barred forever, except that they may be set committee on claims in the ordinary course of administration. In
The Motion for allowance of claim and for payment of taxes
forth as counter claims in any action that the exercise of its control over the administrator, the court may
dated May 28, 1969 was filed on June 3, 1969 in the
the executor or administrator may bring direct the payment of such taxes upon motion showing that the
abovementioned special proceedings, (par. 3, Annex A,
against the claimants. Where the executor taxes have been assessed against the estate." The abolition of
Petition, pp. 1920, Rollo). The claim represents the
or administrator commence an action, or the Committee on Claims does not alter the basic ruling laid
indebtedness to the Government of the late Luis D. Tongoy for
prosecutes an action already commenced down giving exception to the claim for taxes from being filed as
deficiency income taxes in the total sum of P3,254.80 as above
by the deceased in his lifetime, the debtor the other claims mentioned in the Rule should be filed before
stated, covered by Assessment Notices Nos. 11-50-29-1-
may set forth may answer the claims he the Court. Claims for taxes may be collected even after the
11061-21-63 and 11-50-291-1 10875-64, to which motion was
has against the decedents, instead of distribution of the decedent's estate among his heirs who shall
attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo).
presenting them independently to the court be liable therefor in proportion of their share in the inheritance.
The Administrator opposed the motion solely on the ground
has herein provided, and mutual claims (Government of the Philippines vs. Pamintuan, 55 Phil. 13).
that the claim was barred under Section 5, Rule 86 of the Rules
may be set off against each other in such
of Court (par. 4, Opposition to Motion for Allowance of Claim,
action; and in final judgment is rendered in
pp. 23-24, Rollo). Finding the opposition well-founded, the The reason for the more liberal treatment of claims for taxes
favored of the decedent, the amount to
respondent Judge, Jose F. Fernandez, dismissed the motion against a decedent's estate in the form of exception from the
determined shall be considered the true
for allowance of claim filed by herein petitioner, Regional application of the statute of non-claims, is not hard to find.
balance against the estate, as though the
Director of the Bureau of Internal Revenue, in an order dated Taxes are the lifeblood of the Government and their prompt
claim has been presented directly before
July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September and certain availability are imperious need. (Commissioner of
the court in the administration
18, 1969, a motion for reconsideration was filed, of the order of Internal Revenue vs. Pineda, G. R. No. L-22734, September
proceedings. Claims not yet due, or
July 29, 1969, but was denied in an Order dated October 7, 15, 1967, 21 SCRA 105). Upon taxation depends the
contingent may be approved at their
1969. Government ability to serve the people for whose benefit taxes
present value.
are collected. To safeguard such interest, neglect or omission
of government officials entrusted with the collection of taxes
Hence, this appeal on certiorari, petitioner assigning the
A perusal of the aforequoted provisions shows that it makes no should not be allowed to bring harm or detriment to the people,
following errors:
mention of claims for monetary obligation of the decedent in the same manner as private persons may be made to suffer
created by law, such as taxes which is entirely of different individually on account of his own negligence, the presumption
1. The lower court erred in holding that the character from the claims expressly enumerated therein, such being that they take good care of their personal affairs. This
claim for taxes by the government against as: "all claims for money against the decedent arising from should not hold true to government officials with respect to
matters not of their own personal concern. This is the application of a creditor who has failed to
philosophy behind the government's exception, as a general file his claim within the time previously
rule, from the operation of the principle of estoppel. (Republic limited the court may, for cause shown and
vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; on such terms as are equitable, allow such
Manila Lodge No. 761, Benevolent and Protective Order of the claim to be flied within a time not
Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, exceeding one (1) month. (Emphasis
73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, supplied)
April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co.,
Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59
In the instant case, petitioners filed an application (Motion for
SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66
Allowance of Claim and for an Order of Payment of Taxes)
SCRA 553; Republic vs. Philippine Long Distance Telephone
which, though filed after the expiration of the time previously
Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora
limited but before an order of the distribution is entered, should
vs. Court of Tax Appeals, L-23272, November 26, 1970, 36
have been granted by the respondent court, in the absence of
SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue,
any valid ground, as none was shown, justifying denial of the
L- 23041, July 31, 1969, 28 SCRA 119.) As already shown,
motion, specially considering that it was for allowance Of claim
taxes may be collected even after the distribution of the estate
for taxes due from the estate, which in effect represents a claim
of the decedent among his heirs (Government of the
of the people at large, the only reason given for the denial that
Philippines vs. Pamintuan, supra; Pineda vs. CFI of
the claim was filed out of the previously limited period,
Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
sustaining thereby private respondents' contention, erroneously
Internal Revenue, G. R. No. L-16661, January 31, 1962).
as has been demonstrated.

Furthermore, as held in Commissioner of Internal Revenue vs.

WHEREFORE, the order appealed from is reverse. Since the
Pineda, supra, citing the last paragraph of Section 315 of the
Tax Commissioner's assessment in the total amount of
Tax Code payment of income tax shall be a lien in favor of the
P3,254.80 with 5 % surcharge and 1 % monthly interest as
Government of the Philippines from the time the assessment
provided in the Tax Code is a final one and the respondent
was made by the Commissioner of Internal Revenue until paid
estate's sole defense of prescription has been herein overruled,
with interests, penalties, etc. By virtue of such lien, this court
the Motion for Allowance of Claim is herein granted and
held that the property of the estate already in the hands of an
respondent estate is ordered to pay and discharge the same,
heir or transferee may be subject to the payment of the tax due
subject only to the limitation of the interest collectible thereon
the estate. A fortiori before the inheritance has passed to the
as provided by the Tax Code. No pronouncement as to costs.
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 SO ORDERED.
property of the estate of the decedent has vested in the heirs,
the decedent, represented by his estate, continues as if he
Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and
were still alive, subject to the payment of such taxes as would
Melencio-Herrera, JJ., concur.
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
G.R. No. 118671             January 29, 1996 payments totalling P540,000.00 representing the one-year Edmond but only "such amount as may be necessary to cover
lease of the Valle Verde property. In compliance, on January the expenses of administration and allowances for support" of
25, 1993, Edmond turned over the amount of P348,583.56, the testator's three granddaughters subject to collation and
THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ,
representing the balance of the rent after deducting deductible from their share in the inheritance. The court,
Executor, petitioner,
P191,416.14 for repair and maintenance expenses on the however, held in abeyance the release of the titles to
vs.
estate.5 respondent Montes and the three granddaughters until the
THE COURT OF APPEALS (Former Special Sixth Division),
lapse of six months from the date of first publication of the
MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ,
notice to creditors.8 The court stated thus:
CANDICE ALBERTINE RUIZ, MARIA ANGELINE RUIZ and In March 1993, Edmond moved for the release of P50,000.00
THE PRESIDING JUDGE OF THE REGIONAL TRIAL COURT to pay the real estate taxes on the real properties of the estate.
OF PASIG, respondents. The probate court approved the release of P7,722.00.6 xxx       xxx       xxx

DECISION On May 14, 1993, Edmond withdrew his opposition to the After consideration of the arguments set forth
probate of the will. Consequently, the probate court, on May thereon by the parties the court resolves to allow
18, 1993, admitted the will to probate and ordered the issuance Administrator Edmond M. Ruiz to take possession of
PUNO, J.:
of letters testamentary to Edmond conditioned upon the filing of the rental payments deposited with the Clerk of
a bond in the amount of P50,000.00. The letters testamentary Court, Pasig Regional Trial Court, but only such
This petition for review on certiorari seeks to annul and set were issued on June 23, 1993. amount as may be necessary to cover the expenses
aside the decision dated November 10, 1994 and the resolution of administration and allowances for support of Maria
dated January 5, 1995 of the Court of Appeals in CA-G.R. SP Cathryn Veronique, Candice Albertine and Maria
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz, with
No. 33045. Angeli, which are subject to collation and deductible
Edmond Ruiz as executor, filed an "Ex-Parte Motion for
from the share in the inheritance of said heirs and
Release of Funds." It prayed for the release of the rent
insofar as they exceed the fruits or rents pertaining to
The facts show that on June 27, 1987, Hilario M. payments deposited with the Branch Clerk of Court.
them.
Ruiz1 executed a holographic will naming as his heirs his only Respondent Montes opposed the motion and concurrently filed
son, Edmond Ruiz, his adopted daughter, private respondent a "Motion for Release of Funds to Certain Heirs" and "Motion
Maria Pilar Ruiz Montes, and his three granddaughters, private for Issuance of Certificate of Allowance of Probate Will." As to the release of the titles bequeathed to
respondents Maria Cathryn, Candice Albertine and Maria Montes prayed for the release of the said rent payments to petitioner Maria Pilar Ruiz-Montes and the above-
Angeline, all children of Edmond Ruiz. The testator bequeathed Maria Cathryn, Candice Albertine and Maria Angeline and for named heirs, the same is hereby reconsidered
to his heirs substantial cash, personal and real properties and the distribution of the testator's properties, specifically the Valle and held in abeyance until the lapse of six (6)
named Edmond Ruiz executor of his estate.2 Verde property and the Blue Ridge apartments, in accordance months from the date of first publication of Notice to
with the provisions of the holographic will. Creditors.
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the
cash component of his estate was distributed among Edmond On August 26, 1993, the probate court denied petitioner's WHEREFORE, Administrator Edmond M. Ruiz is
Ruiz and private respondents in accordance with the motion for release of funds but granted respondent Montes' hereby ordered to submit an accounting of the
decedent's will. For unbeknown reasons, Edmond, the named motion in view of petitioner's lack of opposition. It thus ordered expenses necessary for administration including
executor, did not take any action for the probate of his father's the release of the rent payments to the decedent's three provisions for the support Of Maria Cathryn
holographic will. granddaughters. It further ordered the delivery of the titles to Veronique Ruiz, Candice Albertine Ruiz and Maria
and possession of the properties bequeathed to the three Angeli Ruiz before the amount required can be
granddaughters and respondent Montes upon the filing of a withdrawn and cause the publication of the notice to
On June 29, 1992, four years after the testator's death, it was bond of P50,000.00. creditors with reasonable dispatch.9
private respondent Maria Pilar Ruiz Montes who filed before
the Regional Trial Court, Branch 156, Pasig, a petition for the
probate and approval of Hilario Ruiz's will and for the issuance Petitioner moved for reconsideration alleging that he actually Petitioner assailed this order before the Court of Appeals.
of letters testamentary to Edmond Ruiz,3 Surprisingly, Edmond filed his opposition to respondent Montes's motion for release Finding no grave abuse of discretion on the part of respondent
opposed the petition on the ground that the will was executed of rent payments which opposition the court failed to consider. judge, the appellate court dismissed the petition and sustained
under undue influence. Petitioner likewise reiterated his previous motion for release of the probate court's order in a decision dated November 10,
funds. 199410 and a resolution dated January 5, 1995.11
On November 2, 1992, one of the properties of the estate —
the house and lot at No. 2 Oliva Street, Valle Verde IV, Pasig On November 23, 1993, petitioner, through counsel, Hence, this petition.
which the testator bequeathed to Maria Cathryn, Candice manifested that he was withdrawing his motion for release of
Albertine and Maria Angeline4 — was leased out by Edmond funds in view of the fact that the lease contract over the Valle
Petitioner claims that:
Ruiz to third persons. Verde property had been renewed for another year.7

THE PUBLIC RESPONDENT COURT OF APPEALS

On January 19, 1993, the probate court ordered Edmond to Despite petitioner's manifestation, the probate court, on
COMMITTED GRAVE ABUSE OF DISCRETION
deposit with the Branch Clerk of Court the rental deposit and December 22, 1993, ordered the release of the funds to
AMOUNTING TO LACK OR EXCESS OF
 JURISDICTION IN AFFIRMING AND CONFIRMING duty to support, especially the right to education, subsist even conditioned for the payment of said obligations within
THE ORDER OF RESPONDENT REGIONAL TRIAL beyond the age of majority.15 such time as the court directs.18
COURT OF PASIG, BRANCH 156, DATED
DECEMBER 22, 1993, WHICH WHEN GIVEN DUE
Be that as it may, grandchildren are not entitled to provisional In settlement of estate proceedings, the distribution of the
COURSE AND IS EFFECTED WOULD: (1)
support from the funds of the decedent's estate. The law clearly estate properties can only be made: (1) after all the debts,
DISALLOW THE EXECUTOR/ADMINISTRATOR OF
limits the allowance to "widow and children" and does not funeral charges, expenses of administration, allowance to the
THE ESTATE OF THE LATE HILARIO M. RUIZ TO
extend it to the deceased's grandchildren, regardless of their widow, and estate tax have been paid; or (2) before payment of
TAKE POSSESSION OF ALL THE REAL AND
minority or incapacity.16 It was error, therefore, for the appellate said obligations only if the distributees or any of them gives a
PERSONAL PROPERTIES OF THE ESTATE; (2)
court to sustain the probate court's order granting an allowance bond in a sum fixed by the court conditioned upon the payment
GRANT SUPPORT, DURING THE PENDENCY OF
to the grandchildren of the testator pending settlement of his of said obligations within such time as the court directs, or
THE SETTLEMENT OF AN ESTATE, TO CERTAIN
estate. when provision is made to meet those obligations.19
PERSONS NOT ENTITLED THERETO; AND (3)
PREMATURELY PARTITION AND DISTRIBUTE
THE ESTATE PURSUANT TO THE PROVISIONS Respondent courts also erred when they ordered the release of In the case at bar, the probate court ordered the release of the
OF THE HOLOGRAPHIC WILL EVEN BEFORE ITS the titles of the bequeathed properties to private respondents titles to the Valle Verde property and the Blue Ridge
INTRINSIC VALIDITY HAS BEEN DETERMINED, six months after the date of first publication of notice to apartments to the private respondents after the lapse of six
AND DESPITE THE EXISTENCE OF UNPAID creditors. An order releasing titles to properties of the estate months from the date of first publication of the notice to
DEBTS AND OBLIGATIONS OF THE ESTATE.12 amounts to an advance distribution of the estate which is creditors. The questioned order speaks of "notice" to creditors,
allowed only under the following conditions: not payment of debts and obligations. Hilario Ruiz allegedly left
no debts when he died but the taxes on his estate had not
The issue for resolution is whether the probate court, after
hitherto been paid, much less ascertained. The estate tax is
admitting the will to probate but before payment of the estate's Sec. 2. Advance distribution in special proceedings.
one of those obligations that must be paid before distribution of
debts and obligations, has the authority: (1) to grant an — Nothwithstanding a pending controversy or appeal
the estate. If not yet paid, the rule requires that the distributees
allowance from the funds of the estate for the support of the in proceedings to settle the estate of a decedent, the
post a bond or make such provisions as to meet the said tax
testator's grandchildren; (2) to order the release of the titles to court may, in its discretion and upon such terms as it
obligation in proportion to their respective shares in the
certain heirs; and (3) to grant possession of all properties of the may deem proper and just, permit that such part of
inheritance.20 Notably, at the time the order was issued the
estate to the executor of the will. the estate as may not be affected by the controversy
properties of the estate had not yet been inventoried and
or appeal be distributed among the heirs or legatees,
appraised.
upon compliance with the conditions set forth in Rule
On the matter of allowance, Section 3 of Rule 83 of the
90 of these Rules.17
Revised Rules of Court provides:
It was also too early in the day for the probate court to order
the release of the titles six months after admitting the will to
And Rule 90 provides that:
Sec. 3. Allowance to widow and family. — The widow probate. The probate of a will is conclusive as to its due
and minor or incapacitated children of a deceased execution and extrinsic validity21 and settles only the question of
person, during the settlement of the estate, shall Sec. 1. When order for distribution of residue made. whether the testator, being of sound mind, freely executed it in
receive therefrom under the direction of the court, — When the debts, funeral charges, and expenses accordance with the formalities prescribed by law.22 Questions
such allowance as are provided by law. of administration the allowance to the widow, and as to the intrinsic validity and efficacy of the provisions of the
inheritance tax if any, chargeable to the estate in will, the legality of any devise or legacy may be raised even
accordance with law, have been paid, the court, on after the will has been authenticated.23
Petitioner alleges that this provision only gives the widow and
the application of the executor or administrator, or of
the minor or incapacitated children of the deceased the right to
a person interested in the estate, and after hearing
receive allowances for support during the settlement of estate The intrinsic validity of Hilario's holographic will was
upon notice shall assign the residue of the estate to
proceedings. He contends that the testator's three controverted by petitioner before the probate court in his Reply
the persons entitled to the same, naming them and
granddaughters do not qualify for an allowance because they to Montes' Opposition to his motion for release of funds24 and
the proportions or parts, to which each is entitled,
are not incapacitated and are no longer minors but of legal age, his motion for reconsideration of the August 26, 1993 order of
and such persons may demand and recover their
married and gainfully employed. In addition, the provision the said court.25 Therein, petitioner assailed the distributive
respective shares from the executor or administrator,
expressly states "children" of the deceased which excludes the shares of the devisees and legatees inasmuch as his father's
or any other person having the same in his
latter's grandchildren. will included the estate of his mother and allegedly impaired his
possession. If there is a controversy before the court
legitime as an intestate heir of his mother. The Rules provide
as to who are the lawful heirs of the deceased
that if there is a controversy as to who are the lawful heirs of
It is settled that allowances for support under Section 3 of Rule person or as to the distributive shares to which each
the decedent and their distributive shares in his estate, the
83 should not be limited to the "minor or incapacitated" children person is entitled under the law, the controversy shall
probate court shall proceed to hear and decide the same as in
of the deceased. Article 18813 of the Civil Code of the be heard and decided as in ordinary cases.
ordinary cases.26
Philippines, the substantive law in force at the time of the
testator's death, provides that during the liquidation of the
No distribution shall be allowed until the payment of
conjugal partnership, the deceased's legitimate spouse and Still and all, petitioner cannot correctly claim that the assailed
the obligations above-mentioned has been made or
children, regardless of their age, civil status or gainful order deprived him of his right to take possession of all the real
provided for, unless the distributees, or any of them,
employment, are entitled to provisional support from the funds and personal properties of the estate. The right of an executor
give a bond, in a sum to be fixed by the court,
of the estate.14 The law is rooted on the fact that the right and or administrator to the possession and management of the real
and personal properties of the deceased is not absolute and
can only be exercised "so long as it is necessary for the SO ORDERED. Id., pp. 733-734; Article 290, Civil Code of the
15 

payment of the debts and expenses of Philippines.

administration,"27 Section 3 of Rule 84 of the Revised Rules of
Regalado, Romero and Mendoza, JJ., concur.
Court explicitly provides: 16 
Babao v. Villavicencio, 44 Phil. 921 [1922].

Sec. 3. Executor or administrator to retain whole 17 

Revised Rules of Court, Rule 109, Section 2.
estate to pay debts, and to administer estate not
willed. — An executor or administrator shall have the
right to the possession and management of the real 18 
Emphasis supplied.
as well as the personal estate of the deceased so Footnotes
long as it is necessary for the payment of the debts
Castillo v. Castillo, 124 Phil. 485 [1966]; Edmands
19 
and expenses for administration.28 Predeceased by his wife who died on August 4,
1 
v. Philippine Trust Co., 87 Phil. 405 [1952].
1986.
When petitioner moved for further release of the funds 20 
Prieto v. Valdez, 95 Phil. 46 [1954].
deposited with the clerk of court, he had been previously 2 
Annex "D" to the Petition, Rollo, pp. 46-60.
granted by the probate court certain amounts for repair and
maintenance expenses on the properties of the estate, and 21 
Rule 75, Section 1.
payment of the real estate taxes thereon. But petitioner moved
3 
SP Proc. No. 10259.
again for the release of additional funds for the same reasons
he previously cited. It was correct for the probate court to Acain v. Intermediate Appellate Court, 155 SCRA
22 
4 
Holographic Will, p. 10; Rollo, p. 55. 100 [1987]; Pastor v. Court of Appeals, 122 SCRA
require him to submit an accounting of the necessary expenses
for administration before releasing any further money in his 885 [1983]; Maninang v. Court of Appeals, 114
favor.
5 
Comment to the Petition, pp. 8-9; Rollo, pp. 97-98. SCRA 478 [1982].

It was relevantly noted by the probate court that petitioner had

6 
Reply to Comment, p. 2; Rollo, p. 114. Maninang v. Court of Appeals supra.; Sumilang v.
23 

deposited with it only a portion of the one-year rental income Ramagosa, 21 SCRA 1369 [1967]; Cacho v. Udan,
from the Valle Verde property. Petitioner did not deposit its 13 SCRA 693 [1965]; Montanano v. Suesa, 14 Phil.
7 
Comment, Annex "1;" Rollo, p. 110. 676, 679-680 [1909].
succeeding rents after renewal of the lease.29 Neither did he
render an accounting of such funds.
8 
Petition, Annex "C;" Rollo, p. 45. Reply to Opposition of Funds and Opposition to
24 

Petitioner must be reminded that his right of ownership over the Omnibus Motion, pp. 1-3,; Rollo, pp. 69-71.
properties of his father is merely inchoate as long as the estate
9 
Id.; Emphasis as copied.
has not been fully settled and partitioned.30 As executor, he is a 25 
Motion for Reconsideration, p. 14; Rollo, p. 66.
mere trustee of his father's estate. The funds of the estate in CA-G. R. SP No. 33045, Annex "A" to the
10 
his hands are trust funds and he is held to the duties and Petition; Rollo, pp. 36-42.
responsibilities of a trustee of the highest order.31 He cannot Rule 90, Section 1, paragraph 1; Pimentel v.
26 

unilaterally assign to himself and possess all his parents' Palanca, 5 Phil. 436 [1905]; II Regalado, Remedial
properties and the fruits thereof without first submitting an 11 
Id., Annex "B" to the Petition; Rollo, p. 44. Law Compendium 88 [1989].
inventory and appraisal of all real and personal properties of
the deceased, rendering a true account of his administration, 27 
Mananquil v. Villegas, 189 SCRA 335 [1990].
12 
Petition, p. 8; Rollo, p. 17.
the expenses of administration, the amount of the obligations
and estate tax, all of which are subject to a determination by
the court as to their veracity, propriety and justness.32 "Art. 188. From the common mass of property
13 
28 
Emphasis supplied.
support shall be given to the surviving spouse and to
the children during the liquidation of the inventoried 29 
Comment to the Petition, p. 9; Rollo, p. 98.
IN VIEW WHEREOF, the decision and resolution of the Court property and until what belongs to them is delivered;
of Appeals in CA-G.R. SP No. 33045 affirming the order dated but from this shall be deducted that amount received
December 22, 1993 of the Regional Trial Court, Branch 156, 30 
Salvador v. Sta. Maria, 20 SCRA 603 [1967].
for support which exceeds fruits or rents pertaining to
Pasig in SP Proc. No. 10259 are affirmed with the modification them"
that those portions of the order granting an allowance to the
testator's grandchildren and ordering the release of the titles to Noel v. Court Of Appeals, 240 SCRA 78, 89 [1995];
31 

the private respondents upon notice to creditors are annulled Article 188 is now Article 133 of the Family Code. 3 Martin, Rules of Court of the Philippines 545-546
and set aside. [1986] citing 21 Am. Jur. 370-371.

Santero v. Court of First Instance of Cavite, 153

14 

Respondent judge is ordered to proceed with dispatch in the SCRA 728 [1987].
32 
Rule 81, Section 1; Rule 85, Sections 1 to 9.
proceedings below.
G.R. No. L-68385 May 12, 1989 Pursuant to such authority, the petitioner commenced probate Sir:
proceedings in the Court of First Instance of Rizal. 8 The will
was allowed on December 18, 1978, with the petitioner as
ILDEFONSO O. ELEGADO, as Ancillary Administrator of This is with regard to the estate of the late
ancillary administrator. 9 As such, he filed a second estate tax
the Testate Estate of the late WARREN TAYLOR WARREN TAYLOR GRAHAM, who died a
return with the Bureau of Internal Revenue on June 4, 1980.10
GRAHAM, petitioner resident of Oregon, U.S.A. on March 14,
vs. 1976. It appears that two (2) letters of
HON. COURT OF TAX APPEALS and COMMISSIONER OF On the basis of this second return, the Commissioner imposed demand were issued by this Bureau. One
INTERNAL REVENUE respondents. an assessment on the estate in the amount of is for the amount of P96,509.35 based on
P72,948.87.11 This was protested on behalf of the estate by the the first return filed, and the other in the
Agrava, Lucero and Gineta Law Office on August 13, 1980.12 amount of P72,948.87, based on the
Agrava, Lucero & Gineta for petitioners.
second return filed.
While this protest was pending, the Commissioner filed in the
The Office of the Solictor General for public respondents.
probate proceedings a motion for the allowance of the basic It appears that the first assessment of
estate tax of P96,509.35 as assessed on February 9, P96,509.35 was issued on February 9,
1978.13 He said that this liability had not yet been paid although 1978 on the basis of the estate tax return
the assessment had long become final and executory. filed on September 16, 1976. The said
assessment was, however, protested in a
CRUZ, J.: letter dated March 7, 1978 but was denied
The petitioner regarded this motion as an implied denial of the
on July 7, 1978. Since no appeal was
protest filed on August 13, 1980, against the second
What the petitioner presents as a rather complicated problem is made within the regulatory period, the
assessment of P72,948.87.14 On this understanding, he filed on
in reality a very simple question from the viewpoint of the same has become final.
September 15, 1981, a petition for review with the Court of Tax
Solicitor General. We agree with the latter. There is actually Appeals challenging the said assessment. 15
only one issue to be resolved in this action. That issue is In view thereof, it is requested that you
whether or not the respondent Court of Tax Appeals erred in settle the aforesaid assessment for
dismissing the petitioner's appeal on grounds of jurisdiction and The Commissioner did not immediately answer (in fact, as the
P96,509.35 within fifteen (15) days upon
lack of a cause of action. petitioner stressed, no answer was filed during a delay of 195
receipt hereof to the Receivable Accounts
days) and in the end instead cancelled the protested
Division, this Bureau, BIR National Office
assessment in a letter to the decedent's estate dated March 31,
Appeal from what? That indeed is the question. Building, Diliman, Quezon City. The
1982.16 This cancellation was notified to the Court of Tax
assessment for P72,949.57 dated July 3,
Appeals in a motion to dismiss on the ground that the protest
1980, referred to above is hereby
But first the facts. had become moot and academic.17
cancelled.

On March 14, 1976, Warren Taylor Graham, an American The motion was granted and the petition dismissed on April 25,
Very truly yours,
national formerly resident in the Philippines, died in Oregon, 1984.18 The petitioner then came to this Court
U.S.A. 1 As he left certain shares of stock in the Philippines, his on certiorari under Rule 45 of the Rules of Court.
son, Ward Graham, filed an estate tax return on September 16, (SGD.) RUBEN B. ANCHETA Acting
1976, with the Philippine Revenue Representative in San Commissioner 19
The petitioner raises three basic questions, to wit, (1) whether
Francisco, U.S.A. 2 the shares of stocks left by the decedent should be treated as
his exclusive, and not conjugal, property; (2) whether the said It is obvious from the express cancellation of the second
On the basis of this return, the respondent Commissioner of stocks should be assessed as of the time of the owner's death assessment for P72,948.87 that the petitioner had been
Internal Revenue assessed the decedent's estate an estate tax or six months thereafter; and (3) whether the appeal filed with deprived of a cause of action as it was precisely from this
in the amount of P96,509.35 on February 9, 1978.3 This the respondent court should be considered moot and assessment that he was appealing.
assessment was protested on March 7, 1978, by the law firm of academic.
Bump, Young and Walker on behalf of the estate . 4 The protest In its decision, the Court of Tax Appeals said that the petition
was denied by the Commissioner on July 7, 1978.5 No further We deal first with the third issue as it is decisive of this case. questioning the assessment of July 3, 1980, was "premature"
action was taken by the estate in pursuit of that protest. since the protest to the assessment had not yet been
resolved.20 As a matter of fact it had: the said assessment had
In the letter to the decedent's estate dated March 31, 1982, the
Meanwhile, on January 18, 1977, the decedent's will had been been cancelled by virtue of the above-quoted letter. The
Commissioner of Internal Revenue wrote as follows:
admitted to probate in the Circuit Court of Oregon 6 Ward respondent court was on surer ground, however, when it
Graham, the designated executor, then appointed Ildefonso followed with the finding that the said cancellation had
Elegado, the herein petitioner, as his attorney-in-fact for the Estate of WARREN T. GRAHAM c/o Mr. ILDEFENSO O. rendered the petition moot and academic. There was really no
allowance of the will in the Philippines.7 ELEGADO Ancillary Administrator Philex Building cor. Brixton more assessment to review.
& Fairlane Sts. Pasig, Metro Manila
The petitioner argues that the issuance of the second finality of the first assessment. Significantly, it has not been 5 Id.
assessment on July 3, 1980, had the effect of canceling the denied by the petitioner.
first assessment of February 9, 1978, and that the subsequent
6 Id., p. 65.
cancellation of the second assessment did not have the effect
In view of the finality of the first assessment, the petitioner
of automatically reviving the first. Moreover, the first
cannot now raise the question of its validity before this Court
assessment is not binding on him because it was based on a 7 Id., pp. 65-66.
any more than he could have done so before the Court of Tax
return filed by foreign lawyers who had no knowledge of our tax
Appeals. What the estate of the decedent should have done
laws or access to the Court of Tax Appeals.
earlier, following the denial of its protest on July 7, 1978, was to 8 Id., p. 66; Sp. Proc. No. 8869.
appeal to the Court of Tax Appeals within the reglementary
The petitioner is clutching at straws. period of 30 days after it received notice of said denial. It was
9 Id.
in such appeal that the petitioner could then have raised the
first two issues he now raises without basis in the present
It is noted that in the letter of July 3, 1980, imposing the second
petition. 10 Id.
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 The question of whether or not the shares of stock left by the 11 Id., p. 67.
Office for final determination of the correct estate tax due from decedent should be considered conjugal property or belonging
the estate. Any amount that may be found due after said to him alone is immaterial in these proceedings. So too is the
investigation will be assessed and collected later." 21 It is time at which the assessment of these shares of stock should 12 Id., p. 68.
illogical to suggest that a provisional assessment can have been made by the BIR. These questions were not
supersede an earlier assessment which had clearly become resolved by the Court of Tax Appeals because it had no 13 Id., pp. 47-50.
final and executory. 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 14 Id., p. 69.
The second contention is no less flimsy. The petitioner cannot
justification for the respondent court to rule on the petition
be serious when he argues that the first assessment was
except to dismiss it. 15 Id., p. 50.
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 If indeed the Commissioner of Internal Revenue committed an 16 Appendix B, Rollo, p. 35.
from compliance therewith because of their ignorance? 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 17 Reno, p. 50,
If our own lawyers and taxpayers cannot claim a similar
that assessment was not challenged on time and in
preference because they are not allowed to claim a like
accordance with the prescribed procedure, that error — for 18 Decision penned by Judge Alex Z.
ignorance, it stands to reason that foreigners cannot be any
error it was — was committed not by the respondents but by Reyes, with Presiding Judge Amante Filler
less bound by our own laws in our own country. A more
the decedent's estate itself which the petitioner represents. So and Judge Constante C. Roaquin,
obvious and shallow discrimination than that suggested by the
how can he now complain. concurring.
petitioner is indeed difficult to find.

WHEREFORE, the petition is DENIED, with costs against the 19 Appendix B, Rollo, p. 35.
But the most compelling consideration in this case is the fact
petitioner. It is so ordered,
that the first assessment is already final and executory and can
no longer be questioned at this late hour. The assessment was 20 Rollo, pp. 53-54.
made on February 9, 1978. It was protested on March 7, 1978. Narvasa (Chairman), Griño-Aquino and Medialdea, JJ., concur.
The protest was denied on July 7, 1978. As no further action
was taken thereon by the decedent's estate, there is no 21 Ibid., p. 11.
 
question that the assessment has become final and executory.
22 Id., p. 49.
Footnotes
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 1 Rollo, p. 9.
January 29, 1980, the Estate of Warren Taylor Graham thru the
aforesaid foreign law firm informed claimant that they have paid
2 lbid., p. 40.
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 3 Id.
he added that such payment had not yet been received.22 This
letter was an acknowledgment by the estate of the validity and
4 Id.
G.R. No. L-22734             September 15, 1967 Manuel B. Pineda, who received the assessment, contested all lawful outstanding claims against the estate in proportion to
the same. Subsequently, he appealed to the Court of Tax the amount or value of the property they have respectively
Appeals alleging that he was appealing "only that proportionate received from the estate."
COMMISSIONER OF INTERNAL REVENUE, petitioner,
part or portion pertaining to him as one of the heirs."
vs.
MANUEL B. PINEDA, as one of the heirs of deceased We hold that the Government can require Manuel B. Pineda to
ATANASIO PINEDA, respondent. After hearing the parties, the Court of Tax Appeals rendered pay the full amount of the taxes assessed.
judgment reversing the decision of the Commissioner on the
ground that his right to assess and collect the tax has
Office of the Solicitor General for petitioner. Pineda is liable for the assessment as an heir and as a holder-
prescribed. The Commissioner appealed and this Court
Manuel B. Pineda for and in his own behalf as respondent. transferee of property belonging to the estate/taxpayer. As an
affirmed the findings of the Tax Court in respect to the
heir he is individually answerable for the part of the tax
assessment for income tax for the year 1947 but held that the
proportionate to the share he received from the
right to assess and collect the taxes for 1945 and 1946 has not
inheritance.3 His liability, however, cannot exceed the amount
prescribed. For 1945 and 1946 the returns were filed on August
of his share.4
24, 1953; assessments for both taxable years were made
within five years therefrom or on October 19, 1953; and the
BENGZON, J.P., J.: action to collect the tax was filed within five years from the As a holder of property belonging to the estate, Pineda is liable
latter date, on August 7, 1957. For taxable year 1947, however, for he tax up to the amount of the property in his possession.
the return was filed on March 1, 1948; the assessment was The reason is that the Government has a lien on the P2,500.00
On May 23, 1945 Atanasio Pineda died, survived by his wife,
made on October 19, 1953, more than five years from the date received by him from the estate as his share in the inheritance,
Felicisima Bagtas, and 15 children, the eldest of whom is
the return was filed; hence, the right to assess income tax for for unpaid income taxes4a for which said estate is liable,
Manuel B. Pineda, a lawyer. Estate proceedings were had in
1947 had prescribed. Accordingly, We remanded the case to pursuant to the last paragraph of Section 315 of the Tax Code,
the Court of First Instance of Manila (Case No. 71129) wherein
the Tax Court for further appropriate proceedings.1 which we quote hereunder:
the surviving widow was appointed administratrix. The estate
was divided among and awarded to the heirs and the
proceedings terminated on June 8, 1948. Manuel B. Pineda's In the Tax Court, the parties submitted the case for decision If any person, corporation, partnership, joint-account
share amounted to about P2,500.00. without additional evidence. (cuenta en participacion), association, or insurance
company liable to pay the income tax, neglects or
refuses to pay the same after demand, the amount
After the estate proceedings were closed, the Bureau of On November 29, 1963 the Court of Tax Appeals rendered
shall be a lien in favor of the Government of the
Internal Revenue investigated the income tax liability of the judgment holding Manuel B. Pineda liable for the payment
Philippines from the time when the assessment was
estate for the years 1945, 1946, 1947 and 1948 and it found corresponding to his share of the following taxes:
made by the Commissioner of Internal Revenue until
that the corresponding income tax returns were not filed.
paid with interest, penalties, and costs that may
Thereupon, the representative of the Collector of Internal
Deficiency income tax accrue in addition thereto upon all property and
Revenue filed said returns for the estate on the basis of
rights to property belonging to the taxpayer: . . .
information and data obtained from the aforesaid estate
proceedings and issued an assessment for the following:
1945 P135.83 By virtue of such lien, the Government has the right to subject
the property in Pineda's possession, i.e., the P2,500.00, to
1. Deficiency income tax 1946 436.95 satisfy the income tax assessment in the sum of P760.28. After
1945 P135.83 Real estate dealer's fixed tax such payment, Pineda will have a right of contribution from his
1946 436.95 4th quarter of 1946 and whole co-heirs,5 to achieve an adjustment of the proper share of each
1947 1,206.91 P1,779.69 year of 1947 P187.50 heir in the distributable estate.
  Add: 5% surcharge
1% monthly interest from November The Commissioner of Internal Revenue has appealed to Us All told, the Government has two ways of collecting the tax in
30, 1953 to April 15, 1957 720.77
and has proposed to hold Manuel B. Pineda liable for the question. One, by going after all the heirs and collecting from
Compromise for late filing payment of all the taxes found by the Tax Court to be due from each one of them the amount of the tax proportionate to the
Compromise for late payment the estate in the total amount of P760.28 instead of only for the inheritance received. This remedy was adopted in Government
amount of taxes corresponding to his share in the of the Philippine Islands v. Pamintuan, supra. In said case, the
estate.1awphîl.nèt Government filed an action against all the heirs for the
Total amount due P2,707.44 collection of the tax. This action rests on the concept that
=========== hereditary property consists only of that part which remains
Manuel B. Pineda opposes the proposition on the ground that
P14.50 after the settlement of all lawful claims against the estate, for
2. Additional residence tax for 1945 as an heir he is liable for unpaid income tax due the estate only
=========== the settlement of which the entire estate is first liable.6 The
up to the extent of and in proportion to any share he received.
3. Real Estate dealer's tax for the fourth P207.50 reason why in case suit is filed against all the heirs the tax due
He relies on Government of the Philippine Islands v.
quarter of 1946 and the whole year of 1947 =========== from the estate is levied proportionately against them is to
Pamintuan2 where We held that "after the partition of an estate,
achieve thereby two results: first, payment of the tax; and
heirs and distributees are liable individually for the payment of
second, adjustment of the shares of each heir in the distributed Government of the Philippine Islands v. Santos,
5

estate as lessened by the tax. G.R. No. 34152, Dec. 15, 1931, 56 Phil. 827.

Another remedy, pursuant to the lien created by Section 315 of 6

Lopez v. Enriquez, 16 Phil. 336.
the Tax Code upon all property and rights to property belonging
to the taxpayer for unpaid income tax, is by subjecting said 7
Bull v. United States, 295 U.S. 247, 15 AFTR 1069,
property of the estate which is in the hands of an heir or
1073.
transferee to the payment of the tax due, the estate. This
second remedy is the very avenue the Government took in this
case to collect the tax. The Bureau of Internal Revenue should
be given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to collect
the tax as may be envisioned in the particular provision of the
Tax Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an
imperious need.7 And as afore-stated in this case the suit seeks
to achieve only one objective: payment of the tax. The
adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for
contribution by the heir from whom the Government recovered
said tax.

WHEREFORE, the decision appealed from is modified. Manuel

B. Pineda is hereby ordered to pay to the Commissioner of
Internal Revenue the sum of P760.28 as deficiency income tax
for 1945 and 1946, and real estate dealer's fixed tax for the
fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs.
So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,

Sanchez, Castro, Angeles and Fernando, JJ., concur.

Footnotes

1
Collector of Internal Revenue v. Manuel B. Pineda
as one of the heirs of the deceased Atanasio Pineda,
L-14522, May 31, 1961.

2
55 Phil. 13.

Government of the Philippine Islands v. Santos, 56

3

Phil. 827.

4
Art. 1311, Civil Code of the Philippines.

4a
Real estate dealer's fixed tax is subject to the same
lien pursuant to the first paragraph of Sec. 355, Tax
Code.
G.R. No. L-14532             May 26, 1965 rate of 6% per annum, totalled P535,587.70. Divided among The Suits. — So on November 15, 1956, Jose Leon Gonzales
the six heirs, this total gave a share of P89,305.61 as interest and Juana F. Gonzales submitted to the Court of Tax Appeals
to each of them.1äwphï1.ñët a joint petition seeking a refund, this time of the amount of
JOSE LEON GONZALES, petitioner-appellant,
P86,166.00 for each of the two petitioners; but the next day,
vs.
both petitioners amended their petition by filing separate
THE HON. COURT OF TAX APPEALS and THE Upon the amounts received from the Government, Jose Leon
petitions which were docketed separately as CTA Case No.
COLLECTOR OF INTERNAL REVENUE, respondents- Gonzales and Juana F. Gonzales, were each ascertained to
328 and CTA Case No. 329.
appellees. have made a capital gain of P213,328.82
[P1,279,973.00 2 divided by 6 heirs], and each of them to have
received the amount of P89,309.61 as share in the interests of It appears that on November 24, 1956, Atty. Fortunato de Leon
-----------------------------
P535,857.70 (this, sum is divided by 6). A tentative return for wrote the respondent Collector the following letter:
1954 was thus prepared and filed for each of the two
G.R. No. L-14533             May 26, 1965 petitioners describing the amounts of P213,328.82 as capital
Sir:
gain, and in addition, the amount of P89,309.61 as ordinary
income. On the basis of such income, each of the petitioners
JUANA G. GONZALES and FORTUNATO DE was assessed P86,166.00. This is to acknowledge receipt
LEON, petitioners-appellants,
today of your letter of November
vs.
12, 1956, denying the claim of
THE HON. COURT OF TAX APPEALS and THE The Government paid to petitioners the proceeds of the
Mrs. Juana F. Gonzales de Leon
COLLECTOR OF INTERAL REVENUE, respondents- expropriation award and interest through the People's
for refund, to which we take
appellees. Homesite and Housing Corporation sometime in October 1954
exception.
the last check having been delivered on November 4, 1954.
However, the sum of P532,234.70 was retained by the Housing
Guillermo B. Ilagan and Delfin J. Hilario for petitioners- Corporation; and on November 18, 1954, at the request of We are not only claiming the
appellants. respondent Collector, it turned over to the Bureau of Internal refund of P24,426.00 but the
Office of the Solicitor General for respondents-appellees. Revenue the amount of P516,007.00 representing income entire amount of P86,166.00 for
taxes reportedly due and owing from the six co-heirs of the various reasons more
BENGZON, C.J.: estate. Therefore, petitioners Jose Leon Gonzales and his specifically contained in our
sister Juana F. Gonzales were each credited the amount of petition before the Court of Tax
P86,166.00 as payment of their income tax. (Official Receipts Appeals on November 16, 1956,
Statement. — This is an appeal from the decision of the Court Nos. 520491 and 520496 dated November 19, 1954) Case No. 328. We had to file the
of Tax Appeals denying the refund of income taxes imposed petition because we believe our
on, and paid by, Jose Leon Gonzales and Juana F. Gonzales. claim is meritorious and that the
On February 29, 1956, petitioner Juana F. Gonzales wrote the
prescriptive period may run out.
respondent Collector a letter, seeking the refund of P24,426.00
The Facts. — Jose Leon Gonzales and Juana F. Gonzales are allegedly representing excess payment of income taxes for
brother and sister [the latter being married to Atty. Fortunato de 1954. The letter pertinently stated: For all legal purposes we shall
Leon 1]. Both petitioners are co-heirs and co-owners, (one-sixth consider your letter herein
each) of a tract of land of 871, [982.] square meters which they, referred to as a denial of the
along with four other co-heirs, inherited from their mother. We respectively contend that the assessment was
claim for refund of the total
erroneous in that the amount of P89,309.61
amount of P86,166.00. And the
representing interest, was considered as ordinary
This realty, located at Caloocan, Rizal, was the object of difference in amount may be
income and not merely capital gain. If the interest
expropriation proceedings, which this Court finally decided in considered for all purposes as
was computed as capital gain, there shall be due and
May 1954, in G.R. No.L-4918. Therein, we fixed the just variance only.
owing from your office the amount of P24,426.00
compensation for the property at P1.50 per square meter. We assuming for argument's sake that your assessment
also ordered the payment of interest at the legal rate of 6% was correct. (Exhs. H & 2, also par. 22, "Stifacts") Respondent Collector, however, disclaims receipt of this
from January 25, 1947 (when the Government took possession second written claim for refund.
of the property) to the date of payment, which payment was
actually made on October 31, 1954. Excluded from the On November 5, 1956, petitioner Jose Leon Gonzales also
payment of interest was the sum of P28,850.00, the amount wrote a letter to said respondent requesting refund of a similar On December 5, 1956, respondent Collector contested the
deposited by the Government upon taking possession of the amount of P24,426.00 for the same reasons as his co- amended petitions. Trial ensued, and in the course thereof the
estate. petitioner. No action appears to have been taken on this refund parties signed a "Partial Stipulation of Facts."
claim.
The total compensation paid the six heirs for the expropriated Decision. — On July 16, 1958, a decision was rendered by the
property amounted to P1,307,973.00. Subtracting therefrom On November 12, 1956, respondent Collector denied the Court of Tax Appeals denying petitioners' claim for refund, with
the amount of P28,850.00 just mentioned, there remained a request of Juana F. Gonzales for refund of P24,426.00. costs against them. Their motion for reconsideration and new
difference of P1,279,123.00, the interest on which, at the legal trial having been denied, petitioners perfected this appeal and
now pray for reversal.
Issue. — A careful perusal of the debated issues will show that opportunity to consider his mistake, if mistake has been is mandatory; so much so that non-compliance therewith bars
the resolution of this appeal hinges decisively on two committed." (Kiener Co. vs. David, 92 Phil. 945) And it refers the action. 6
propositions: specifically and exclusively to appellant Juana F. Gonzales'
claim (Exh. "J"). Appellant Jose Leon Gonzales seems not to
Appellants insist that payment of the tax was not made by them
have filed any refund claim for a similar amount.
(1) Whether or not petitioners' claim for refund of the but by the respondent Collector himself, and that, therefore, the
total of P86,166.00 may be properly entertained; and prescriptive period should begin not from the date of such
Be that as it may, this later claim for refund for P86,166.00 payment but from the date appellants learned of such payment.
made on November 24, 1956, by appellant Juana F. Gonzales
(2) Whether or not the sum of P89,309.61 which
has been definitely filed beyond the statutory period of two
each of the petitioners received as interest on the This contention offers no help to appellants' cause. Assuming
year, from the date of payment, which was November 19,
value of the land expropriated is taxable as ordinary that appellants indeed learned of their payments only on
1954.
income, and not as capital gain. November 24, 1953, they should have claimed the refund of
P86,166.00 from said date and before they filled their petitions
A stringent requirement of the Tax Code is that before a suit or with the respondent Court on November 15 or 16, 1956.
Discussion. — The record shows that on November 18, 1954,
proceeding for the refund of any internal revenue tax can be Neither could they blame the respondent Collector for failing to
at the request of respondent Collector, the People's Homesite
maintained in any court, a written claim for its refund shall be act on their refund claims sooner for it was incumbent upon
and Housing Corporation turned over to the Bureau of Internal
filed with the Collector of Internal Revenue before filing the appellants to urge him to act expeditiously on their claims,
Revenue the sum of P516,007.00 representing income taxes
action in court and before the expiration of two years from the knowing as they did that the time for bringing an action for a
due from the six co-owners of the expropriated property. Of this
date of payment of the taxes to be refunded.3This requirement refund of income tax, fixed by statute, is not extended by the
amount, the two appellants Gonzales were each credited with
is mandatory and failure to comply therewith is fatal to the delay of the Collector of Internal Revenue in giving notice of the
the amount of P86,166.00 as income taxes for 1954. (The
action. 4 What is more, the claim for refund should set forth in rejection of their claim.
receipts evidencing such payments are O.R. No. 520491,
detail the facts and the grounds upon which it is based, so as
dated November 19, 1954 for P86,166.00 for Jose Leon
to apprise the Collector accordingly. 5
Gonzales and O.R. No. 520496 dated November 19, 1954 for Moreover, the provisions of section 306 of the Tax Code are
Juana F. Gonzales.) mandatory and not subject to any qualification and, hence, they
Appellants maintain that it was not they who had paid the tax of apply regardless of the conditions under which the payment
P86,166.00 imposed upon each of them, but that it was has been made.8
It likewise appears that appellant Juana F. Gonzales in her
respondent Collector himself who paid those taxes and issued
letter of February 29, 1956, requested for the refund
receipts therefor without their knowledge and consent. And that
of P24,426.00 (only), citing as sole ground therefor that the With respect, therefore, to the issue of whether or not
even if the receipts of payment were in fact sent by the
amount of P89,309.61 which was her share in the interests appellants' claim for refund of P86,166.00 (each) could now be
respondent Collector to the People's Homesite and Housing
paid on the expropriated property was taxed by respondent entertained, we believe that the same has been barred by
Corporation and were received by the latter on November 23,
Collector as ordinary income. She contended that it should prescription.
1953, said receipts could not have been received by appellants
have been taxed as capital gain. Appellant Jose Leon
earlier than November 28, 1954, considering that the Rules of
Gonzales on his part, in his letter of November 5, 1958,
Court treats a service as complete only upon the expiration of Anyway, it is mainly based on the proposition that our ruling in
requested the refund of a similar amount of P24,426.00 only.
five days from mailing. Gutierrez vs. Court of Tax Appeals, L-9738 and L-9771, May
31, 1957, should be abandoned, a proposition we are not
Then a joint petition was filed by both parties before the Court disposed to encourage.
We find no merit in these contentions. To begin with, there is
of Tax Appeals first on November 15, 1956, but the next day,
no proof positive on record that appellant Juana F. Gonzales'
November 16, 1956, they filed separate petitions containing
so-called refund claim for the amount of P86,166.00 had been Thus, our decision will, therefore, address itself only to
similar allegations.
sent to, let alone received by, respondent Neither have they appellants' earlier claim for refund in the sum of P24,426.00.
protested against this payment by the Collector to the Which brings us to the question of whether or not the sum of
It would appear, therefore, that from November 19, 1954, when Collector. In the second place, the refund letter of November P89,309.61 which each of the appellants had received as
the payments for income taxes were received from the 24, 1956, assuming that it was duly filed, referred to Juana F. share in the interest on the proceeds of the expropriation
appellants to February 29, 1956, when appellant Juana Gonzales' claim alone, and made no mention of Jose Leon should be taxed as capital gain or as ordinary income.
Gonzales filed her claim for refund and to November 5, 1956, Gonzales'. ln the third place, the aforesaid refund claim does
and appellant Jose Leon Gonzales filed his own refund claim, not set forth in detail the facts and grounds upon which it was
Appellants argue that the accessory follows the principal, that
less than two years had elapsed. based and failed to apprise the respondent of her grounds for
the amount paid in expropriation proceedings (the principal,
raising her claim from P24,426.00 to P86,166.00 (see letter).
i.e., the profit thereon is admittedly capital gain, not ordinary
Lastly, appellant Juana F. Gonzales' eleventh-hour modification
But, since their respective claims for refund were restricted to income, and that, therefore, the interest paid thereon (the
upping her refund claim from P24,426.00 to P86,166.00 was
the amount of P24,426.00 only, it should be clear that any accessory) is capital gain, not ordinary income.
made on November 24, 1956 or eight days after the filing of her
demand for the return of an amount in excess thereof amended petition before the respondent court on November
(P86,166.00) is not included. 16, 1956, and a few days after the two-year period. This contention may not be sustained. In a previous case, 9 we
held that "the acquisition by the Government of private
Remarkedly, the so-called claim for refund of the amount of properties through the exercise of the power of eminent
Obviously then, the requirement of prior timely claim for refund
P86,166.00 was made only on November 24, 1956, (after the domain, said properties being justly compensated, is embraced
of the sum of P86,166.00 had not been met in this case. The
complaints had been filed) without giving the Collector "an within the meaning of the term 'sale' or 'disposition of property'"
demand for refund must precede the suit, and this requirement
and the definition of gross income laid down by Section 29 of SEC. 29. Gross Income. — General Definition. — Guagua Electric Light Plant Co. v. Coll. of Internal
8

the Tax Code of the Philippines. We also adhered to the view "Gross income" includes gains, profits, and income Revenue & the Court of Tax Appeals, 59 Off. Gaz.
that the transfer of property through condemnation proceedings derived from ... interests, rents, dividends, securities, Suppl. 27, p. 4207.
is a sale or exchange and that profit from the transaction or the transactions of any business carried on for
constitutes capital gain. gain or profit, or gains, profits and income derived 9
Gutierrez vs. CTA Coll. of Internal Revenue, & Coll.
from any source whatever.11
of Internal Revenue vs. Gutierrez, et al., G.R. Nos. L-
But to say that the proceeds of expropriation which is the return 9718, L-9771, May 31, 1957.
of capital and, therefore, a capital gain, partakes of the same Having arrived at these conclusions, we deem it unnecessary
nature as interests paid thereon is far from correct; because to discuss the other points extensively argued in the appellants' 10
The involuntary character of the transaction is not
interest is compensation for the delay in the return of such brief.
significant. Helvering vs. Hammel, 331 U.S. 504,
capital. In fact, the authorities support the conclusion that for
510, 85 L. Ed. 303, 306, 61 S. Ct. 368, 131 ALR
income tax purposes, interest does not form part of the price
Judgment — Consequently, finding no error in the appealed 1481.
paid by the Government in condemnation proceedings; and
decision, we hereby affirm it, with costs. So ordered.
may not be treated as part of the capital gain. It was so held by
the United States Supreme Court in Kieselback v. Sec. 29(b) (4) does not apply, and is not invoked by
11

Commissioner of Internal Revenue, 317 U.S. 399. Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Parades, petitioners.
Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ.,
concur.
Borrowing the words and phrases of said Court, we could say
now:
Footnotes
The sum paid these taxpayers above the award of
P1,307,973.00 was paid because of the failure to put 1
For convenience, he will not be referred to as
the award in the taxpayer's hands on the day, petitioner, being practically a nominal party.
January 25, 1947, when the property was taken. This
additional payment was necessary to give the
owners the full equivalent of the value of the property
2
Acquisition cost of the
P28,000.00;
at the time it was taken. Whether one calls it interest land....................................
on the value or payments to meet the constitutional Payment by
requirement of just compensation is immaterial. It is Government...................................... 1,307,973.00;
income paid to the taxpayers in lieu of what they .
might have earned on the sum found to be the value Therefore, capital
1,279,973.00.
of the property on the day the property was taken. It gain...........................................
is not a capital gain upon an asset sold. The sale
price was the P1,307,973.00.10 3
Sec. 306, National Internal Revenue Code. Giving
him copy of the complaint is not enough. See
The property was turned over in January, 1947. This was the Aranas, Annotations (1963) Vol. III, p. 206.
sale. Title then passed. The subsequent earnings of the
property went to the Government. The transaction was as
though a purchase money lien at legal interest was retained
4
Wee Poco & Co. v. Posadas, 64 Phil. 640; Bermejo
upon the property. Such interest when paid would, of course, v. Coll. of Internal Revenue, 47 Off. Gaz. Suppl. 12,
be ordinary income. p. 292; Keiner Ltd. v. Saturnino David, L-5163, April
22, 1953; Johnston Lumber Co., Inc. v. Court of Tax
Appeals & Coll. of Internal Revenue, 52 Off. Gaz.
Incidentally, the above Supreme Court's decision disapproved 5226.
the Seaside Improvement case on which petitioners rely.
Asiatic Petroleum Co. v. Posadas, 52 Phil. 728; Wee
5

We see, therefore, no reason to impute error to the opinion of Poco v. Posadas, supra.

the Collector of Internal Revenue and the Court of Tax Appeals
that interest paid was ordinary income, bearing in mind that the
Tax Code provides: Johnston Lumber Co., Inc. v. Court of Tax Appeals
6

& Coll. of Internal Revenue, supra.

7
U.S. v. Michael, 282 U.S. 656 and cited in Koppel
(Phil), Inc. v. Coll. of Internal Revenue, L-10550,
Sept. 19, 1961. See also: Keiner Co., Ltd. v. S.
David, supra.
G.R. No. L-19201             June 16, 1965 xxx     xxx     xxx hereby affirmed except with regard to the imposition
of the compromise penalty in the amount of P20.00
(Collector of Internal Revenue v. U.S.T., G.R. No. L-
REV. FR. CASIMIRO LLADOC, petitioner, The petitioner impugns the, fairness of the
11274, Nov. 28, 1958); ..., and the petitioner, the
vs. assessment with the argument that he should not be
Rev. Fr. Casimiro Lladoc is hereby ordered to pay to
The COMMISSIONER OF INTERNAL REVENUE and The held liable for gift taxes on donation which he did not
the respondent the amount of P900.00 as donee's
COURT of TAX APPEALS, respondents. receive personally since he was not yet the parish
gift tax, plus the surcharge of five per centum (5%)
priest of Victorias in the year 1957 when said
as ad valorem penalty under Section 119 (c) of the
donation was given. It is intimated that if someone
Hilado and Hilado for petitioner. Tax Code, and one per centum (1%) monthly interest
has to pay at all, it should be petitioner's
Office of the Solicitor General for respondents. from May 15, 1958 to the date of actual payment.
predecessor, the Rev. Fr. Crispin Ruiz, who received
The surcharge of 25% provided in Section 120 for
the donation in behalf of the Catholic parish of
failure to file a return may not be imposed as the
PAREDES, J.: Victorias or the Roman Catholic Church. Following
failure to file a return was not due to willful neglect.
petitioner's line of thinking, we should be equally
( ... ) No costs.
unfair to hold that the assessment now in question
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, should have been addressed to, and collected from,
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then the Rev. Fr. Crispin Ruiz to be paid from income The above judgment is now before us on appeal, petitioner
parish priest of Victorias, Negros Occidental, and predecessor derived from his present parish where ever it may be. assigning two (2) errors allegedly committed by the Tax Court,
of herein petitioner, for the construction of a new Catholic It does not seem right to indirectly burden the all of which converge on the singular issue of whether or not
Church in the locality. The total amount was actually spent for present parishioners of Rev. Fr. Ruiz for donee's gift petitioner should be liable for the assessed donee's gift tax on
the purpose intended. tax on a donation to which they were not benefited. the P10,000.00 donated for the construction of the Victorias
Parish Church.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's xxx     xxx     xxx
gift tax return. Under date of April 29, 1960, the respondent Section 22 (3), Art. VI of the Constitution of the Philippines,
Commissioner of Internal Revenue issued an assessment for exempts from taxation cemeteries, churches and parsonages
donee's gift tax against the Catholic Parish of Victorias, Negros We saw no legal basis then as we see none now, to
or convents, appurtenant thereto, and all lands, buildings, and
Occidental, of which petitioner was the priest. The tax include within the Constitutional exemption, taxes
improvements used exclusively for religious purposes. The
amounted to P1,370.00 including surcharges, interests of 1% which partake of the nature of an excise upon the
exemption is only from the payment of taxes assessed on such
monthly from May 15, 1958 to June 15, 1960, and the use made of the properties or upon the exercise of
properties enumerated, as property taxes, as contra
compromise for the late filing of the return. the privilege of receiving the properties. (Phipps vs.
distinguished from excise taxes. In the present case, what the
Commissioner of Internal Revenue, 91 F [2d] 627;
Collector assessed was a donee's gift tax; the assessment was
1938, 302 U.S. 742.)
Petitioner lodged a protest to the assessment and requested not on the properties themselves. It did not rest upon general
the withdrawal thereof. The protest and the motion for ownership; it was an excise upon the use made of the
reconsideration presented to the Commissioner of Internal It is a cardinal rule in taxation that exemptions from properties, upon the exercise of the privilege of receiving the
Revenue were denied. The petitioner appealed to the Court of payment thereof are highly disfavored by law, and properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627).
Tax Appeals on November 2, 1960. In the petition for review, the party claiming exemption must justify his claim by Manifestly, gift tax is not within the exempting provisions of the
the Rev. Fr. Casimiro Lladoc claimed, among others, that at the a clear, positive, or express grant of such privilege by section just mentioned. A gift tax is not a property tax, but an
time of the donation, he was not the parish priest in Victorias; law. (Collector vs. Manila Jockey Club, G.R. No. L- excise tax imposed on the transfer of property by way of
that there is no legal entity or juridical person known as the 8755, March 23, 1956; 53 O.G. 3762.) gift inter vivos, the imposition of which on property used
"Catholic Parish Priest of Victorias," and, therefore, he should exclusively for religious purposes, does not constitute an
not be liable for the donee's gift tax. It was also asserted that impairment of the Constitution. As well observed by the learned
The phrase "exempt from taxation" as employed in
the assessment of the gift tax, even against the Roman respondent Court, the phrase "exempt from taxation," as
Section 22(3), Article VI of the Constitution of the
Catholic Church, would not be valid, for such would be a clear employed in the Constitution (supra) should not be interpreted
Philippines, should not be interpreted to mean
violation of the provisions of the Constitution. to mean exemption from all kinds of taxes. And there being no
exemption from all kinds of taxes. Statutes clear, positive or express grant of such privilege by law, in favor
exempting charitable and religious property from of petitioner, the exemption herein must be denied.
After hearing, the CTA rendered judgment, the pertinent taxation should be construed fairly though strictly and
portions of which are quoted below: in such manner as to give effect to the main intent of
the lawmakers. (Roman Catholic Church vs. The next issue which readily presents itself, in view of
Hastrings 5 Phil. 701.) petitioner's thesis, and Our finding that a tax liability exists, is,
... . Parish priests of the Roman Catholic Church who should be called upon to pay the gift tax? Petitioner
under canon laws are similarly situated as its postulates that he should not be liable, because at the time of
Archbishops and Bishops with respect to the xxx     xxx     xxx the donation he was not the priest of Victorias. We note the
properties of the church within their parish. They are merit of the above claim, and in order to put things in their
the guardians, superintendents or administrators of proper light, this Court, in its Resolution of March 15, 1965,
WHEREFORE, in view of the foregoing
these properties, with the right of succession and ordered the parties to show cause why the Head of the
considerations, the decision of the respondent
may sue and be sued. Diocese to which the parish of Victorias pertains, should not be
Commissioner of Internal Revenue appealed from, is
substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it
appearing that the Head of such Diocese is the real party in
interest. The Solicitor General, in representation of the
Commissioner of Internal Revenue, interposed no objection to
such a substitution. Counsel for the petitioner did not also offer
objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the

Diocese to present whatever legal issues and/or defenses he
might wish to raise, to which resolution counsel for petitioner,
who also appeared as counsel for the Head of the Diocese, the
Roman Catholic Bishop of Bacolod, manifested that it was
submitting itself to the jurisdiction and orders of this Court and
that it was presenting, by reference, the brief of petitioner Rev.
Fr. Casimiro Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the

assessment at bar had been properly made and the imposition
of the tax is not a violation of the constitutional provision
exempting churches, parsonages or convents, etc. (Art VI, sec.
22 [3], Constitution), the Head of the Diocese, to which the
parish Victorias Pertains, is liable for the payment thereof.

The decision appealed from should be, as it is hereby affirmed

insofar as tax liability is concerned; it is modified, in the sense
that petitioner herein is not personally liable for the said gift tax,
and that the Head of the Diocese, herein substitute petitioner,
should pay, as he is presently ordered to pay, the said gift tax,
without special, pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L.,

Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ.,
concur.
Barrera, J., took no part.
G.R. No. L-19865             July 31, 1965 and interest to the said amount of P643,000.00 in favor of the Steamship Co., in the Court of First Instance of Rizal, which
minor children of the deceased, subject to the express case ultimately culminated to an appeal to this Court. On
condition that said amount should be retained by the Company December 29, 1954, this court rendered its decision in the
MARIA CARLA PIROVANO, etc., et al., petitioners-
in the nature of a loan to it, drawing interest at the rate of five appealed case (96 Phil. 335) holding that the donation was
appellants,
per centum (5%) per annum, and payable to the Pirovano valid and remunerative in nature, the dispositive part of which
vs.
children after the Company shall have first settled in full the reads:
THE COMMISSIONER OF INTERNAL
balance of its present remaining bonded indebtedness in the
REVENUE, respondent-appellee.
sum of approximately P5,000,000.00. This latter resolution was
Wherefore, the decision appealed from should be
carried out in a Memorandum Agreement on January 10, 1947
modified as follows: (a) that the donation in favor of
Angel S. Gamboa for petitioners-appellants. and June 17, 1947., respectively, executed by the Company
the children of the late Enrico Pirovano of the
Office of the Solicitor General for respondent-appellee. and Mrs. Estefania R. Pirovano, the latter acting in her capacity
proceeds of the insurance policies taken on his life is
as guardian of her children (petitioners-appellants herein) find
valid and binding on the defendant corporation; (b)
pursuant to an express authority granted her by the court.
REYES, J.B.L., J.: that said donation, which amounts to a total of
P583,813.59, including interest, as it appears in the
On June 24, 1947, the Board of Directors of the Company books of the corporation as of August 31, 1951, plus
This case is a sequel to the case of Pirovano vs. De la Rama further modified the last mentioned resolution providing therein interest thereon at the rate of 5 per cent per annum
Steamship Co., 96 Phil. 335. that the Company shall pay the proceeds of said life insurance from the filing of the complaint, should be paid to the
policies to the heirs of the said Enrico Pirovano after the plaintiffs after the defendant corporation shall have
Briefly, the facts of the aforestated case may be stated as Company shall have settled in full the balance of its present fully redeemed the preferred shares issued to the
follows: remaining bonded indebtedness, but the annual interests National Development Company under the terms
accruing on the principal shall be paid to the heirs of the said and conditions stared in the resolutions of the Board
Enrico Pirovano, or their duly appointed representative, of Directors of January 6, 1947 and June 24, 1947,
Enrico Pirovano was the father of the herein petitioners- whenever the Company is in a position to meet said obligation. as amended by the resolution of the stockholders
appellants. Sometime in the early part of 1941, De la Rama adopted on September 13, 1949; and (c) defendant
Steamship Co. insured the life of said Enrico Pirovano, who shall pay to plaintiffs an additional amount equivalent
was then its President and General Manager until the time of On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of
to 10 per cent of said amount of P583,813.59 as
his death, with various Philippine and American insurance her children, executed a public document formally accepting
damages by way of attorney's fees, and to pay the
companies for a total sum of one million pesos, designating the donation; and, on the same date, the Company through its
costs of action. (Pirovano et al. vs. De la Rama
itself as the beneficiary of the policies, obtained by it. Due to Board of Directors, took official notice of this formal
Steamship Co., 96 Phil. 367-368)
the Japanese occupation of the Philippines during the second acceptance.
World War, the Company was unable to pay the premiums on
the policies issued by its Philippine insurers and these policies The above decision became final and executory. In compliance
On September 13, 1949, the stockholders of the Company
lapsed, while the policies issued by its American insurers were therewith, De la Rama Steamship Co. made, on April 6, 1955,
formally ratified the various resolutions hereinabove mentioned
kept effective and subsisting, the New York office of the a partial payment on the amount of the judgment and paid the
with certain clarifying modifications that the payment of the
Company having continued paying its premiums from year to balance thereof on May 12, 1955.
donation shall not be effected until such time as the Company
year. shall have first duly liquidated its present bonded indebtedness
in the amount of P3,260,855.77 with the National Development On March 6, 1955, respondent Commissioner of Internal
During the Japanese occupation , or more particularly in the Company, or fully redeemed the preferred shares of stock in Revenue assessed the amount of P60,869.67 as donees' gift
latter part of 1944, said Enrico Pirovano died. the amount which shall be issued to the National Development tax, inclusive of surcharges, interests and other penalties,
Company in lieu thereof; and that any and all taxes, legal fees, against each of the petitioners-appellants, or for the total sum
and expenses in any way connected with the above transaction of P243,478.68; and, on April 23, 1955, a donor's gift tax in the
After the liberation of the Philippines from the Japanese forces, shall be chargeable and deducted from the proceeds of the life total amount of P34,371.76 was also assessed against De la
the Board of Directors of De la Rama Steamship Co. adopted a insurance policies mentioned in the resolutions of the Board of Rama Steamship Co., which the latter paid.
resolution dated July 10, 1946 granting and setting aside, out Directors.
of the proceeds expected to be collected on the insurance
policies taken on the life of said Enrico Pirovano, the sum of Petitioners-appellants herein contested respondent
P400,000.00 for equal division among the four (4) minor On March 8, 1951, however, the majority stockholders of the Commissioner's assessment and imposition of the donees' gift
children of the deceased, said sum of money to be convertible Company voted to revoke the resolution approving the taxes and donor's gift tax and also made a claim for refund of
into 4,000 shares of stock of the Company, at par, or 1,000 donation in favor of the Pirovano children. the donor's gift tax so collected. Respondent Commissioner
shares for each child. Shortly thereafter, the Company received overruled petitioners' claims; hence, the latter presented two
the total sum of P643,000.00 as proceeds of the said life (2) petitions for review against respondent's rulings before the
As a consequence of this revocation and refusal of the
insurance policies obtained from American insurers. Court of Tax Appeals, said petitions having been docketed as
Company to pay the balance of the donation amounting to
CTA Cases Nos. 347 and 375. CTA Case No. 347 relates to
P564,980.90 despite demands therefor, the herein petitioners-
the petition disputing the legality of the assessment of donees'
Upon receipt of the last stated sum of money, the Board of appellants represented by their natural guardian, Mrs.
gift taxes and donor's gift tax while CTA Case No. 375 refers to
Directors of the Company modified, on January 6, 1947, the Estefania R. Pirovano, brought an action for the recovery of
the claim for refund of the donor's gift tax already paid.
above-mentioned resolution by renouncing all its rights title, said amount, plus interest and damages against De la Rama
After the filing of respondent's usual answers to the petitions, a taxable gift under the provisions of Section 108 of the property exceeded the value of the consideration
the two cases, being interrelated to each other, were tried National Internal Revenue Code. shall, for the purpose of the tax imposed by this
jointly and terminated. Chapter, be deemed a gift, ... .
The argument for petitioners-appellants fails to take into
On January 31, 1962, the Court of Tax Appeals rendered its account the fact that neither in Spanish nor in Anglo-American The flaw in this argument lies in the fact that, as copied from
decision in the two cases, the dispositive part of which reads: law was it considered that past services, rendered without American law, the term consideration used in this section refers
relying on a coetaneous promise, express or implied, that such to the technical "consideration" defined by the American Law
services would be paid for in the future, constituted cause or Institute (Restatement of Contracts) as "anything that is
In resume, we are of the opinion, that (1) the donor's
consideration that would make a conveyance of property bargained for by the promisor and given by the promisee in
gift tax in the sum of P34,371.76 was erroneously
anything else but a gift or donation. This conclusion flows from exchange for the promise" (Also, Corbin on Contracts, Vol. I, p.
assessed and collected, hence, petitioners are
the text of Article 619 of the Code of 1889 (identical with Article 359). But, as we have seen, Pirovano's successful activities as
entitled to the refund thereof; (2) the donees' gift
726 of the present Civil Code of the Philippines): officer of the De la Rama Steamship Co. cannot be deemed
taxes were correctly assessed; (3) the imposition of
such consideration for the gift to his heirs, since the services
the surcharge of 25% is not proper; (4) the surcharge
were rendered long before the Company ceded the value of the
of 5% is legally due; and (5) the interest of 1% per When a person gives to another a thing ... on
life policies to said heirs; cession and services were not the
month on the deficiency donees' gift taxes is due account of the latter's merits or of the services
result of one bargain or of a mutual exchange of promises.
from petitioners from March 8, 1955 until the taxes rendered by him to the donor, provided they do not
are paid. constitute a demandable debt, ..., there is also a
donation. ... . And the Anglo-American law treats a subsequent promise to
pay for past services (like one to pay for improvements already
IN LINE WITH THE FOREGOING OPINION,
made without prior request from the promisor) to be a nudum
petitioners are hereby ordered to pay the donees' gift There is nothing on record to show that when the late Enrico
pactum (Roscorla vs. Thomas, 3 Q.B. 234; Peters vs. Poro, 25
taxes as assessed by respondent, plus 5% Pirovano rendered services as President and General Manager
ALR 615; Carson vs. Clark, 25 Am. Dec. 79; Boston vs. Dodge,
surcharge and interest at the rate of 1% per month of the De la Rama Steamship Co. he was not fully
12 Am. Dec. 206), i.e., one that is unenforceable in view of the
from March 8, 1955 to the date of payment of said compensated for such services, or that, because they were
common law rule that consideration must consist in a legal
donees' gift taxes. Respondent is ordered to apply "largely responsible for the rapid and very successful
benefit to the promisee or some legal detriment to the
the sum of P34,371.76 which is refundable to development of the activities of the company" (Res. of July 10,
promisor.
petitioners, against the amount due from petitioners. 1946). Pirovano expected or was promised further
With costs against petitioners in Case No. 347. compensation over and in addition to his regular emoluments
as President and General Manager. The fact that his services What is more, the actual consideration for the cession of the
contributed in a large measure to the success of the company policies, as previously shown, was the Company's gratitude to
Petitioners-appellants herein filed a motion to reconsider the
did not give rise to a recoverable debt, and the conveyances Pirovano; so that under section 111 of the Code there is no
above decision, which the lower court denied. Hence, this
made by the company to his heirs remain a gift or donation. consideration the value of which can be deducted from that of
appeal before us.
This is emphasized by the directors' Resolution of January 6, the property transferred as a gift. Like "love and affection,"
1947, that "out of gratitude" the company decided to renounce gratitude has no economic value and is not "consideration" in
In the instant appeal, petitioners-appellants herein question in favor of Pirovano's heirs the proceeds of the life insurance the sense that the word is used in this section of the Tax Code.
only that portion of the decision of the lower court ordering the policies in question. The true consideration for the donation
payment of donees' gift taxes as assessed by respondent as was, therefore, the company's gratitude for his services, and
As stated by Chief Justice Griffith of the Supreme Court of
well as the imposition of surcharge and interest on the amount not the services themselves.
Mississippi in his well-known book, "Outlines of the Law" (p.
of donees' gift taxes.
204) —
That the tax court regarded the conveyance as a simple
In their brief and memorandum, they dispute the factual finding donation, instead of a remuneratory one as it was declared to
Love and affection are not considerations of value — they are
of the lower court that De la Rama Steamship Company's be in our previous decision, is but an innocuous error; whether
not estimable in terms of value. Nor are sentiments of gratitude
renunciation of its rights, title, and interest over the proceeds of remuneratory or simple, the conveyance remained a gift,
for gratuitous part favors or kindnesses; nor are obligations
said life insurance policies in favor of the Pirovano children taxable under Chapter 2, Title III of the Internal Revenue Code.
which are merely moral. It has been well said that if a moral
"was motivated solely and exclusively by its sense of gratitude,
obligation were alone sufficient it would remove the necessity
an act of pure liberality, and not to pay additional compensation
But then appellants contend, the entire property or right for any consideration at all, since the fact of making a promise
for services inadequately paid for." Petitioners now contend
donated should not be considered as a gift for taxation impose, the moral obligation to perform it."
that the lower court's finding was erroneous in seemingly
purposes; only that portion of the value of the property or right
considering the disputed grant as a simple donation, since our
transferred, if any, which is in excess of the value of the
previous decision (96 Phil. 335) had already declared that the It is of course perfectly possible that a donation or gift should at
services rendered should be considered as a taxable gift. They
transfer to the Pirovano children was a remuneratory donation. the same time impose a burden or condition on the donee
cite in support Section 111 of the Tax Code which provides that
Petitioners further contend that the same was made not for an involving some economic liability for him. A, for example, may
—
insufficient or inadequate consideration but rather it a was donate a parcel of land to B on condition that the latter assume
made for a full and adequate compensation for the valuable a mortgage existing on the donated land. In this case the
services rendered by the late Enrico Pirovano to the De la Where property is transferred for less, than an donee may rightfully insist that the gift tax be computed only on
Rama Steamship Co.; hence, the donation does not constitute adequate and full consideration in money or money's the value of the land less the value of the mortgage. This, in
worth, then the amount by which the value of the fact, is contemplated by Article 619 of the Civil Code of 1889
(Art. 726 of the Tax Code) when it provides that there is also a not to impose such penalty depending upon whether or not WHEREFORE, the decision of the Court of Tax Appeals is
donation "when the gift imposes upon the donee a burden reasonable cause has been shown in the non-filing of such affirmed. Costs against petitioners Pirovano.
which is less than the value of the thing given." Section 111 of return.
the Tax Code has in view situations of this kind, since it also
Bengzon, C.J., Bautista Angelo, Paredes, Dizon, Regala,
prescribes that "the amount by which the value of the property
On the other hand, unlike said Section 120, Section 119, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
exceeded the value of the consideration" shall be deemed a gift
paragraphs (b) (1) and (c) of the Tax Code, does not confer on Concepcion, J., took no part.
for the purpose of the tax. .
the Commissioner of Internal Revenue or on the courts any Barrera, J., is on leave.
power and discretion not to impose such interest and
Petitioners finally contend that, even assuming that the surcharge. It is likewise provided for by law that an appeal to
donation in question is subject to donees' gift taxes, the the Court of Tax Appeals from a decision of the Commissioner
imposition of the surcharge of 5% and interest of 1% per month of Internal Revenue shall not suspend the payment or
from March 8, 1955 was not justified because the proceeds of collection of the tax liability of the taxpayer unless a motion to
the life insurance policies were actually received on April 6, that effect shall have been presented to the court and granted
1955 and May 12, 1955 only and in accordance with Section by it on the ground that such collection will jeopardize the
115(c) of the Tax Code; the filing of the returns of such tax interest of the taxpayer (Sec. 11, Republic Act No. 1125; Rule
became due on March 1, 1956 and the tax became payable on 12, Rules of the Court of Tax Appeals). It should further be
May 15, 1956, as provided for in Section 116(a) of the same noted that —
Code. In other words, petitioners maintain that the assessment
and demand for donees' gift taxes was prematurely made and
It has been the uniform holding of this Court that no
of no legal effect; hence, they should not be held liable for such
suit for enjoining the collection of a tax, disputed or
surcharge and interest.
undisputed, can be brought, the remedy being to pay
the tax first, formerly under protest and now without
It is well to note, and it is not disputed, that petitioners-donees need of protect, file the claim with the Collector, and
have failed to file any gift tax return and that they also failed to if he denies it, bring an action for recovery against
pay the amount of the assessment made against them by him. (David v. Ramos, et al., 90 Phil. 351)
respondent in 1955. This situation is covered by Section 119(b)
(1) and (c) and Section 120 of the Tax Code:
Section 306 of the National Internal Revenue
Code ... lays down the procedure to be followed in
(b) Deficiency. those cases wherein a taxpayer entertains some
doubt about the correctness of a tax sought to be
collected. Said section provides that the tax, should
(1) Payment not extended. — Where a deficiency, or
first be paid and the taxpayer should sue for its
any interest assessed in connection therewith, or any
recovery afterwards. The purpose of the law
addition to the taxes provided for in section one
obviously is to prevent delay in the collection of
hundred twenty is not paid in full within thirty days
taxes, upon which the Government depends for its
from the date of the notice and demand from the
existence. To allow a taxpayer to first secure a ruling
Commissioner, there shall be collected as a part of
as regards the validity of the tax before paying it
the taxes, interest upon the unpaid amount at the
would be to defeat this purpose. (National Dental
rate of one per centum a month from the date of
Supply Co. vs. Meer, 90 Phil. 265)
such notice and demand until it is paid. (section 119)

Petitioners did not file in the lower court any motion for the
(c) Surcharge. — If any amount of the taxes included
suspension of payment or collection of the amount of
in the notice and demand from the Commissioner of
assessment made against them.
Internal Revenue is not paid in full within thirty days
after such notice and demand, there shall be
collected in addition to the interest prescribed above On the basis of the above-stated provisions of law and
as a part of the taxes a surcharge of five per centum applicable authorities, it is evident that the imposition of 1%
of the unpaid amount. (sec. 119) interest monthly and 5% surcharge is justified and legal. As
succinctly stated by the court below, said imposition is
"mandatory and may not be waived by the Commissioner of
The failure to file a return was found by the lower court to be
Internal Revenue or by the courts" (Resolution on petitioners'
due to reasonable cause and not to willful neglect. On this
motion for reconsideration, Annex XIV, petition). Hence, said
score, the elimination by the lower court of the 25% surcharge
imposition of interest and surcharge by the lower court should
is ad valorem penalty which respondent Commissioner had
be upheld.
imposed pursuant to Section 120 of the Tax Code was proper,
since said Section 120 vests in the Commissioner of Internal
Revenue or in the tax court power and authority to impose or