G.R. No.

L-36770

November 4, 1932

LUIS
W.
DISON,
plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

BUTTE, J.:
This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the defendant Juan
Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the recovery of an
inheritance tax in the sum of P2,808.73 paid under protest. The petitioner alleged in his complaint that the tax is
illegal because he received the property, which is the basis of the tax, from his father before his death by a deed of
gift inter vivos which was duly accepted and registered before the death of his father. The defendant answered with
a general denial and with a counterdemand for the sum of P1,245.56 which it was alleged is a balance still due and
unpaid on account of said tax. The plaintiff replied to the counterdemand with a general denial. The court a quo held
that the cause of action set up in the counterdemand was not 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, 1932, on motion of the Attorney-General.1awphil.net
The only evidence introduced at the trial of this cause was the proof of payment of the tax under protest, as stated,
and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his sons Luis W. Dison, the plaintiffappellant. This deed of gift transferred twenty-two tracts of land to the donee, reserving to the donor for his life the
usufruct of three tracts. This deed was acknowledged by the donor before a notary public on April 16, 1928. Luis W.
Dison, on April 17, 1928, formally accepted said gift by an instrument in writing which he acknowledged before a
notary public on April 20, 1928.
At the trial the parties agreed to and filed the following ingenious stipulation of fact:
1. That Don Felix Dison died on April 21, 1928;
2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis W. Dison of all
his property according to a deed of gift (Exhibit D) which includes all the property of Don Felix Dizon;
3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of the latter;
4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.
It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.
The theory of the plaintiff-appellant is that he received and holds the property mentioned by a consummated gift
and that Act No. 2601 (Chapter 40 of the Administrative Code) being the inheritance tax statute, does not tax gifts.
The provision directly here involved is section 1540 of the Administrative Code which reads as follows:
Additions of Gifts and Advances. After the aforementioned deductions have been made, there shall be
added to the resulting amount the value of all gifts or advances made by the predecessor to any of those
who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa.
The question to be resolved may be stated thus: Does section 1540 of the Administrative Code subject the plaintiffappellant to the payment of an inheritance tax?
The appellant argues that there is no evidence in this case to support a finding that the gift was simulated and that
it was an artifice for evading the payment of the inheritance tax, as is intimated in the decision of the court below
and the brief of the Attorney-General. We see no reason why the court may not go behind the language in which the

transaction is masked in order to ascertain its true character and purpose. In this case the scanty facts before us
may not warrant the inference that the conveyance, acknowledged by the donor five days before his death and
accepted by the donee one day before the donor's death, was fraudulently made for the purpose of evading the
inheritance tax. But the facts, in our opinion, do warrant the inference that the transfer was an advancement upon
the inheritance which the donee, as the sole and forced heir of the donor, would be entitled to receive upon the
death of the donor.
The argument advanced by the appellant that he is not an heir of his deceased father within the meaning of section
1540 of the Administrative Code because his father in his lifetime had given the appellant all his property and left
no property to be inherited, is so fallacious that the urging of it here casts a suspicion upon the appellants reason
for completing the legal formalities of the transfer on the eve of the latter's death. We 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 the inheritance
because the Civil Code confers upon him the status of a forced heir. We construe the expression in section 1540
"any of those who, after his death, shall prove to be his heirs", to include those who, by our law, are given the status
and rights of heirs, regardless of the quantity of property they may receive as such heirs. That the appellant in this
case occupies the status of heir to his deceased father cannot be questioned. Construing the conveyance here in
question, under the facts presented, as an advance made by Felix Dison to his only child, we hold section 1540 to
be applicable and the tax to have been properly assessed by the Collector of Internal Revenue.
This appeal was originally assigned to a Division of five but referred to the court in banc by reason of the appellant's
attack upon the constitutionality of section 1540. This attack is based on the sole ground that insofar as section
1540 levies a tax upon gifts inter vivos, it violates that provision of section 3 of the organic Act of the Philippine
Islands (39 Stat. L., 545) which reads as follows: "That no bill which may be enacted into law shall embraced more
than one subject, and that subject shall be expressed in the title of the bill." Neither the title of Act No. 2601 nor
chapter 40 of the Administrative Code makes any reference to a tax on gifts. Perhaps it is enough to say of this
contention that section 1540 plainly does not tax gifts per se but only when those gifts are made to those who shall
prove to be the heirs, devisees, legatees or donees mortis causa of the donor. This court said in the case of Tuason
and Tuason vs. Posadas 954 Phil., 289):lawphil.net
When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and
the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor of the language
which refers to donations that took effect before the donor's death, and not to mortis causa donations,
which can only be made with the formalities of a will, and can only take effect after the donor's death. Any
other construction would virtually change this provision into:
". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the predecessor to
those who, after his death, shall prove to be his . . . donees mortis causa." We cannot give to the law an
interpretation that would so vitiate its language. The truth of the matter is that in this section (1540) the law
presumes that such gifts have been made in anticipation of inheritance, devise, bequest, or gift mortis causa, when
the donee, after the death of the donor proves to be his heir, devisee or donee mortis causa, for the purpose of
evading the tax, and it is to prevent this that it provides that they shall be added to the resulting amount." 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.
---------------------------Dison v. Posadas Digest
Dison v. Posadas
G.R. No. 36770 November 4, 1932
Butte, J.:
Facts:
1. Plaintiff Luis Dison filed a suit against CIR to recover inheritance tax paid under protest amounting to P2,808.73.
Felix Dison, plaintiff's father executed a deed of gift which transferred 22 tracts of land, reserving to himself during
his lifetime the usufruct of 3 tracts. The donation was formally accepted by plaintiff.

2. The plaintiff (herein petitioner) alleged in his complaint that the tax is illegal since he received the property by a
deed of gift inter vivos duly accepted and registered before the death of his father. He also contended that Act 2601
being an inheritance tax statute, does not tax gifts. The defendant answered in general denial with a countermand.
The court dismissed the countermand. Both sides appealed, but the CIR appeal was dismissed.
Issue: Whether or not the gifts inter vivos are taxable (inheritance tax)
YES.
Inheritance tax is imposed upon the gift inter vivos that plaintiff received from his father as this was really an
advancement upon the inheritance to which he would be entitled upon the death of the latter. Sec. 1540 of the
Administrative Code did not tax gifts per se but only those which are made to those who shall prove to be heirs,
devisees, legatees and donees mortis causa of the donor. The term 'heirs' include those given the status of heirs
irrespective of the quantity of property they may receive as such.
------------------------------------------------------------------------------------------------2. G.R. No. L-34937

March 13, 1933

CONCEPCION
VIDAL
DE
ROCES
and
her
MARCOS
ROCES,
and
ELVIRA
VIDAL
DE
RICHARDS,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Feria
and
Attorney-General Jaranilla for appellee.

La

for

husband,
plaintiff-appellants,

appellants.

IMPERIAL, J.:
The plaintiffs herein brought this action to recover from the defendant, Collector of Internal Revenue, certain sums
of money paid by them under protest as inheritance tax. They appealed from the judgment rendered by the Court of
First Instance of Manila dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain parcels of land
situated in Manila to the plaintiffs herein, who, with their respective husbands, accepted them in the same public
documents, which were duly recorded in the registry of deeds. By virtue of said donations, the plaintiffs took
possession of the said lands, received the fruits thereof and obtained the corresponding transfer certificates of title.
On January 5, 1926, the donor died in the City of Manila without leaving any forced heir and her will which was
admitted to probate, she bequeathed to each of the donees the sum of P5,000. After the estate had been
distributed among the instituted legatees and before delivery of their respective shares, the appellee herein, as
Collector of Internal Revenue, ruled that the appellants, as donees and legatees, should pay as inheritance tax the
sums of P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was levied as tax on the donation to
Concepcion Vidal de Roces and P1,481.52 on her legacy, and, likewise, P12,388.95 was imposed upon the donation
made to Elvira Vidal de Richards and P1,462.50 on her legacy. At first the appellants refused to pay the
aforementioned taxes but, at the insistence of the appellee and in order not to delay the adjudication of the
legacies, they agreed at last, to pay them under protest.
The appellee filed a demurrer to the complaint on the ground that the facts alleged therein were not sufficient to
constitute a cause of action. After the legal questions raised therein had been discussed, the court sustained the
demurrer and ordered the amendment of the complaint which the appellants failed to do, whereupon the trial court
dismissed the action on the ground that the afore- mentioned appellants did not really have a right of action.
In their brief, the appellants assign only one alleged error, to wit: that the demurrer interposed by the appellee was
sustained without sufficient ground.
The judgment appealed from was based on the provisions of section 1540 Administrative Code which reads as
follows:

SEC. 1540. Additions of gifts and advances. After the aforementioned deductions have been made, there
shall be added to the resulting amount the value of all gifts or advances made by the predecessor to any
those who, after his death, shall prove to be his heirs, devisees, legatees, or donees mortis causa.
The appellants contend that the above-mentioned legal provision does not include donations inter vivos and if it
does, it is unconstitutional, null and void for the following reasons: first, because it violates section 3 of the Jones
Law which provides that no law should embrace more than one subject, and that subject should be expressed in the
title thereof; second that the Legislature has no authority to impose inheritance tax on donations inter vivos; and
third, because a legal provision of this character contravenes the fundamental rule of uniformity of taxation. The
appellee, in turn, contends that the words "all gifts" refer clearly to donations inter vivos and, in support of his
theory, cites the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289). After a careful study of
the law and the authorities applicable thereto, we are the opinion that neither theory reflects the true spirit of the
aforementioned provision. The gifts referred to in section 1540 of the Revised Administration Code are, obviously,
those donations inter vivos that take effect immediately or during the lifetime of the donor but are made in
consideration or in contemplation of death. Gifts inter vivos, the transmission of which is not made in contemplation
of the donor's death should not be understood as included within the said legal provision for the reason that it would
amount to imposing a direct tax on property and not on the transmission thereof, which act does not come within
the scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code which deals expressly
with the tax on inheritances, legacies and other acquisitions mortis causa.
Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and Tuason vs. Posadas,
supra. We said therein, as we say now, that the expression "all gifts" refers to gifts inter vivos inasmuch as the law
considers them as advances on inheritance, in the sense that they are gifts inter vivos made in contemplation or in
consideration of death. In that case, it was not held that that kind of gifts consisted in those made completely
independent of death or without regard to it.
Said legal provision is not null and void on the alleged ground that the subject matter thereof is not embraced in the
title of the section under which it is enumerated. On the contrary, its provisions are perfectly summarized in the
heading, "Tax on Inheritance, etc." which is the title of Article XI. Furthermore, the constitutional provision cited
should not be strictly construed as to make it necessary that the title contain a full index to all the contents of the
law. It is sufficient if the language used therein is expressed in such a way that in case of doubt it would afford a
means of determining the legislators intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the
circumstance that the Administrative Code was prepared and compiled strictly in accordance with the provisions of
the Jones Law on that matter should not be overlooked and that, in a compilation of laws such as the Administrative
Code, it is but natural and proper that provisions referring to diverse matters should be found. (Ayson and Ignacio
vs. Provincial Board of Rizal and Municipal Council of Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose taxes on the transmission of real estate that takes
effect immediately and during the lifetime of the donor, and allege as their reason that such tax partakes of the
nature of the land tax which the law has already created in another part of the Administrative Code. Without making
express pronouncement on this question, for it is unnecessary, we wish to state that such is not the case in these
instance. The tax collected by the appellee on the properties donated in 1925 really constitutes an inheritance tax
imposed on the transmission of said properties in contemplation or in consideration of the donor's death and under
the circumstance that the donees were later instituted as the former's legatees. For this reason, the law considers
such transmissions in the form of gifts inter vivos, as advances on inheritance and nothing therein violates any
constitutional provision, inasmuch as said legislation is within the power of the Legislature.
Property Subject to Inheritance Tax. The inheritance tax ordinarily applies to all property within the power
of the state to reach passing by will or the laws regulating intestate succession or by gift inter vivos in the
manner designated by statute, whether such property be real or personal, tangible or intangible, corporeal
or incorporeal. (26 R.C.L., p. 208, par. 177.)
In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540 of the Administrative Code
did not violate the constitutional provision regarding uniformity of 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 the donor. There would be a repugnant and arbitrary exception if the provisions of the law were
not applicable to all donees of the same kind. In the case cited above, it was said: "At any rate 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 vivos who, after the predecessor's death proved to be an heir,
a legatee, or a donee mortis causa, would have to pay the tax, another donee inter vivos who did not prove to he an
heir, a legatee, or a donee mortis causa of the predecessor, would be exempt from such a tax. But as these are two
different cases, the principle of uniformity is inapplicable to them."
The last question of a procedural nature arising from the case at bar, which should be passed upon, is whether the
case, as it now stands, can be decided on the merits or should be remanded to the court a quo for further
proceedings. According to our view of the case, it follows that, if the gifts received by the appellants would have the
right to recover the sums of money claimed by them. Hence the necessity of ascertaining whether the complaint
contains an allegation to that effect. We have examined said complaint and found nothing of that nature. On the
contrary, it be may be inferred from the allegations contained in paragraphs 2 and 7 thereof that said donations
inter vivos were made in consideration of the donor's death. We refer to the allegations that such transmissions
were effected in the month of March, 1925, that the donor died in January, 1926, and that the donees were
instituted legatees in the donor's will which was admitted to probate. It is from these allegations, especially the last,
that we infer a presumption juris tantum that said donations were made mortis causa and, as such, are subject to
the payment of inheritance tax.
Wherefore, the demurrer interposed by the appellee was well-founded because it appears that the complaint did not
allege fact sufficient to constitute a cause of action. When the appellants refused to amend the same, spite of the
court's order to that effect, they voluntarily waived the opportunity offered them and they are not now entitled to
have the case remanded for further proceedings, which would serve no purpose altogether in view of the
insufficiency of the complaint.
Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance against the appellants. So
ordered.
--------------Vidal de Roces vs. Posadas Digest
Vidal de Roces v. Posadas
G.R. No. 34937 March 13, 1933
Imperial, J.:
Facts:
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband, as well as one Elvira Richards, received
as donation several parcels of land from Esperanza Tuazon. They took possession of the lands thereafter and
likewise obtained the respective transfer certificates.
2.The donor died a year after without leaving any forced heir. In her will, which was admitted to probate, she
bequeathed to each of the donees the sum of P5,000. After the distribution of the estate but before the delivery of
their shares, the CIR (appellee) ruled that plaintiffs as donees and legatees should pay inheritance taxes. The
plaintiffs paid the taxes under protest.
3. CIR filed a demurrer on ground that the facts alleged were not sufficient to constitute a cause of action. The court
sustained the demurrer and ordered the amendment of the complaint but the appellants failed to do so. Hence, the
trial court dismissed the action on ground that plaintiffs, herein appellants, did not really have a right of action.
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative Code does not include donation inter vivos and
if it does, it is unconstitutional, null and void for violating SEC. 3 of the Jones Law (providing that no law shall
embrace more than one subject and that the subject should be expressed in its titles ; that the Legislature has no
authority to tax donation inter vivos; finally, that said provision violates the rule on uniformity of taxation.
5. CIR however contends that the word 'all gifts' refer clearly to donation inter vivos and cited the doctrine in
Tuason v. Posadas.
Issue: Whether or not the donations should be subjected to inheritance tax
YES. Sec. 1540 of the Administrative Code clearly refers to those donation inter vivos that take effect immediately
or during the lifetime of the donor, but made in consideration of the death of the decedent. Those donations not
made in contemplation of the decedent's death are not included as it would be equivalent to imposing a direct tax
on property and not on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter vivos as they are considered as advances in
anticipation of inheritance since they are made in consideration of death.

-------------------------------------------------3. G.R. No. L-11622

January 28, 1961
THE
COLLECTOR
OF
INTERNAL
REVENUE,
petitioner,
vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents.
x---------------------------------------------------------x
G.R. No. L-11668
January 28, 1961.
DOUGLAS
FISHER
AND
BETTINA
FISHER,
petitioner,
vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents.
BARRERA, J.:
This case relates to the determination and settlement of the hereditary estate left by the deceased Walter G.
Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on August 9, 1874 of
British parents and married in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson another British
subject) died on February 22, 1951 in San Francisco, California, U.S.A. whereto he and his wife moved and
established their permanent residence since May 10, 1945. In his will executed in San Francisco on May 22, 1947,
and which was duly probated in the Superior Court of California on April 11, 1951, Stevenson instituted his wife
Beatrice as his sole heiress to the following real and personal properties acquired by the spouses while residing in
the Philippines, described and preliminary assessed as follows:
Gross Estate
Real Property 2 parcels of land in Baguio,
covered by T.C.T. Nos. 378 and 379
P43,500.00
Personal Property
(1) 177 shares of stock of Canacao Estate at
P10.00 each
1,770.00
(2) 210,000 shares of stock of Mindanao
Mother Lode Mines, Inc. at P0.38 per share
79,800.00
(3) Cash credit with Canacao Estate Inc.

4,870.88

(4) Cash, with the Chartered Bank of India,

Australia & China

851.97

Total Gross Assets

P130,792.85
On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of Manila for the
settlement of the estate in the Philippines. In due time Stevenson's will was duly admitted to probate by our court
and Ian Murray Statt was appointed ancillary administrator of the estate, who on July 11, 1951, filed a preliminary
estate and inheritance tax return with the reservation of having the properties declared therein finally appraised at
their values six months after the death of Stevenson. Preliminary return was made by the ancillary administrator in
order to secure the waiver of the Collector of Internal Revenue on the inheritance tax due on the 210,000 shares of
stock in the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in the United States. Acting
upon said return, the Collector of Internal Revenue accepted the valuation of the personal properties declared
therein, but increased the appraisal of the two parcels of land located in Baguio City by fixing their fair market value
in the amount of P52.200.00, instead of P43,500.00. After allowing the deductions claimed by the ancillary
administrator for funeral expenses in the amount of P2,000.00 and for judicial and administration expenses in the
sum of P5,500.00, the Collector assessed the state the amount of P5,147.98 for estate tax and P10,875,26 or
inheritance tax, or a total of P16,023.23. Both of these assessments were paid by the estate on June 6, 1952.
On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return in pursuance
f his reservation made at the time of filing of the preliminary return and for the purpose of availing of the right
granted by section 91 of the National Internal Revenue Code.
In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. was
reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total valuation of P79,800.00 to
P42,000.00. This change in price per share of stock was based by the ancillary administrator on the market notation
of the stock obtaining at the San Francisco California) Stock Exchange six months from the death of Stevenson, that
is, As of August 22, 1931. In addition, the ancillary administrator made claim for the following deductions:
Funeral expenses ($1,04326)
P2,086.52
Judicial Expenses:
(a) Administrator's Fee

P1,204.34

(b) Attorney's Fee

6.000.00

(c) Judicial and Administration expenses

as of August 9, 1952
1,400.05
8,604.39
Real Estate Tax for 1951 on Baguio real
properties (O.R. No. B-1 686836)

652.50

Claims
against
the
($5,000.00) P10,000.00

estate:
P10,000.00

Plus: 4% int. p.a. from Feb. 2 to 22,

1951
22.47

10,022.47

Sub-Total
P21,365.88
In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests in the
estate to the spouses, Douglas and Bettina Fisher, respondents herein.
On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax return (Exh.
"M-N"). This return declared the same assets of the estate stated in the amended return of September 22, 1952,
except that it contained new claims for additional exemption and deduction to wit: (1) deduction in the amount of
P4,000.00 from the gross estate of the decedent as provided for in Section 861 (4) of the U.S. Federal Internal
Revenue Code which the ancillary administrator averred was allowable by way of the reciprocity granted by Section
122 of the National Internal Revenue Code, as then held by the Board of Tax Appeals in case No. 71 entitled
"Housman vs. Collector," August 14, 1952; and (2) exemption from the imposition of estate and inheritance taxes on
the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the reciprocity proviso of
Section 122 of the National Internal Revenue Code. In this last return, the estate claimed that it was liable only for
the amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a consequence, it had overpaid
the government. The refund of the amount of P15,259.83, allegedly overpaid, was accordingly requested by the
estate. The Collector denied the claim. For this reason, action was commenced in the Court of First Instance of
Manila by respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said amount. Pursuant to
Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals which court, after hearing, rendered
decision the dispositive portion of which reads as follows:
In fine, we are of the opinion and so hold that: (a) the one-half () share of the surviving spouse in the
conjugal partnership property as diminished by the obligations properly chargeable to such property should
be deducted from the net estate of the deceased Walter G. Stevenson, pursuant to Section 89-C of the
National Internal Revenue Code; (b) the intangible personal property belonging to the estate of said
Stevenson is exempt from inheritance tax, pursuant to the provision of section 122 of the National Internal
Revenue Code in relation to the California Inheritance Tax Law but decedent's estate is not entitled to an
exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of estate and inheritance
taxation the Baguio real estate of the spouses should be valued at P52,200.00, and 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc. should be appraised at P0.38 per share; and (d) the estate shall be
entitled to a deduction of P2,000.00 for funeral expenses and judicial expenses of P8,604.39.
From this decision, both parties appealed.
The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly committed by the trial
court, while the assignees, Douglas and Bettina Fisher hereinafter called respondents, made six assignments of
error. Together, the assigned errors raise the following main issues for resolution by this Court:
(1) Whether or not, in determining the taxable net estate of the decedent, one-half () of the net estate should be
deducted therefrom as the share of tile surviving spouse in accordance with our law on conjugal partnership and in
relation to section 89 (c) of the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the National
Internal Revenue Code granting exemption from the payment of estate and inheritance taxes on the 210,000 shares
of stock in the Mindanao Mother Lode Mines Inc.;
(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S. Internal
Revenue Code in relation to section 122 of the National Internal Revenue Code;
(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court;
(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and administration
expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and P10,0,22.47 representing the amount
of indebtedness allegedly incurred by the decedent during his lifetime; and
(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have overpaid the
government and to be refundable to it.
In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the absence of any
ante-nuptial agreement, the contracting parties are presumed to have adopted the system of conjugal partnership
as to the properties acquired during their marriage. The application of this doctrine to the instant case is being
disputed, however, by petitioner Collector of Internal Revenue, who contends that pursuant to Article 124 of the
New Civil Code, the property relation of the spouses Stevensons ought not to be determined by the Philippine law,
but by the national law of the decedent husband, in this case, the law of England. It is alleged by petitioner that
English laws do not recognize legal partnership between spouses, and that what obtains in that jurisdiction is
another regime of property relation, wherein all properties acquired during the marriage pertain and belong
Exclusively to the husband. In further support of his stand, petitioner cites Article 16 of the New Civil Code (Art. 10
of the old) to the effect that in testate and intestate proceedings, the amount of successional rights, among others,
is to be determined by the national law of the decedent.
In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place in 1909, the
applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil Code which became effective
only in 1950. It is true that both articles adhere to the so-called nationality theory of determining the property
relation of spouses where one of them is a foreigner and they have made no prior agreement as to the
administration disposition, and ownership of their conjugal properties. In such a case, the national law of the

husband becomes the dominant law in determining the property relation of the spouses. There is, however, a
difference between the two articles in that Article 124 1 of the new Civil Code expressly provides that it shall be
applicable regardless of whether the marriage was celebrated in the Philippines or abroad while Article 1325 2 of the
old Civil Code is limited to marriages contracted in a foreign land.
It must be noted, however, that what has just been said refers to mixed marriages between a Filipino citizen and a
foreigner. In the instant case, both spouses are foreigners who married in the Philippines. Manresa, 3 in his
Commentaries, has this to say on this point:
La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y entre espanoles.
El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es espanol. En cuanto a la regla
procedente cuando dos extranjeros se casan en Espana, o dos espanoles en el extranjero hay que atender
en el primer caso a la legislacion de pais a que aquellos pertenezean, y en el segundo, a las reglas
generales consignadas en los articulos 9 y 10 de nuestro Codigo. (Emphasis supplied.)
If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons, married in 1909,
would be the English law even if the marriage was celebrated in the Philippines, both of them being foreigners. But,
as correctly observed by the Tax Court, the pertinent English law that allegedly vests in the decedent husband full
ownership of the properties acquired during the marriage has not been proven by petitioner. Except for a mere
allegation in his answer, which is not sufficient, the record is bereft of any evidence as to what English law says on
the matter. In the absence of proof, the Court is justified, therefore, in indulging in what Wharton calls "processual
presumption," in presuming that the law of England on this matter is the same as our law. 4
Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code) to bolster his
stand. A reading of Article 10 of the old Civil Code, which incidentally is the one applicable, shows that it does not
encompass or contemplate to govern the question of property relation between spouses. Said article distinctly
speaks of amount of successional rights and this term, in speaks in our opinion, properly refers to the extent or
amount of property that each heir is legally entitled to inherit from the estate available for distribution. It needs to
be pointed out that the property relation of spouses, as distinguished from their successional rights, is governed
differently by the specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the
old Civil Code.) We, therefore, find that the lower court correctly deducted the half of the conjugal property in
determining the hereditary estate left by the deceased Stevenson.
On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents from paying
inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity
proviso of Section 122 of the National Internal Revenue Code, in relation to Section 13851 of the California Revenue
and Taxation Code, on the ground that: (1) the said proviso of the California Revenue and Taxation Code has not
been duly proven by the respondents; (2) the reciprocity exemptions granted by section 122 of the National Internal
Revenue Code can only be availed of by residents of foreign countries and not of residents of a state in the United
States; and (3) there is no "total" reciprocity between the Philippines and the state of California in that while the
former exempts payment of both estate and inheritance taxes on intangible personal properties, the latter only
exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified that as an
active member of the California Bar since 1931, he is familiar with the revenue and taxation laws of the State of
California. When asked by the lower court to state the pertinent California law as regards exemption of intangible
personal properties, the witness cited article 4, section 13851 (a) and (b) of the California Internal and Revenue
Code as published in Derring's California Code, a publication of the Bancroft-Whitney Company inc. And as part of
his testimony, a full quotation of the cited section was offered in evidence as Exhibits "V-2" by the respondents.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to
take judicial notice of them.5 Like any other fact, they must be alleged and proved. 6
Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our tribunals.
However, although we believe it desirable that these laws be proved in accordance with said rule, we held in the
case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our Code
of Civil Procedure (now section 41, Rule 123) will convince one that these sections do not exclude the presentation
of other competent evidence to prove the existence of a foreign law." In that case, we considered the testimony of
an attorney-at-law of San Francisco, California who quoted verbatim a section of California Civil Code and who
stated that the same was in force at the time the obligations were contracted, as sufficient evidence to establish the
existence of said law. In line with this view, we find no error, therefore, on the part of the Tax Court in considering
the pertinent California law as proved by respondents' witness.
We now take up the question of reciprocity in exemption from transfer or death taxes, between the State of
California and the Philippines.F
Section 122 of our National Internal Revenue Code, in pertinent part, provides:
... And, provided, further, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of
his death did not impose a transfer of tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country." (Emphasis supplied).
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.
"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt from the tax
imposed by this part if the decedent at the time of his death was a resident of a territory or another State of

the United States or of a foreign state or country which then imposed a legacy, succession, or death tax in
respect to intangible personal property of its own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal
property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every character if the Territory or other State of the
United States or foreign state or country in which the nonresident resided allowed a similar exemption in
respect to intangible personal property of residents of the Territory or State of the United States or foreign
state or country of residence of the decedent." (Id.)
It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to transfer or
death taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death taxes
of any and every character, in the case of the California law. Therefore, if any of the two states collects or imposes
and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work.
This is the underlying principle of the reciprocity clauses in both laws.
In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein, there are
imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the laws of California, only
inheritance tax is imposed. On the other hand, the Federal Internal Revenue Code imposes an estate tax on nonresidents not citizens of the United States, 7 but does not provide for any exemption on the basis of reciprocity.
Applying these laws in the manner the Court of Tax Appeals did in the instant case, we will have a situation where a
Californian, who is non-resident in the Philippines but has intangible personal properties here, will the subject to the
payment of an estate tax, although exempt from the payment of the inheritance tax. This being the case, will a
Filipino, non-resident of California, but with intangible personal properties there, be entitled to the exemption clause
of the California law, since the Californian has not been exempted from every character of legacy, succession, or
death tax because he is, under our law, under obligation to pay an estate tax? Upon the other hand, if we exempt
the Californian from paying the estate tax, we do not thereby entitle a Filipino to be exempt from a similar estate
tax in California because under the Federal Law, which is equally enforceable in California he is bound to pay the
same, there being no reciprocity recognized in respect thereto. In both instances, the Filipino citizen is always at a
disadvantage. We do not believe that our legislature has intended such an unfair situation to the detriment of our
own government and people. We, therefore, find and declare that the lower court erred in exempting the estate in
question from payment of the inheritance tax.
We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-9456 & L-9481,
prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller from payment of the
inheritance tax imposed by the Collector of Internal Revenue. It will be noted, however, that the issue of reciprocity
between the pertinent provisions of our tax law and that of the State of California was not there squarely raised, and
the ruling therein cannot control the determination of the case at bar. Be that as it may, we now declare that in view
of the express provisions of both the Philippine and California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death taxes of every character, there could not be partial
reciprocity. It would have to be total or none at all.
With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S. Federal Estate
Tax Law which is also being claimed by respondents, we uphold and adhere to our ruling in the Lara case (supra)
that the amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature of a deduction and not of an
exemption regarding which reciprocity cannot be claimed under the provision of Section 122 of our National Internal
Revenue Code. Nor is reciprocity authorized under the Federal Law. .
On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is contended
that their assessed values, as appearing in the tax rolls 6 months after the death of Stevenson, ought to have been
considered by petitioner as their fair market value, pursuant to section 91 of the National Internal Revenue Code. It
should be pointed out, however, that in accordance with said proviso the properties are required to be appraised at
their fair market value and the assessed value thereof shall be considered as the fair market value only when
evidence to the contrary has not been shown. After all review of the record, we are satisfied that such evidence
exists to justify the valuation made by petitioner which was sustained by the tax court, for as the tax court aptly
observed:
"The two parcels of land containing 36,264 square meters were valued by the administrator of the estate in
the Estate and Inheritance tax returns filed by him at P43,500.00 which is the assessed value of said
properties. On the other hand, defendant appraised the same at P52,200.00. It is of common knowledge,
and this Court can take judicial notice of it, that assessments for real estate taxation purposes are very
much lower than the true and fair market value of the properties at a given time and place. In fact one year
after decedent's death or in 1952 the said properties were sold for a price of P72,000.00 and there is no
showing that special or extraordinary circumstances caused the sudden increase from the price of
P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951. Even more, the counsel
for plaintiffs himself admitted in open court that he was willing to purchase the said properties at P2.00 per
square meter. In the light of these facts we believe and therefore hold that the valuation of P52,200.00 of
the real estate in Baguio made by defendant is fair, reasonable and justified in the premises." (Decision, p.
19).
In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a domestic
corporation), respondents contend that their value should be fixed on the basis of the market quotation obtaining at
the San Francisco (California) Stock Exchange, on the theory that the certificates of stocks were then held in that
place and registered with the said stock exchange. We cannot agree with respondents' argument. The situs of the
shares of stock, for purposes of taxation, being located here in the Philippines, as respondents themselves concede

and considering that they are sought to be taxed in this jurisdiction, consistent with the exercise of our
government's taxing authority, their fair market value should be taxed on the basis of the price prevailing in our
country.
Upon the other hand, we find merit in respondents' other contention that the said shares of stock commanded a
lesser value at the Manila Stock Exchange six months after the death of Stevenson. Through Atty. Allison Gibbs,
respondents have shown that at that time a share of said stock was bid for at only P.325 (p. 103, t.s.n.).
Significantly, the testimony of Atty. Gibbs in this respect has never been questioned nor refuted by petitioner either
before this court or in the court below. In the absence of evidence to the contrary, we are, therefore, constrained to
reverse the Tax Court on this point and to hold that the value of a share in the said mining company on August 22,
1951 in the Philippine market was P.325 as claimed by respondents..
It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis of the
declaration made by the estate in its preliminary return. Patently, this should not have been the case, in view of the
fact that the ancillary administrator had reserved and availed of his legal right to have the properties of the estate
declared at their fair market value as of six months from the time the decedent died..
On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of which by the Tax
Court, both petitioner and respondents have appealed..
Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the sum of
P8,604.39 for the following expenses:.
1) Administrator's fee
P1,204.34
2) Attorney's fee
3) Judicial and Administrative expenses

6,000.00
2,052.55

Total Deductions
P8,604.39
An examination of the record discloses, however, that the foregoing items were considered deductible by the Tax
Court on the basis of their approval by the probate court to which said expenses, we may presume, had also been
presented for consideration. It is to be supposed that the probate court would not have approved said items were
they not supported by evidence presented by the estate. In allowing the items in question, the Tax Court had before
it the pertinent order of the probate court which was submitted in evidence by respondents. (Exh. "AA-2", p. 100,
record). As the Tax Court said, it found no basis for departing from the findings of the probate court, as it must have
been satisfied that those expenses were actually incurred. Under the circumstances, we see no ground to reverse
this finding of fact which, under Republic Act of California National Association, which it would appear, that while still
living, Walter G. Stevenson obtained we are not inclined to pass upon the claim of respondents in respect to the
additional amount of P86.52 for funeral expenses which was disapproved by the court a quo for lack of evidence.
In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on the decedent's
two parcels of land in Baguio City, which respondents claim was disallowed by the Tax Court, we find that this claim
has in fact been allowed. What happened here, which a careful review of the record will reveal, was that the Tax
Court, in itemizing the liabilities of the estate, viz:
P1,204.
1) Administrator's fee
34
2) Attorney's fee

6,000.0
0

2,052.5
3) Judicial and Administration expenses as of August 9, 1952 5
P9,256.
Total
89
added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and administration
expenses approved by the court, making a total of P2,052.55, exactly the same figure which was arrived at by the
Tax Court for judicial and administration expenses. Hence, the difference between the total of P9,256.98 allowed by
the Tax Court as deductions, and the P8,604.39 as found by the probate court, which is P652.50, the same amount
allowed for realty taxes. An evident oversight has involuntarily been made in omitting the P2,000.00 for funeral
expenses in the final computation. This amount has been expressly allowed by the lower court and there is no
reason why it should not be. .
We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section 89(a) (1) (E)
and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should have been allowed the estate
as a deduction, because it represented an indebtedness of the decedent incurred during his lifetime. In support
thereof, they offered in evidence a duly certified claim, presented to the probate court in California by the Bank of
California National Association, which it would appear, that while still living, Walter G. Stevenson obtained a loan of
$5,000.00 secured by pledge on 140,000 of his shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "QQ4", pp. 53-59, record). The Tax Court disallowed this item on the ground that the local probate court had not
approved the same as a valid claim against the estate and because it constituted an indebtedness in respect to
intangible personal property which the Tax Court held to be exempt from inheritance tax.
For two reasons, we uphold the action of the lower court in disallowing the deduction.
Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of the decedent is
necessary. This is so although the same, it is averred has been already admitted and approved by the corresponding

probate court in California, situs of the principal or domiciliary administration. It is true that we have here in the
Philippines only an ancillary administration in this case, but, it has been held, the distinction between domiciliary or
principal administration and ancillary administration serves only to distinguish one administration from the other,
for the two proceedings are separate and independent. 8 The reason for the ancillary administration is that, a grant
of administration does not ex proprio vigore, have any effect beyond the limits of the country in which it was
granted. Hence, we have the requirement that before a will duly probated outside of the Philippines can have effect
here, it must first be proved and allowed before our courts, in much the same manner as wills originally presented
for allowance therein.9 And the estate shall be administered under letters testamentary, or letters of administration
granted by the court, and disposed of according to the will as probated, after payment of just debts and expenses of
administration.10 In other words, there is a regular administration under the control of the court, where claims must
be presented and approved, and expenses of administration allowed before deductions from the estate can be
authorized. Otherwise, we would have the actuations of our own probate court, in the settlement and distribution of
the estate situated here, subject to the proceedings before the foreign court over which our courts have no control.
We do not believe such a procedure is countenanced or contemplated in the Rules of Court.
Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of Section 89,
letter (d), number (1), of the National Internal Revenue Code which reads:
(d) Miscellaneous provisions (1) No deductions shall be allowed in the case of a non-resident not a citizen
of the Philippines unless the executor, administrator or anyone of the heirs, as the case may be, includes in
the return required to be filed under section ninety-three the value at the time of his death of that part of
the gross estate of the non-resident not situated in the Philippines."
In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in the
Philippines appears in the three returns submitted to the court or to the office of the petitioner Collector of Internal
Revenue. The purpose of this requirement is to enable the revenue officer to determine how much of the
indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of the Internal
Revenue Code which provides:
(b) Deductions allowed to non-resident estates. In the case of a non-resident not a citizen of the
Philippines, by deducting from the value of that part of his gross estate which at the time of his death is
situated in the Philippines
(1) Expenses, losses, indebtedness, and taxes. That proportion of the deductions specified in paragraph
(1) of subjection (a) of this section 11 which the value of such part bears the value of his entire gross estate
wherever situated;"
In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is equivalent
to the proportion that the estate in the Philippines bears to the total estate wherever situated. Stated differently, if
the properties in the Philippines constitute but 1/5 of the entire assets wherever situated, then only 1/5 of the
indebtedness may be deducted. But since, as heretofore adverted to, there is no statement of the value of the
estate situated outside the Philippines, no part of the indebtedness can be allowed to be deducted, pursuant to
Section 89, letter (d), number (1) of the Internal Revenue Code.
For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the alleged
indebtedness in the sum of P10,022.47.
In recapitulation, we hold and declare that:
(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership property constitutes
his hereditary estate subject to the estate and inheritance taxes;
(b) the intangible personal property is not exempt from inheritance tax, there existing no complete total
reciprocity as required in section 122 of the National Internal Revenue Code, nor is the decedent's estate
entitled to an exemption of P4,000.00 in the computation of the estate tax;
(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc. are to be appraised at P0.325 per share; and
(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net asset of the
deceased Stevenson.
In all other respects, the decision of the Court of Tax Appeals is affirmed.
Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a recomputation on
the basis of this decision is hereby denied in line with our recent decision in Collector of Internal Revenue v. St.
Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the absence of a statutory provision
clearly or expressly directing or authorizing such payment, and none has been cited by respondents, the National
Government cannot be required to pay interest."
WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is hereby affirmed in
all other respects not inconsistent herewith. No costs. So ordered.
------G.R. No. L-46720

June 28, 1940

WELLS
FARGO
BANK
&
UNION
TRUST
vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.

COMPANY,

petitioner-appellant,

De
Witt,
Perkins
and
Ponce
Enrile
for
Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion
Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as amici curi.

for

appellant.
appellee.

MORAN, J.:
An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.
Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her
alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of
stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized and
existing under the laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly
admitted to probate in California where her estate was administered and settled. Petitioner-appellant, Wells Fargo
Bank & Union Trust Company, was duly appointed trustee of the created by the said will. The Federal and State of
California's inheritance taxes due on said shares have been duly paid. Respondent Collector of Internal Revenue
sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to which petitioner-appellant
objected. Wherefore, a petition for a declaratory judgment was filed in the lower court, with the statement that, "if it
should be held by a final declaratory judgment that the transfer of the aforesaid shares of stock is legally subject to
the Philippine inheritance tax, the petitioner will pay such tax, interest and penalties (saving error in computation)
without protest and will not file to recover the same; and the petitioner believes and t herefore alleges that it should
be held that such transfer is not subject to said tax, the respondent will not proceed to assess and collect the
same." The Court of First Instance of Manila rendered judgment, holding that the transmission by will of the said
35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner.
Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by
inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible personal property of
a non-resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed upon their
transmission by death, for the self-evident reason that, being a property situated in this country, its transfer is, in
some way, defendant, for its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles,
like the shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their
transmission by death necessarily takes place under his domiciliary laws.
Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of
any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to
the tax therein provided. This provision has already been applied to shares of stock in a domestic corporation which
were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See
also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid down by the United
States Supreme Court in four cases (Farmers Loan & Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371;
Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75
Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R.,
1401), to the effect that an inheritance tax can be imposed with respect to intangibles only by the State where the
decedent was domiciled at the time of his death, and that, under the due-process clause, the State in which a
corporation has been incorporated has no power to impose such tax if the shares of stock in such corporation are
owned by a non-resident decedent. It is to be observed, however, that in a later case (Burnet vs. Brooks, 288 U. S.,
378; 77 Law. ed., 844), the United States Supreme Court upheld the authority of the Federal Government to impose
an inheritance tax on the transmission, by death of a non-resident, of stock in a domestic (America) corporation,
irrespective of the situs of the corresponding certificates of stock. But it is contended that the doctrine in the
foregoing case is not applicable, because the due-process clause is directed at the State and not at the Federal
Government, and that the federal or national power of the United States is to be determined in relation to other
countries and their subjects by applying the principles of jurisdiction recognized in international relations. Be that as
it may, the truth is that the due-process clause is "directed at the protection of the individual and he is entitled to its
immunity as much against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357, 370;
83 Law. ed., 1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was predicated
on a proper regard for the relation of the states of the American Union, which requires that property should be taxed
in only one state and that jurisdiction to tax is restricted accordingly. In other words, the application to the states of
the due-process rule springs from a proper distribution of their powers and spheres of activity as ordained by the
United States Constitution, and such distribution is enforced and protected by not allowing one state to reach out
and tax property in another. And these considerations do not apply to the Philippines. Our status rests upon a wholly

distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the Union with
another or with the United States. The status of the Philippines has been aptly defined as one which, though a part
of the United States in the international sense, is, nevertheless, foreign thereto in a domestic sense. (Downes vs.
Bidwell, 182 U. S., 244, 341.)
At any rate, we see nothing of consequence in drawing any distinct between the operation and effect of the dueprocess clause as it applies to the individual states and to the national government of the United States. The
question here involved is essentially not one of due-process, but of the power of the Philippine Government to tax. If
that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the law
involved is challenged, which is not, on considerations repugnant to such guaranty of due process of that of the
equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or discriminatory.
Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance
tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been
relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction
of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or
control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs. Comptoir National
D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and
control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit & Trust
Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of law, formulated for
reasons of convenience, to the actualities of each case.
An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two
fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons,
properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle
that as o intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships
which may be entered into with respect thereto. It is on the basis of the first consideration that the case of Burnet
vs. Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of the Government to impose an
inheritance tax upon transmission, by death of a non-resident, of shares of stock in a domestic (America)
corporation, regardless of the situs of their corresponding certificates; and on the basis of the second consideration,
the case of Cury vs. McCanless, supra.
In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax is
precluded by the due-process clause of the Fifth Amendment, held:
The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by
confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are
embodied in the due-process clause for the protection of life, liberty, and property of all persons citizens
and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473,
476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710; 52 A.
L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S. Ct., 358. If in the instant
case the Federal Government had jurisdiction to impose the tax, there is manifestly no ground for assailing
it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747; MaGray vs. United States,
195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 U.S.,
107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312; Brushaber vs. Union p. R.
Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; 414, Ann. Cas, 1917B, 713;
United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.)
And, in sustaining the power of the Federal Government to tax properties within its borders, wherever its owner may
have been domiciled at the time of his death, the court ruled:
. . . There does not appear, a priori, to be anything contrary to the principles of international law, or hurtful
to the polity of nations, in a State's taxing property physically situated within its borders, wherever its
owner may have been domiciled at the time of his death. . . .
As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds the
citizenship of the owner, his domicile, the source of income, the situs of the property efforts have been
made to preclude multiple taxation through the negotiation of appropriate international conventions. These

endeavors, however, have proceeded upon express or implied recognition, and not in denial, of the
sovereign taxing power as exerted by governments in the exercise of jurisdiction upon any one of these
grounds. . . . (See pages 396-397; 399.)
In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and Tennessee
may each constitutionally impose death taxes upon the transfer of an interest in intangibles held in trust by an
Alabama trustee but passing under the will of a beneficiary decedent domiciles in Tennessee, sustained the power of
each State to impose the tax. In arriving at this conclusion, the court made the following observations:
In cases where the owner of intangibles confines his activity to the place of his domicile it has been found
convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S., 308, 313; 81
Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301 U. S., 234,
241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are taxed at
their situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia sequuntur
personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410, supra; Baldwin vs. Missouri,
281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303, supra, which means only that it is the
identify owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities
with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another
state, in such a way as to bring his person or properly within the reach of the tax gatherer there, the reason
for a single place of taxation no longer obtains, and the rule even workable substitute for the reasons may
exist in any particular case to support the constitutional power of each state concerned to tax. Whether we
regard the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice
Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over tangibles
or over persons whose relationships are source of intangibles rights, or on the benefit and protection
conferred by the taxing 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 consequently that there are
many circumstances in which more than one state may have jurisdiction to impose a tax and measure it by
some or all of the taxpayer's intangibles. Shares or corporate stock be taxed at the domicile of the
shareholder and also at that of the corporation which the taxing state has created and controls; and income
may be taxed both by the state where it is earned and by the state of the recipient's domicile. protection,
benefit, and power over the subject matter are not confined to either state. . . .(p. 1347-1349.)
. . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere
mechanical operation of locating at a single place, and there taxing, every legal interest growing out of all
the complex legal relationships which may be entered into between persons. This is the case because in
point of actuality those interests may be too diverse in their relationships to various taxing jurisdictions to
admit of unitary treatment without discarding modes of taxation long accepted and applied before the
Fourteen Amendment was adopted, and still recognized by this Court as valid. (P. 1351.)
We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here involved is
controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in the Philippines, the
corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the
time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the
Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement
gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect
dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner
for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of
stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her
activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws.
Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.
Judgment is affirmed, with costs against petitioner-appellant.
------------Wells Fargo Bank v CIR
(Situs of Taxation)

Facts:
Birdie Lillian Eye, died on September 16, 1932 at Los AngelesCalifornia, the place of her alleged last residence and
domicile.Among the properties she left was her one half conjugal sharesin 70,000 shares of stock in Benguet
Consolidated MiningCompany, an anonymous partnership organized and existingunder the laws of the Philippines,
with its principal office inManila. She left a will which was duly admitted to probate inCalifornia where her estate was
administered and settled.Petitioner is the trustee of the trust created by the will. TheFederal and State of Californias
inheritance taxes due on saidshares have been duly paid. The respondent now claims thatthe same shares of stocks
are also subject to inheritance taxhere in the Philippines. Hence, this petition for declaratory judgment was
instituted by plaintiff to ascertain whether theshares are still subject to inheritance tax.
Issue: May inheritance taxes be imposed on the saidshares?
Held: Yes.
Originally the settled law in the US is thatintangibles have only one situs for the purpose of inheritancetax, and that
such situs is in the domicile of the decedent at thetime of his death. But this rule has been relaxed due to (1)
therecognition of the inherent power of each government to taxpersons, properties and rights within its jurisdiction
andenjoying thus, the protection of its laws; and (2) upon theprinciple that as to intangibles, a single location in
space ishardly possible considering the multiple, distinct relationshipswhich may be entered into with respect
thereto.It is the identity or association of intangibles with the person of their owner at his domicile which gives
jurisdiction to tax. Butwhen the taxpayer extends his activities with respect to hisintangibles, so as to avail himself
of the protection and benefitof the laws of another state, in such a way as to bring hisperson or property within the
reach of the tax gatherer there,the reason for a single place of taxation no longer obtains.In this case, the actual
situs of the shares of stock is in thePhilippines, the corporation being domiciled therein. The owner residing in
California has extended her activities with respect toher intangibles so as to avail herself of the protection
andbenefit of the Philippine laws. The jurisdiction of the Philippinegovernment to impose tax must be upheld.
-----------------------n September 1932, Birdie Lillian Eye died in Los Angeles, California, USA which was also her place of domicile. She
left various properties. Among those properties include some intangibles consisting of 70,000 shares in the Benguet
Consolidated Mining Company, a corporation organized and existing under Philippine laws.
The Collector of Internal Revenue sought to assess and collect estate tax on the said shares. Wells Fargo Banks &
Union Trust Company, the trustee of the estate of the decedent Eye, objected to said assessment. Wells Fargo
averred that said shares were already subjected to inheritance tax in California and hence cannot be taxed again in
the Philippines (note at that time the Philippines was still under the Commonwealth and were not yet totally
independent from the US).
ISSUE: Whether or not the shares are subject to estate tax in the Philippines.
HELD: Yes. The Supreme Court ruled that even though the Philippines was considered a US territory at that time, it
is still a separate jurisdiction from the US in several aspects particularly taxation. Hence, the Philippines has the
power to tax said shares. The situs of taxation is here in the Philippines because the situs of the shares of stock
concerned is here in the Philippines because of the fact that the said shares were issued here by a corporation
organized and existing under the laws of the Philippines which is also domiciled here. Further, (and this is the
deeper reason), when Eye was alive, she actually delivered the title to said shares to the resident secretary of the
corporation here in the Philippines hence the shares never left the Philippines.
Note: As a rule, intangibles follow the person (mobilia sequuntur personam). Hence, intangibles are taxable in the
place where their owner may be domiciled. However, Section 104 of the NIRC provides that if the shares have
attained business situs here in the Philippines, then said shares are taxable here even if the owner of said shares
are domiciled abroad.
----------------G.R. No. L-43314

December 19, 1935

A.L. VELILLA, administrator of the estate of Arthur Graydon

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.

Moody,

plaintiff

-appellant,

Ohnick
and
Office of the Solicitor-General Hilado for appellee.

Opisso

for

appellant.

BUTTE, J.:
This is an appeal from a judgment of the Court of First Instant of manila in an action to recover from the defendantappellee as Collector of Internal Revenue the sum of P77,018.39 as inheritance taxes and P13,001.41 as income
taxes assessed against the estate of Arthur G. Moody, deceased.
The parties submitted to the court an agreed statement of facts as follows:
I. That Arthur Graydon Moody died in Calcutta, India, on February 18, 1931.
II. That Arthur Graydon Moody executed in the Philippine Islands a will, certified copy of which marked
Exhibit AA is hereto attached and made a part hereof, by virtue of which will, he bequeathed all his property
to his only sister, Ida M. Palmer, who then was and still is a citizen and resident of the State of New York,
United States of America.
III. That on February 24,1931, a petition for appointment of special administrator of the estate of the
deceased Arthur Graydon Moody was filed by W. Maxwell Thebaut with the Court of First Instance of Manila,
the same being designated as case No. 39113 of said court. Copy of said petition marked Exhibit BB is
hereto attached and made a part hereof.
IV. That subsequently or on April 10, 1931, a petition will of the deceased Arthur Graydon Moody, and the
same was, after hearing, duly probated by the court in a decree dated May 5, 1931. Copies of the petition
and of the decree marked Exhibits CC and DD, respectively, are hereto attached and made parts hereof.
V. That on July 14, 1931, Ida M. Palmer was declared to be the sole and only heiress of the deceased Arthur
Graydon Moody by virtue of an order issued by the court in said case No. 39113, copy of which marked
Exhibit EE is hereto attached and made a part hereof; and that during the hearing for the declaration of
heirs, Ida M. Palmer presented as evidence a letter dated February 28, 1925, and addressed to her by
Arthur Graydon Moody, copy of which marked Exhibit FF hereto attached and made part hereof.
VI. That the property left by the late Arthur Graydon Moody consisted principally of bonds and shares of
stock of corporations organized under the laws of the Philippine Islands, bank deposits and other personal
properties, as are more fully shown in the inventory of April 17, 1931, filed by the special administrator with
the court in said case No. 39113, certified copy of which inventory marked Exhibit GG is hereto attached
and made a part hereof. This stipulation does not, however, cover the respective values of said properties
for the purpose of the inheritance tax.
VII. That on July 22, 1931, the Bureau of Internal Revenue prepared for the estate of the late Arthur Graydon
Moody an inheritance tax return, certified copy of which marked Exhibit HH is hereto attached and made a
part, hereof.
VIII. That on September 9, 1931, an income tax return for the fractional period from January 1, 1931 to June
30, 1931, certified copy of which marked Exhibit 11 is hereto attached and made a part hereof, was also
prepared by the Bureau of Internal Revenue for the estate of the said deceased Arthur Graydon
Moody.1awphil.net
IX. That on December 3, 1931, the committee on claims and appraisals filed with the court its report,
certified copy of which marked Exhibit KK is hereto attached and made a part hereof.

X. That on September 15, 1931, the Bureau of Internal Revenue addressed to the attorney for the
administratrix Ida M. Palmer a letter, copy of which marked Exhibit LL is hereto attached and made a part
hereof.
XI. That on October 15, 1931, the attorney for Ida M. Palmer answered the letter of the Collector of Internal
Revenue referred to in the preceding paragraph. Said answer marked Exhibit MM is hereto attached and
made a part hereof.
XII. That on November 4, 1931, and in answer to the letter mentioned in the preceding paragraph, the
Bureau of Internal Revenue addressed to the attorney for Ida M. Palmer another letter, copy of which
marked Exhibit NN is hereto attached and made a part hereof.
XIII. That on December 7, 1931, the attorney for Ida M. Palmer again replied in a letter, marked Exhibit OO,
hereto attached and made a part hereof.
XIV. That the estate of the late Arthur Graydon Moody paid under protest the sum of P50,000 on July 22,
1931, and the other sum of P40,019.75 on January 19, 1932, making assessment for inheritance tax and
the sum of P13,001.41 covers the assessment for income tax against said estate.
XV. That on January 21, 1932, the Collector of Internal Revenue overruled the protest made by Ida M.
Palmer through her attorney.
XVI. The parties reserve their right to introduce additional evidence at the hearing of the present case.
Manila, August 15, 1933.
In addition to the foregoing agreed statement of facts, both parties introduced oral and documentary evidence from
which it appears that Arthur G. Moody, an American citizen, came to the Philippine Islands in 1902 or 1903 and
engaged actively in business in these Islands up to the time of his death in Calcutta, India, on February 18, 1931. He
had no business elsewhere and at the time of his death left an estate consisting principally of bonds and shares of
stock of corporations organized under the laws of the Philippine Islands, bank deposits and other intangibles and
personal property valued by the commissioners of appraisal and claims at P609,767.58 and by the Collector of
Internal Revenue for the purposes of inheritance tax at P653,657.47. All of said property at the time of his death
was located and had its situs within the Philippine Islands. So far as this record shows, he left no property of any
kind located anywhere else. In his will, Exhibit AA, executed without date in Manila in accordance with the
formalities of the Philippine law, in which he bequeathed all his property to his sister, Ida M. Palmer, he stated:
I, Arthur G. Moody, a citizen of the United States of America, residing in the Philippine Islands, hereby
publish and declare the following as my last Will and Testament . . ..
The substance of the plaintiff's cause of action is stated in paragraph 7 of his complaint as follows:
That there is no valid law or regulation of the Government of the Philippine Islands under or by virtue of
which any inheritance tax may be levied, assessed or collected upon transfer, by death and succession, of
intangible personal properties of a person not domiciled in the Philippine Islands, and the levy and
collection by defendant of inheritance tax computed upon the value of said stocks, bonds, credits and other
intangible properties as aforesaid constituted and constitutes the taking and deprivation of property without
due process of law contrary to the Bill of Rights and organic law of the Philippine Islands.
Section 1536 of the Revised Administrative Code (as amended) provides as follows:
SEC. 1536. Conditions and rate of taxation. Every transmission by virtue of inheritance, devise, bequest,
gift mortis causa or advance in anticipation of inheritance. devise, or bequest of real property located in the
Philippine Islands and real rights in such property; of any franchise which must be exercised in the
Philippine Islands, of any shares, obligations, or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippine Islands in accordance with its laws; of any shares or rights in any

partnership, business or any personal property located in the Philippine Islands shall be subject to the
following tax:
xxx

xxx

xxx

It is alleged in the complaint that at the time of his death, Arthur G. Moody was a "non-resident of the Philippine
Islands". The answer, besides the general denial, sets up as a special defense "Arthur G. Moody, now deceased, was
and prior to the date of his death, a resident in the City of Manila, Philippine Islands, where he was engaged actively
in business." Issue was thus joined on the question: Where was the legal domicile of Arthur G. Moody at the time of
his death?
The Solicitor-General raises a preliminary objection to the consideration of any evidence that Moody's domicile was
elsewhere than in Manila at the time of his death based on the proposition that as no such objection was made
before the Collector of Internal Revenue as one of the grounds of the protest against the payment of the tax, this
objection cannot be considered in a suit against the Collector to recover the taxes paid under protest. He relies upon
the decision in the case of W.C. Tucker vs. A.C. Alexander, Collector (15 Fed. [21, 356). We call attention, however,
to the fact that this decision was reversed in 275 U.S., 232; 72 Law. ed., 256, and the case remanded for trial on the
merits on the ground that the requirement that the action shall be based upon the same grounds, and only such, as
were presented in the protest had been waived by the collector. In the case before us no copy of the taxpayer's
protest is included in the record and we have no means of knowing its contents. We think, therefore, the preliminary
objection made on behalf of the appellee does not lie.
We proceed, therefore, to the consideration of the question on the merits as to whether Arthur G. Moody was legally
domiciled in the Philippine Islands on the day of his death. Moody was never married and there is no doubt that he
had his legal domicile in the Philippine Islands from 1902 or 1903 forward during which time he accumulated a
fortune from his business in the Philippine Islands He lived in the Elks' Club in Manila for many years and was living
there up to the date he left Manila the latter part of February, 1928, under the following circumstances: He was
afflicted with leprosy in an advanced stage and been informed by Dr. Wade that he would be reported to the
Philippine authorities for confinement in the Culion Leper Colony as required by the law. Distressed at the thought of
being thus segregated and in violation of his promise to Dr. Wade that he would voluntarily go to Culion, he
surreptitiously left the Islands the latter part of February, 1928, under cover of night, on a freighter, without ticket,
passport or tax clearance certificate. The record does not show where Moody was during the remainder of the year
1928. He lived with a friend in Paris, France, during the months of March and April of the year 1929 where he was
receiving treatment for leprosy at the Pasteur Institute. The record does not show where Moody was in the interval
between April, 1929, and November 26, 1930, on which latter date he wrote a letter, Exhibit B, to Harry Wendt of
Manila, offering to sell him mis interest in the Camera Supply Company, a Philippine corporation, in which Moody
owned 599 out of 603 shares. In this letter, among other things, he states: "Certainly I'll never return there to live or
enter business again." In this same letter he says:
I wish to know as soon as now (as to the purchase) for I have very recently decided either to sell or put in a line of
school or office supplies ... before I go to the necessary investments placing any side lines, I concluded to get your
definite reply to this ... I have given our New York buying agent a conditional order not to be executed until March
and this will give you plenty of time ... anything that kills a business is to have it peddled around as being for sale
and this is what I wish to avoid. He wrote letters dated December 12, 1930, and January 3, 1931, along the same
line to Wendt. As Moody died of leprosy less than two months after these letters were written, there can be no doubt
that he would have been immediately segregated in the Culion Leper Colony had he returned to the Philippine
Islands. He was, therefore, a fugitive, not from justice, but from confinement in the Culion Leper Colony in
accordance with the law of the Philippine Islands.
There is no statement of Moody, oral or written, in the record that he had adopted a new domicile while he was
absent from Manila. Though he was physically present for some months in Calcutta prior to the date of his death
there, the appellant does not claim that Moody had a domicile there although it was precisely from Calcutta that he
wrote and cabled that he wished to sell his business in Manila and that he had no intention to live there again. Much
less plausible, it seems to us, is the claim that he established a legal domicile in Paris in February, 1929. The record
contains no writing whatever of Moody from Paris. There is no evidence as to where in Paris he had any fixed abode
that he intended to be his permanent home. There is no evidence that he acquired any property in Paris or engaged
in any settled business on his own account there. There is no evidence of any affirmative factors that prove the
establishment of a legal domicile there. The negative evidence that he told Cooley that he did not intend to return

to Manila does not prove that he had established a domicile in Paris. His short stay of three months in Paris is
entirely consistent with the view that he was a transient in Paris for the purpose of receiving treatments at the
Pasteur Institute. The evidence in the record indicates clearly that Moody's continued absence from his legal
domicile in the Philippines was due to and reasonably accounted for by the same motive that caused his
surreptitious departure, namely, to evade confinement in the Cullion Leper Colony for he doubtless knew that on his
return he would be immediately confined, because his affliction became graver to us while he was absent than it
was on the day of his precipitous departure and he could not conceal himself in the Philippines where he was well
known, as he might do in foreign parts.
Our Civil Code (art. 40) defines the domicile of natural persons as "the place of their usual residence". The record
before us leaves no doubt in our minds that the "usual residence" of this unfortunate man, whom appellant
describes as a "fugitive" and "outcast", was in Manila where he had lived and toiled for more than a quarter of a
century, rather than in any foreign country he visited during his wanderings up to the date of his death in Calcutta.
To effect the abandonment of one's domicile, there must be a deliberate and provable choice of a new domicile,
coupled with actual residence in the place chosen, with a declared or provable intent that it should be one's fixed
and permanent place of abode, one's home. There is a complete dearth of evidence in the record that Moody ever
established a new domicile in a foreign country.
The contention under the appellant's third assignment of error that the defendant collector illegally assessed an
income tax of P13,001.41 against the Moody estate is, in our opinion, untenable. The grounds for this assessment,
stated by the Collector of Internal Revenue in his letter, Exhibit NN, appear to us to be sound. That the amount of
P59,986.69 was received by the estate of Moody as dividends declared out of surplus by the Camera Supply
Company is clearly established by the evidence. The appellant contends that this assessment in taxation: First,
because the corporation paid income tax on the same amount during the years it was accumulated as surplus;
second, that an inheritance tax on the same amount was assessed against the estate, and third, the same amount
is assessed as income of the estate. As to the first, it appears from the collector's assessment, Exhibit 11, to the
collector allowed the estate a deduction of the normal income tax on said amount because it had already been paid
at the source by the Camera Supply Company. The only income tax assessed against the estate was the additional
tax or surtax that had not been paid by the Camera Supply Company for which the estate, having actually received
the income, is clearly liable. As to the second alleged double taxation, it is clear that the inheritance tax and the
additional income tax in question are entirely distinct. They are assessed under different statutes and we are not
convinced by the appellant's argument that the estate which received these dividends should not be held liable for
the payment of the income tax thereon because the operation was simply the conversion of the surplus of the
corporation into the property of the individual stockholders. (Cf. U.S. vs. Phellis, 257 U.S., 171, and Taft vs. Bowers,
278 U.S., 460.) Section 4 of Act No. 2833 as amended, which is relied on by the appellant, plainly provides that the
income from exempt property shall be included as income subject to tax.
Finding no merit in any of the assignments of error of the appellant, we affirm the judgment of the trial court, first,
because the property in the estate of Arthur G. Moody at the time of his death was located and had its situs within
the Philippine Islands and, second, because his legal domicile up to the time of his death was within the Philippine
Islands. Costs against the appellant.
-------------1. INHERITANCE TAX; DOMICILE OF TAXPAYER. To effect the abandonment of ones domicile, there must be a
deliberate and provable choice of a new domicile, coupled with actual residence in the place chosen, with a
declared or provable intent that it should be ones fixed and permanent place of abode, ones home. There
is a complete dearth of evidence in the record that M ever established a new domicile in a foreign country.
2. INHERITANCE AND INCOME TAXES. As Ms legal domicile at the time of his death was the Philippine
Islands and his estate had its situs here, the inheritance and income taxes here involved were lawfully
collected.
---------------G.R. Nos. L-9456 and L-9481
January 6, 1958
THE
COLLECTOR
OF
INTERNAL
REVENUE,
petitioner,
vs.
DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the
COURT OF TAX APPEALS, respondents.
Allison
J.
Gibbs,
Zafra,
De
Leon
and
Veneracion
for
Domingo
E.
de
Lara.
Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue.
MONTEMAYOR, J.:

These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and
the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller, from the decision of the
Court of Tax Appeals of June 25, 1955, with the following dispositive part:
WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the decedent
Hugo H. Miller is hereby modified in accordance with the computation attached as Annex "A" of this
decision. Petitioner is hereby ordered to pay the amount of P2,047.22 representing estate taxes due,
together with the interests and other increments. In case of failure to pay the amount of P2,047.22 within
thirty (30) days from the time this decision has become final, the 5 per cent surcharge and the
corresponding interest due thereon shall be paid as a part of the tax.
The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly stated as
follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to
the Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later as
a division superintendent of schools, later retiring under the Osmeiia Retirement Act. After his retirement, Miller
accepted an executive position in the local branch of Ginn & Co., book publishers with principal offices in New York
and Boston, U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in
the Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also China and Japan.
His principal work was selling books specially written for Philippine schools. In or about the year 1922, Miller lived at
the Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California, but she used to come to
the Philippines for brief visits with Miller, staying three or four months. Miller also used to visit his wife in California.
He never lived in any residential house in the Philippines. After the death of his wife in 1931, he transferred from the
Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17,
1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that he was "of
Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and
Miller joined the Board of Censors of the United States Navy. During the war, he was taken prisoner by the Japanese
forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have
been executed by said forces on March 11, 1944, and since then, nothing has been heard from him. At the time of
his death in 1944, Miller owned the following properties:
Real Property situated in Ben-Lomond, Santa Cruz,
California
valued P
at ......................................................................
5,000.00
Real property situated in Burlingame, San Mateo,
California
valued 16,200.0
at ........................................................................................ 0
Tangible
Personal
worth.............................................
Cash
in
the
banks
States....................................

property,
2,140.00
in

the

United 21,178.2
0

Accounts Receivable from various persons in the United

States
including 36,062.7
notes ...............................................................
4
Stocks in U.S. Corporations and U.S. Savings Bonds,
valued
123,637.
at ........................................................................................ 16
Shares of stock in Philippine Corporations, valued 51,906.4
at ..........
5
Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which
Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court subsequently issued an order
and decree of settlement of final account and final distribution, wherein it found that Miller was a "resident of the
County of Santa Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary proceedings were
filed by the executors of the will before the Court of First Instance of Manila, which court by order of November 21,
1946, admitted to probate the will of Miller was probated in the California court, also found that Miller was a resident
of Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and Savings
Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax return
with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability of
P269.43 for taxes and P230.27 for inheritance taxes. After due investigation, the Collector assessed estate and
inheritance taxes, which was received by the said executor on April 3, 1950. The estate of Miller protested the
assessment of the liability for estate and inheritance taxes, including penalties and other increments at P77,300.92,
as of January 16, 1954. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of
Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals.
In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is
first necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his
death. The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax
laws on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made
to domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a
"residence" in this country, and was a resident thereof at the time of his death, and consequently, his intangible

personal properties situated here as well as in the United States were subject to said taxes. The Ancilliary
Administrator, however, equally maintains that for estate and inheritance tax purposes, the term "residence" is
synonymous with the term domicile.
We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated
in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that
the two were used intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs. Posadas,
62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without
distinction, the case involving the application of the term residence employed in the inheritance tax law at the time
(section 1536- 1548 of the Revised Administrative Code), and that consequently, it will be presumed that in using
the term residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is reason
to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system (see
e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal
Revenue Code Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one
who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of
estate and taxation, "residence" is interpreted as synonymous with domicile, and that
The incidence of estate and succession has historically been determined by domicile and situs and not by
the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den
(1928) 272 U.S.608).
We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in
Santa Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at the
Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of
his savings and properties were in the United States. To his home in California, he had been sending souvenirs, such
as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller
took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the
fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of
Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of
his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations,
valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that personal
property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of
mobilia secuuntur persona, nevertheless, when he during his life time,
. . . extended his activities with respect to his intangibles, so as to avail himself of the protection and
benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of
the Philippines, the reason for a single place of taxation no longer obtains- protection, benefit, and power
over the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank &
Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock
is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates
at stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the
transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the
right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co.
vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon
transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was
outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174,
86 L. Ed. 1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80).
The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code, which
provides as follows:
. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of
his death did not impose a transfer tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of
which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or
death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine
not residing in that foreign country.
The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from the California
inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates
of non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of
1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows:
SEC. 6. The following exemption from the tax are hereby allowed:
xxx
xxx
xxx.
(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is
a resident of a State or Territory of the United States or a foreign state or country which at the time of his
death imposed a legacy, succession of death tax in respect of intangible personal property within the State
or Territory or foreign state or country of residents of the States or Territory or foreign state or country of
residence of the decedent at the time of his death contained a reciprocal provision under which nonresidents were exempted from legacy or succession taxes or death taxes of every character in respect of
intangible personal property providing the State or Territory or foreign state or country of residence of such
non-residents allowed a similar exemption to residents of the State, Territory or foreign state or country of
residence of such decedent.

Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and
hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible
personal property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision
of Section 122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a
decedent's intangible personal property to the inheritance tax, both in his place of residence and domicile and the
place where those properties are found. As regards the exemption or reduction of P4,000 based on the reduction
under the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed
under the Federal Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court
observes--.
. . . this exemption is allowed on all gross estate of non-residents of the United States, who are not citizens
thereof, irrespective of whether there is a corresponding or similar exemption from transfer or death taxes
of non-residents of the Philippines, who are citizens of the United States; and thirdly, because this
exemption is allowed on all gross estates of non-residents irrespective of whether it involves tangible or
intangible, real or personal property; so that for these reasons petitioner cannot claim a reciprocity. . .
Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under
section 85 of the Tax Code, before it was amended, which in part provides as follows:
SEC. 85. Rates of estate tax.There shall be levied, assessed, collected, and paid upon the transfer of the
net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum
of the following percentages of the value of the net estate determined as provided in sections 88 and 89:
One per centrum of the amount by which the net estate exceeds three thousand pesos and does not
exceed ten thousand pesos;. . .
It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator
was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other
increments. Said Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was passed for the
benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The
provisions of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic
Act was approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of
the war, but was killed by the Japanese military forces, his estate is entitled to the benefits of this Act.
Consequently, the interests and other increments provided in the appealed judgment should not be paid by his
estate.
With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it
unnecessary to pass upon the other points raised in the appeal. No costs.
----cOLLECTOR V. LARA
(multiplicity of situs)
FACTS:
Hugo H. Miller, an American citizen, was born in SantaCruz, California, U.S.A., in 1883. In 1905, he came to
thePhilippines. From 1906 to 1917, he was connected with thepublic school system, first as a teacher and later as a
divisionsuperintendent of schools. After his retirement, Miller acceptedan executive position in the local branch of
Ginn & Co., bookpublishers with principal offices in New York and Boston,U.S.A., up to the outbreak of the Pacific
War. Miller lived at theManila Hotel. He never lived in any residential house in thePhilippines. After the death of his
wife in 1931, he transferredfrom the Manila Hotel to the Army and Navy Club, where hewas staying at the outbreak
of the Pacific War. On January 17,1941, Miller executed his last will and testament in Santa Cruz,California, in which
he declared that he was "of Santa Cruz,California". On December 7, 1941, because of the Pacific War,the office of
Ginn & Co. was closed, and Miller joined theBoard of Censors of the United States Navy. During the war,he was
taken prisoner by the Japanese forces in Leyte, and inJanuary, 1944, he was transferred to Catbalogan, Samar,where
he was reported to have been executed by said forceson March 11, 1944.Testate proceedings were instituted before
the Courtof California in Santa Cruz County, which subsequently issuedan order and decree of settlement of final
account and finaldistribution. The Bank of America, National Trust and SavingsAssociation of San Francisco
California, co-executor named inMiller's will, filed an estate and inheritance tax return with theCollector, covering
only the shares of stock issued byPhilippine corporations. After due investigation, the Collector assessed estate and
inheritance taxes, which was received bythe said executor. The estate of Miller protested saidassessment. This
assessment was appealed by De Lara asAncilliary Administrator before the Board of Tax Appeals, whichappeal was
later heard and decided by the Court of TaxAppeals.In determining the "gross estate" of a decedent, under Section
122 in relation to section 88 of our Tax Code, it is firstnecessary to decide whether the decedent was a resident or
anon-resident of the Philippines at the time of his death. TheCollector maintains that under the tax laws, residence
anddomicile have different meanings; that tax laws on estate andinheritance taxes only mention resident and nonresident, andno reference whatsoever is made to domicile except in Section93 (d) of the Tax Code; that Miller during
his long stay in thePhilippines had required a "residence" in this country, and wasa resident thereof at the time of
his death, and consequently,his intangible personal properties situated here as well as inthe United States were
subject to said taxes. The AncilliaryAdministrator, however, equally maintains that for estate andinheritance tax
purposes, the term "residence" is synonymouswith the term domicile.
ISSUE:
W/N the estate is liable to file an estate andinheritance tax return besides those covering shares of stocksissued by
Philippine corporations.
HELD: No

. The Court agrees with the Court of Tax Appealsthat at the time that The National Internal Revenue Code
waspromulgated in 1939, the prevailing construction given by thecourts to the "residence" was synonymous with
domicile. andthat the two were used intercnangeabiy. Moreover, there isreason to believe that the Legislature
adopted the American(Federal and State) estate and inheritance tax system (see e.g.Report to the Tax Commision
of the Philippines, Vol. II, pages122-124, cited in I Dalupan, National Internal Revenue Code Annotated, p. 469-470).
In the United States, for estate taxpurposes, a resident is considered one who at the time of hisdeath had his
domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence"is
interpreted as synonymous with domicile, and that
The incidence of estate and succession hashistorically been determined by domicile andsitus and not by the fact of
actual residence.
(Bowring vs. Bowers)At the time of his death, Miller had his residence or domicile in Santa Cruz, California. During
his stay in thecountry, Miller never acquired a house for residential purposesfor he stayed at the Manila Hotel and
later on at the Army andNavy Club. The bulk of his savings and properties were in theUnited States. To his home in
California, he had been sendingsouvenirs. In November, 1940, Miller took out a propertyinsurance policy and
indicated therein his address as SantaCruz, California, this aside from the fact that Miller, as alreadystated,
executed his will in Santa Cruz, California, wherein hestated that he was "of Santa Cruz, California".*** As to the
shares of stocks issued by Philippinecorporations, an exemption was granted to the estate by virtueof Section 122 of
the Tax Code, which provides as follows:. . ."And Provided, however, That no tax shall becollected under this Title in
respect of intangiblepersonal property (a) if the decedent at the time of hisdeath was a resident of a foreign country
which at thetime of his death did not impose a transfer tax or death tax of any character in respect of
intangiblepersonal property of citizens of the Philippines notresiding in that country, or (b) if the laws of the
foreigncountry of which the decedent was resident at thetune of his death allow a similar exemption fromtransfer
taxes or death taxes of every character inrespect of intangible personal property owned bycitizen, of the Philippine
not residing in that foreigncountry.
--------------------G.R. No. L-69259 January 26, 1988
DELPHER
TRADES
CORPORATION,
and
DELPHIN
PACHECO,
vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.

petitioners,

GUTIERREZ, JR., J.:

The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's
contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to
Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right
of first refusal under a lease contract.
Briefly, the facts of the case are summarized as follows:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters
of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now
Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title
No. T-4240 of the Bulacan land registry.
On April 3, 1974, the said co-owners leased to Construction Components International Inc. the
same property and providing that during the existence or after the term of this lease the lessor
should he decide to sell the property leased shall first offer the same to the lessee and the letter
has the priority to buy under similar conditions (Exhibits A to A-5)
On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive)
The contract of lease, as well as the assignment of lease were annotated at he back of the title, as
per stipulation of the parties (Exhs. A to D-3 inclusive)

On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco
and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased
property (TCT No.T-4240) together with another parcel of land also located in Malinta Estate,
Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant corporation with a
total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease
agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot. No. 1095
in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia
Pacheco and Delphin Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision
reads:
ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs
preferential right to acquire the subject property (right of first refusal) and ordering the defendants
and all persons deriving rights therefrom to convey the said property to plaintiff who may offer to
acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is
27,169 square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I;
Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision.
We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition
and gave it due course.
The petitioners allege that:
The denial of the petition will work great injustice to the petitioners, in that:
1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a
parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the
Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366,
although the prevailing value thereof is approximately P300/sq. meter or P8.1 Million;
2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or
transfer of actual ownership interests by petitioners to third parties; and
3. Assuming arguendo that there has been a transfer of actual ownership interests, private
respondent will acquire the land not under "similar conditions" by which it was transferred to
petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by
private respondent. (pp. 251-252, Rollo)
The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the
Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale
which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the
"deed of exchange."
Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades
Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses
Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the
parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the
corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No.
1095 which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased

property was transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these
properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55%
majority in the corporation because the other owners only owned 2,000 shares; and that at the time of
incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners'
motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo)
Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject
parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that
the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there
was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation
in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in
substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the
corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity
of interest." (p. 254, Rollo)
The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that
they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter,
or even spirit of the contract. There is a sale when ownership is transferred for a price certain in money or its
equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of
another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)
On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate
and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the
Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as
such a separate and distinct corporate entity, is not a party who may allege that this separate corporate existence
should be disregarded. It maintains that there was actual transfer of ownership interests over the leased property
when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock.
We rule for the petitioners.
After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from
the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton
[1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original
unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became
stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and
pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is
significant that the Pachecos took no par value shares in exchange for their properties.
A no-par value share does not purport to represent any stated proportionate interest in the capital
stock measured by value, but only an aliquot part of the whole number of such shares of the
issuing corporation. The holder of no-par shares may see from the certificate itself that he is only
an aliquot sharer in the assets of the corporation. But this character of proportionate interest is not
hidden beneath a false appearance of a given sum in money, as in the case of par value shares.
The capital stock of a corporation 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 stated number of shares, such as,
1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets
of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus,
by removing the par value of shares, the attention of persons interested in the financial condition
of a corporation is focused upon the value of assets and the amount of its debts. (Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition,
p. 107).
Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00
a square meter was turned over to the family's corporation for only P14.00 a square meter.

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. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same
family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest
their properties and change the nature of their ownership from unincorporated to incorporated form by organizing
Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes.
As explained by Eduardo Neria:
xxx xxx xxx
ATTY. LINSANGAN:
Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses
Hernandez and Pacheco in connection with their execution of a deed of exchange
on the properties for no par value shares of the defendant corporation?
A Yes, sir.
COURT:
Q What do you mean by "point of view"?
A To take advantage for both spouses and corporation in entering in the deed of
exchange.
ATTY. LINSANGAN:
Q (What do you mean by "point of view"?) What are these benefits to the spouses
of this deed of exchange?
A Continuous control of the property, tax exemption benefits, and other inherent
benefits in a corporation.
Q What are these advantages to the said spouses from the point of view of
taxation in entering in the deed of exchange?
A Having fulfilled the conditions in the income tax law, providing for tax free
exchange of property, they were able to execute the deed of exchange free from
income tax and acquire a corporation.
Q What provision in the income tax law are you referring to?
A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par.
(2) Exceptions regarding the provision which I quote: "No gain or loss shall also be
recognized if a person exchanges his property for stock in a corporation of which
as a result of such exchange said person alone or together with others not
exceeding four persons gains control of said corporation."
Q Did you explain to the spouses this benefit at the time you executed the deed of
exchange?
A Yes, sir

Q You also, testified during the last hearing that the decision to have no par value
share in the defendant corporation was for the purpose of flexibility. Can you
explain flexibility in connection with the ownership of the property in question?
A There is flexibility in using no par value shares as the value is determined by the
board of directors in increasing capitalization. The board can fix the value of the
shares equivalent to the capital requirements of the corporation.
Q Now also from the point of taxation, is there any flexibility in the holding by the
corporation of the property in question?
A Yes, since a corporation does not die it can continue to hold on to the property
indefinitely for a period of at least 50 years. On the other hand, if the property is
held by the spouse the property will be tied up in succession proceedings and the
consequential payments of estate and inheritance taxes when an owner dies.
Q Now what advantage is this continuity in relation to ownership by a particular
person of certain properties in respect to taxation?
A The property is not subjected to taxes on succession as the corporation does not
die.
Q So the benefit you are talking about are inheritance taxes?
A Yes, sir. (pp. 3-5, tsn., December 15, 1981)
The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the
Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether
avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal
Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a
contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco
family merely changed their ownership from one form to another. The ownership remained in the same hands.
Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then
Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of
the then Court of First Instance of Bulacan is DISMISSED. No costs.
SO ORDERED.
---------------------Delpher Trades Corporation vs. IAC
The legal right of a taxpayer to decrease the amount of what otherwise couldbe his taxes or altogether avoid them,
by means which the law permits,cannot be doubted.
Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (nowValenzuela). Subsequently, they
leased to Construction Components InternationalInc. the property and providing for a right of first refusal should it
decide to sell thesaid property.Construction Components International, Inc. assigned its rights and obligationsunder
the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signedconformity and consent of Delfin and
Pelagia. In 1976, a deed of exchange wasexecuted between lessors Delfin and Pelagia Pacheco and defendant
DelpherTrades Corporation whereby the Pachecos conveyed to the latter the leasedproperty together with another
parcel of land also located.On the ground that it was not given the first option to buy the leased propertypursuant to
the lease agreement, respondent Hydro Pipes Philippines filed anamended complaint for reconveyance of the lot
under the conditions similar tothose of Delpher. The court ruled in favor of Hydro declaring the existence of
itspreferential right to acquire the subject property. IAC affirmed.Petitioner Delpher contend that there was actually
no transfer of ownership, thePachecos having remained in control of the property. They alleged that
petitionerDelpher is a family corporation , organized by the children of Pelagia, who ownedthe parcel of land leased
to private respondent Hydro to perpetuate their controlover the property through the corporation and to avoid

taxes. It also alleged that toaccomplish this, the leased property was transferred to petitioner Delpher byvirtue of a
deed of exchange, and in exchange for the properties they acquiredmajority shares of petitioner Delpher
corporation. In short, petitioners contendthat the Pachecos did not sell the leased property since they exchanged
the landfor shares in their own corporation. Private respondent, however, contend thatpetitioner Delher Trades is a
corporation separate and distinct from the Pachecos.
Issue:
Whether or not the "Deed of Exchange" of the properties executed by thePachecos on the one hand and the Delpher
Trades Corporation on the other wasmeant to be a contract of sale which, in effect, prejudiced the private
respondent'sright of first refusal over the leased property included in the deed of exchange
Ruling:
The Court ruled in favor of the petitioner. The "Deed of Exchange" of propertybetween the Pachecos and Delpher
Trades Corporation cannot be considered acontract of sale. There was no transfer of actual ownership interests by
thePachecos to a third party. The Pacheco family merely changed their ownershipfrom one form to another. The
ownership remained in the same hands. Hence, theprivate respondent has no basis for its claim of a light of first
refusal under thelease contract.By their ownership of a capital equal to 55% of the shares, the Pachecos have
thecontrol of the petitioner corporation. In effect, the petitioner corporation is abusiness conduit of the Pachecos.
What they really did was to invest theirproperties and change the nature of their ownership from unincorporated
toincorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same
time save on inheritance taxesThe execution of the deed of exchange on the properties for no par value shares,the
Pachecos were able to provide for a tax free exchange of property, such thatthey were able to execute the deed of
exchange free from income tax and acquirea corporation.
Sec. 35 of the NIRC provides that
No gain or loss shall also berecognized if a person exchanges his property for stock in a corporation of which asa
result of such exchange said person alone or together with others not exceedingfour persons gains control of said
corporation."
The Court believes that there is nothing wring about the estate planning scheme
resorted to by the Pachecos.
The legal right of a taxpayer to decrease the amountof what otherwise could be his taxes or altogether avoid them,
by means whichthe law permits, cannot be doubted.
----------G.R. No. L-12189

April 29, 1960

FRANCISCA
GALLARDO,
vs.
HERMENEGILDA S. MORALES, defendant-appellant.
Cajulis
and
Filemon Cajator for appellant.

Dolorfino

plaintiff-appellee,

for

appellee.

CONCEPCION, J.:
The issue before us is whether a personal accident insurance which "insures for injuries and/or death as a result of
murder or assault or attempt thereat" is a life insurance, within the purview of Rule 39, section 12, subdivision (k) of
the Rules of Court, exempting from execution.
All moneys, benefits, privileges, or annuities accruing or in any manner growing out of any life insurance, if
the annual premiums paid do not exceed five hundred pesos, and if they exceed that sum a like exemption
shall exist which shall bear the same proportion to the moneys, benefits, privileges, and annuities so
accruing or growing out of such insurance that said five hundred pesos bears to the whole annual premiums
paid.
In accordance with a compromise agreement between the parties in the above-entitled case, a decision was
rendered therein by the Court of First Instance of Manila, on February 3, 1956, sentencing defendant Hermenegilda
S. Morales to pay to plaintiff Francisca Gallardo the sum of Seven Thousand Pesos (P7,000.00). In due course, the
corresponding writ of execution was issued and delivered to the Sheriff of Manila, who, on August 8, 1956, garnished
and levied execution on the sum of P7,000.00, out of the P30,000.00 a due from the Capital Insurance & Surety Co.,
Inc., to said defendant, as beneficiary under a personal accident policy issued by said company to defendant's
husband, Luis Morales, who died, on August 26, 1950, by assassination. Invoking the above-quoted provision of the
Rules of Court, defendant asked the sheriff to quash and lift said garnishment or levy on execution. Upon denial of

this request by the sheriff, defendant filed a motion praying that the aforementioned sum of P7,000.00 be declared
exempt from execution under said provision of the Rules of Court, and that the Sheriff of Manila be ordered to quash
or lift said garnishment or levy on execution. This motion was denied by an order dated October 18, 1956. Hence,
the present appeal by the defendant, who maintains that the policy in question is a life insurance policy, within the
purview of the aforementioned exemption, for it insured her husband ". . . for injuries and/or death as a result of
murder or assault or attempt thereat."
In its order denying the claim for exemption set up by the defendant, the lower court expressed itself as follows:
Upon a perusal of the authorities cited by the parties, this Court is fully convinced that there is a
fundamental distinction between life insurance, and accident insurance, and the insurance policy issued to
Luis G. Morales, husband of herein defendant, was undoubtedly an accident insurance, as distinguished
from a life insurance. As conceded by the facts appearing in the pleadings, the personal accident policy,
part of the proceeds of which is under garnishment, was for P50,000.00 and yet the annual premium was
for P15.00. If it were an ordinary life insurance policy, taking into account that the insured, Luis G. Morales,
was 38 years of age and the amount of the policy was for P50,000.00 the annual premium would have been
around P1,206.00. Besides, the period for the policy was stipulated for one year, and considerations as to
age, health, occupation and other personal circumstances were not taken into account in an accident
insurance policy. Even the certification issued by the insurance commissioner on August 23, 1956, marked
as Annex "1" of the opposition, shows that the Capital Insurance and Surety Company Inc. is a non-life
insurance company and that the only authority granted to it to transact business covers fire, marine,
surety, fidelity, accident, motor car, and miscellaneous insurance, except life insurance. From this
circumstance alone, not to mention many others, there are abundant indications that there exists a
fundamental distinction between life insurance and accident insurance. As counsel for oppositor has clearly
pointed out, an accident policy merely insures the person from injury and or death resulting from murder,
assault, or an attempt thereat, while in life insurance policy, what is insured is the life of the subject for a
definite number of years. From the authorities quoted by the oppositor, this Court is fully convinced that an
accident policy is fundamentally different from a life insurance policy, especially if this Court takes into
account that accident insurance is an indemnity or casualty contract, while life insurance is an investment
contract.
It is not disputed that a life insurance is, generally speaking, distinct and different from an accident insurance.
However, when one of the risks insured in the latter is the death of the insured by accident, then there are
authorities to the effect that such accident insurance may, also, be regarded as a life insurance.
"Life insurance" is a contract whereby one party insures a person against loss by the death of another.
Petition of Robbins, 140 A. 366, 367, 126 Me. 555.
An insurance on life is a contract by which the insurer, for a stipulated sum, engages to pay a certain
amount of money if another dies within the time limited by the policy. Cason vs. Owens, 26 S. E. 75, 76, 100
Ga. 142.
Life insurance includes in which the payment of the insurance money is contingent upon the loss of life.
Bowless vs. Mutual Ben. Health & Accident Ass'n, C.C.A. Va. 99F. 2d 44. 48, 49.
A contract for life insurance is really a contract for insurance for one year in consideration of an advanced
premium, with the right of assured to continue it from year to year upon payment of a premium as
stipulated. Mutual Life Ins. Co. 100 Pa 172, 180.
In its broader sense, "life insurance" includes accident insurance, since life is insured under either contract.
American Trust & Banking Co. vs. Lessly, 106 S.W. 2d. 551, 552, 171 Tenn. 561, 111 A.L.R. 59.
Under statute providing that 'any life insurance' on life of husband shall insure to benefit of widow and
children exempt from husband's debt, proceeds of policy insuring against death by accident insured to
widow's benefit free from husband's debts. Code 1932, B 8456. American Trust & Banking Co. vs. Lessly,
106 S.W. 2d 551, 171 Tenn. 511 III A.L.R. 59.

Insurance policy, providing for payment in case of accidental death, is "life insurance policy" to such extent
within state statue prescribing in-contestable period for policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut.
Life Ins. Co. of California vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.
"Life insurance" includes all policies of insurance in which payment of insurance money is contingent upon
loss of life. . . . Smith vs. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477.
Insurance policy including a death benefit and a health or accident disability benefit constituted a "life
insurance policy" within meaning of laws 1926, c. 118, S. 134, imposing privilege tax on insurance
companies with different rates as between life insurance companies and other companies, in view of
provisions of Code 1906, ss 2576, 2598 (Hemingway's Code 1927, ss 5830, 5856), and Law 1924, c. 191, s I
(Hemingway's Code 1927, s 5995); it being immaterial that in some policy forms the health and disability
feature was more valuable asent a showing that death provision was inserted to avoid the higher tax.
Universal Life Ins. Co. vs. State, 121 So. 849, 850, 155 Miss. 358." (25 Words & Phrases 260, 261, 262.)
When the application was made, Harris W. Rimmer carried life insurance with the Equitable Life Assurance
Society, for $10,000, payable upon proof of death, with a provision that upon death by accident the amount
of insurance payable would be increased to $20,000. The plaintiff insisted that this was life insurance, a
disclosure of which was not called for in question 10, while the defendant insisted it was accident insurance
that should have been disclosed and further insisted that, it being a fact material to the risk the failure to
disclose the policy in the Equitable Life Assurance Society rendered the policy issued to the applicant void. .
..
The court might have gone further and held that the failure of the applicant to characterize the insurance in
the Equitable Life Assurance Society as accident insurance did not constitute a false answer to the inquiry
of what accident or health insurance he was carrying. The policy in the Equitable Life Assurance Society
covered loss of life from natural as well as external and accidental causes, and was life insurance. The mere
addition of the double indemnity clause providing for increased insurance upon proof of death by accident
did not divest the policy of its character of insurance on life, or make the contract other than life insurance,
for insurance on life includes all policies of insurance in which the payment of the insurance money is
contingent upon the loss of life. Logan vs. Fidelity & Casualty Co., 146 Mo. 114, 47 S.W. 948. See also
Johnson vs. Fidelity & Guaranty Co., 148 Mich. 406, 151 N.W. 593, L.R.A. 1916A, 475; Zimmer vs. Central
Accidental Co., 207 Pa. 472, 56 A. 1003; Wright vs. Fraternities Health & Accident Ass'n. 107 Me. 418, 78A.
475, 32 L.R.A. (N.S.)461; Metropolitan Life Ins. Co. vs. Ins. Com'r 208 Mass. 386, 94 N.E. 477; Standard Life
& Accident Ins. 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." (Provident Life & Accident Ins. Co. vs. Rimmer, 12 S. W. 2d
Series, 365, 367.)
For this reason, and because the above-quoted provision of the Rules of Court makes reference to "any life
insurance," we are inclined to believe that the exemption there established applies to ordinary life insurance
contracts, as well as to those which, although intended primarily to indemnify for risks arising from accident,
likewise, insure against loss of life due, either to accidental causes, or to the willful and criminal act of another,
which, as such, is not strictly accidental in nature. Indeed, it has been held that statutes of this nature seek to
enable the head of the family to secure his widow and children from becoming a burden upon the community and,
accordingly, should merit a liberal interpretation.
The object of this statue was to enable a husband, when death deprived wife and children of his support, to
secure them from want and to prevent them from becoming a charge upon the public . Necessities of the
wife and children and the public interest are none the less if the death of the husband be brought about by
accident rather than by disease. The intent of the legislature in the enactment of this statute would not be
advanced by the construction of the law upon which the petitioners insist. (American Trust & Banking Co.
vs. Lessly et al., Supreme Court of Tenn., 106 S.W. 2d, 551, 552.)
Under statutes providing to that effect, the proceeds of life insurance are exempt from the claims of
creditors, a limitation being sometimes imposed as to amount, see infra Sec. 40, or as to the beneficiaries
entitled to the exemption, see infra subdivision of this section. Statutes exempting life insurance are
regarded as exemption laws, and not as part of the insurance from law of the state, nor as designed simply
to protect insurer from harassing litigation. Such statutes should be construed liberally and in the light of,

and to give effect to, their purpose of enabling an individual to provide a fund after his death for his family
which will be free from the claims of creditors. The exemption privilege is created not by contract but by
legislative grant, and grounds for the exemption of the proceeds of insurance policies must be found in the
statutes. (35 C.J.S. pp. 53-54.)
By weight of authority, exemption statutes or rules should be liberally construed with a view to giving effect
to their beneficent and humane purpose. To this end, every reasonable doubt as to whether a given
property is or is not exempt should be resolved in favor of exemption. (Comments on the Rules of Court by
Moran [1957 ed.] Vol. 1, p. 564.)
Wherefore, the order appealed from is reversed, and the garnishment in dispute hereby set aside and quashed, with
the costs of this instance against plaintiff Francisca Gallardo. It is so ordered.
-------ACTS:

CFI: Hermenegilda S. Morales to pay P7,000 to a creditor Francisca Gallardo

writ of execution was issued and delivered to the Sheriff who garnished and levied execution on the sum of
P7,000 out of the P30,000 due from the Capital Insurance & Surety Co. Inc., to Morales as beneficiary whose
husband Luis Morales died by assassination.

Morales asked the sheriff to quash and lift said garnishment or levy on execution invoking Rule 39, section
12, subdivision (k) of the Rules of Court but it was denied.
o
All moneys, benefits, privileges, or annuities accruing or in any manner growing out of any life
insurance, if the annual premiums paid do not exceed five hundred pesos, and if they exceed that
sum a like exemption shall exist which shall bear the same proportion to the moneys, benefits,
privileges, and annuities so accruing or growing out of such insurance that said five hundred pesos
bears to the whole annual premiums paid.

Morales appealed maintaining that it was a life insurance for it insured her husband for injuries and/or
death as a result of murder or assault or attempt thereat
ISSUE: W/N the insurance is a life insurance and not an accident insurance
---------------G.R. No. L-34583

October 22, 1931

THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late Adolphe Oscar
Schuetze,
plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Araneta,
De
Joya,
Attorney-General Jaranilla for appellee.

Zaragoza

and

Araneta

for

appellant.

VILLA-REAL, J.:
The Bank of the Philippine Islands, as administrator of the estate of the deceased Adolphe Oscar Schuetze, has
appealed to this court from the judgment of the Court of First Instance of Manila absolving the defendant Juan
Posadas, Jr., Collector of Internal Revenue, from the complaint filed against him by said plaintiff bank, and dismissing
the complaint with costs.
The appellant has assigned the following alleged errors as committed by the trial court in its judgment, to wit:
1. The lower court erred in holding that the testimony of Mrs. Schuetze was inefficient to established the
domicile of her husband.
2. The lower court erred in holding that under section 1536 of the Administrative Code the tax imposed by
the defendant is lawful and valid.

3. The lower court erred in not holding that one-half () of the proceeds of the policy in question is
community property and that therefore no inheritance tax can be levied, at least on one-half () of the said
proceeds.
4. The lower court erred in not declaring that it would be unconstitutional to impose an inheritance tax upon
the insurance policy here in question as it would be a taking of property without due process of law.
The present complaint seeks to recover from the defendant Juan Posadas, Jr., Collector of Internal Revenue, the
amount of P1,209 paid by the plaintiff under protest, in its capacity of administrator of the estate of the late Adolphe
Oscar Schuetze, as inheritance tax upon the sum of P20,150, which is the amount of an insurance policy on the
deceased's life, wherein his own estate was named the beneficiary.
At the hearing, in addition to documentary and parol evidence, both parties submitted the following agreed
statement of facts of the court for consideration:
It is hereby stipulated and agreed by and between the parties in the above-entitled action through their
respective undersigned attorneys:
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late Adolphe Oscar Schuetze, is of
legal age, a native of Manila, Philippine Islands, and is and was at all times hereinafter mentioned a resident
of Germany, and at the time of the death of her husband, the late Adolphe Oscar Schuetze, she was
actually residing and living in Germany;
2. That the Bank of the Philippine Islands, is and was at all times hereinafter mentioned a banking
institution duly organized and existing under and by virtue of the laws of the Philippine Islands;
3. That on or about August 23, 1928, the herein plaintiff before notary public Salvador Zaragoza, drew a
general power appointing the above-mentioned Bank of the Philippine Islands as her attorney-in-fact, and
among the powers conferred to said attorney-in-fact was the power to represent her in all legal actions
instituted by or against her;
4. That the defendant, of legal age, is and at all times hereinafter mentioned the duly appointed Collector of
Internal Revenue with offices at Manila, Philippine Islands;
5. That the deceased Adolphe Oscar Schuetze came to the Philippine Islands for the first time of March 31,
1890, and worked in the several German firms as a mere employee and that from the year 1903 until the
year 1918 he was partner in the business of Alfredo Roensch;
6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the habit of making various trips to
Europe;
7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming from Java, and with the intention of
going to Bremen, landed in the Philippine Islands where he met his death on February 2, 1928;
8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in Germany, executed a will, in
accordance with its law, wherein plaintiff was named his universal heir;
9. That the Bank of the Philippine Islands by order of the Court of First Instance of Manila under date of May
24, 1928, was appointed administrator of the estate of the deceased Adolphe Oscar Schuetze;
10. That, according to the testamentary proceedings instituted in the Court of First Instance of Manila, civil
case No. 33089, the deceased at the time of his death was possessed of not only real property situated in
the Philippine Islands, but also personal property consisting of shares of stock in nineteen (19) domestic
corporations;

11. That the fair market value of all the property in the Philippine Islands left by the deceased at the time of
his death in accordance with the inventory submitted to the Court of First Instance of Manila, civil case No.
33089, was P217,560.38;
12. That the Bank of the Philippine Islands, as administrator of the estate of the deceased rendered its final
account on June 19, 1929, and that said estate was closed on July 16, 1929;
13. That among the personal property of the deceased was found life-insurance policy No. 194538 issued at
Manila, Philippine Islands, on January 14, 1913, for the sum of $10,000 by the Sun Life Assurance Company
of Canada, Manila branch, a foreign corporation duly organized and existing under and by virtue of the laws
of Canada, and duly authorized to transact business in the Philippine Islands;
14. That in the insurance policy the estate of the said Adolphe Oscar Schuetze was named the beneficiary
without any qualification whatsoever;
15. That for five consecutive years, the deceased Adolphe Oscar Schuetze paid the premiums of said policy
to the Sun Life Assurance Company of Canada, Manila branch;
16. That on or about the year 1918, the Sun Life Assurance Company of Canada, Manila branch, transferred
said policy to the Sun Life Assurance Company of Canada, London branch;
17. That due to said transfer the said Adolphe Oscar Schuetze from 1918 to the time of his death paid the
premiums of said policy to the Sun Life Assurance Company of Canada, London Branch;
18. That the sole and only heir of the deceased Adolphe Oscar Schuetze is his widow, the plaintiff herein;
19. That at the time of the death of the deceased and at all times thereafter including the date when the
said insurance policy was paid, the insurance policy was not in the hands or possession of the Manila office
of the Sun Life Assurance Company of Canada, nor in the possession of the herein plaintiff, nor in the
possession of her attorney-in-fact the Bank of the Philippine Islands, but the same was in the hands of the
Head Office of the Sun Life Assurance Company of Canada, at Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine Islands as administrator of the decedent's estate
received from the Sun Life Assurance Company of Canada, Manila branch, the sum of P20,150 representing
the proceeds of the insurance policy, as shown in the statement of income and expenses of the estate of
the deceased submitted on June 18, 1929, by the administrator to the Court of First Instance of Manila, civil
case No. 33089;
21. That the Bank of the Philippine Islands delivered to the plaintiff herein the said sum of P20,150;
22. That the herein defendant on or about July 5, 1929, imposed an inheritance tax upon the transmission
of the proceeds of the policy in question in the sum of P20,150 from the estate of the late Adolphe Oscar
Schuetze to the sole heir of the deceased, or the plaintiff herein, which inheritance tax amounted to the
sum of P1,209;
23. That the Bank of the Philippine Islands as administrator of the decedent's estate and as attorney-in-fact
of the herein plaintiff, having been demanded by the herein defendant to pay inheritance tax amounting to
the sum of P1,209, paid to the defendant under protest the above-mentioned sum;
24. That notwithstanding the various demands made by plaintiff to the defendant, said defendant has
refused and refuses to refund to plaintiff the above mentioned sum of P1,209;
25. That plaintiff reserves the right to adduce evidence as regards the domicile of the deceased, and so the
defendant, the right to present rebuttal evidence;

26. That both plaintiff and defendant submit this stipulation of facts without prejudice to their right to
introduce such evidence, on points not covered by the agreement, which they may deem proper and
necessary to support their respective contentions.
In as much as one of the question raised in the appeal is whether an insurance policy on said Adolphe Oscar
Schuetze's life was, by reason of its ownership, subject to the inheritance tax, it would be well to decide first
whether the amount thereof is paraphernal or community property.
According to the foregoing agreed statement of facts, the estate of Adolphe Oscar Schuetze is the sole beneficiary
named in the life-insurance policy for $10,000, issued by the Sun Life Assurance Company of Canada on January 14,
1913. During the following five years the insured paid the premiums at the Manila branch of the company, and in
1918 the policy was transferred to the London branch.
The record shows that the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario Gelano on
January 16, 1914.
With the exception of the premium for the first year covering the period from January 14, 1913 to January 14, 1914,
all the money used for paying the premiums, i. e., from the second year, or January 16, 1914, or when the deceased
Adolphe Oscar Schuetze married the plaintiff-appellant Rosario Gelano, until his death on February 2, 1929, is
conjugal property inasmuch as it does not appear to have exclusively belonged to him or to his wife (art. 1407, Civil
Code). As the sum of P20,150 here in controversy is a product of such premium it must also be deemed community
property, because it was acquired for a valuable consideration, during said Adolphe Oscar Schuetze's marriage with
Rosario Gelano at the expense of the common fund (art. 1401, No. 1, Civil Code), except for the small part
corresponding to the first premium paid with the deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second edition, Manresa treats of life insurance in the
following terms, to wit:
The amount of the policy represents the premiums to be paid, and the right to it arises the moment the
contract is perfected, for at the moment the power of disposing of it may be exercised, and if death occurs
payment may be demanded. It is therefore something acquired for a valuable consideration during the
marriage, though the period of its fulfillment, depend upon the death of one of the spouses, which
terminates the partnership. So considered, the question may be said to be decided by articles 1396 and
1401: if the premiums are paid with the exclusive property of husband or wife, the policy belongs to the
owner; if with conjugal property, or if the money cannot be proved as coming from one or the other of the
spouses, the policy is community property.
The Supreme Court of Texas, United States, in the case of Martin vs. Moran (11 Tex. Civ. A., 509) laid down the
following doctrine:
COMMUNITY PROPERTY LIFE INSURANCE POLICY. A husband took out an endowment life insurance
policy on his life, payable "as directed by will." He paid the premiums thereon out of community funds, and
by his will made the proceeds of the policy payable to his own estate. Held, that the proceeds were
community estate, one-half of which belonged to the wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of California laid down the following doctrine:
A testator, after marriage, took out an insurance policy, on which he paid the premiums from his salary.
Held that the insurance money was community property, to one-half of which, the wife was entitled as
survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the following doctrine:
A decedent paid the first third of the amount of the premiums on his life-insurance policy out of his earnings
before marriage, and the remainder from his earnings received after marriage. Held, that one-third of the
policy belonged to his separate estate, and the remainder to the community property.

Thus both according to our Civil Code and to the ruling of those North American States where the Spanish Civil Code
once governed, the proceeds of a life-insurance policy whereon the premiums were paid with conjugal money,
belong to the conjugal partnership.
The appellee alleges that it is a fundamental principle that a life-insurance policy belongs exclusively to the
beneficiary upon the death of the person insured, and that in the present case, as the late Adolphe Oscar Schuetze
named his own estate as the sole beneficiary of the insurance on his life, upon his death the latter became the sole
owner of the proceeds, which therefore became subject to the inheritance tax, citing Del Val vs. Del Val (29 Phil.,
534), where the doctrine was laid down that an heir appointed beneficiary to a life-insurance policy taken out by the
deceased, becomes the absolute owner of the proceeds of such policy upon the death of the insured.
The estate of a deceased person cannot be placed on the same footing as an individual heir. The proceeds of a lifeinsurance policy payable to the estate of the insured passed to the executor or administrator of such estate, and
forms part of its assets (37 Corpus Juris, 565, sec. 322); whereas the proceeds of a life-insurance policy payable to
an heir of the insured as beneficiary belongs exclusively to said heir and does not form part of the deceased's estate
subject to administrator. (Del Val vs. Del Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of the
Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out by a married person becomes the exclusive
owner of the proceeds upon the death of the insured even if the premiums were paid by the conjugal partnership,
so, it is argued, where the beneficiary named is the estate of the deceased whose life is insured, the proceeds of the
policy become a part of said estate upon the death of the insured even if the premiums have been paid with
conjugal funds.
In a conjugal partnership the husband is the manager, empowered to alienate the partnership property without the
wife's consent (art. 1413, Civil Code), a third person, therefore, named beneficiary in a life-insurance policy
becomes the absolute owner of its proceeds upon the death of the insured even if the premiums should have been
paid with money belonging to the community property. When a married man has his life insured and names his own
estate after death, beneficiary, he makes no alienation of the proceeds of conjugal funds to a third person, but
appropriates them himself, adding them to the assets of his estate, in contravention of the provisions of article
1401, paragraph 1, of the Civil Code cited above, which provides that "To the conjugal partnership belongs" (1)
Property acquired for a valuable consideration during the marriage at the expense of the common fund, whether the
acquisition is made for the partnership or for one of the spouses only." Furthermore, such appropriation is a fraud
practised upon the wife, which cannot be allowed to prejudice her, according to article 1413, paragraph 2, of said
Code. Although the husband is the manager of the conjugal partnership, he cannot of his own free will convert the
partnership property into his own exclusive property.
As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar Schuetze, were paid out of the
conjugal funds, with the exceptions of the first, the proceeds of the policy, excluding the proportional part
corresponding to the first premium, constitute community property, notwithstanding the fact that the policy was
made payable to the deceased's estate, so that one-half of said proceeds belongs to the estate, and the other half
to the deceased's widow, the plaintiff-appellant Rosario Gelano Vda. de Schuetze.
The second point to decide in this appeal is whether the Collector of Internal Revenue has authority, under the law,
to collect the inheritance tax upon one-half of the life-insurance policy taken out by the late Adolphe Oscar
Schuetze, which belongs to him and is made payable to his estate.
According to the agreed statement of facts mentioned above, the plaintiff-appellant, the Bank of the Philippine
Islands, was appointed administrator of the late Adolphe Oscar Schuetze's testamentary estate by an order dated
March 24, 1928, entered by the Court of First Instance of Manila. On July 13, 1928, the Sun Life Assurance Company
of Canada, whose main office is in Montreal, Canada, paid Rosario Gelano Vda. de Schuetze upon her arrival at
Manila, the sum of P20,150, which was the amount of the insurance policy on the life of said deceased, payable to
the latter's estate. On the same date Rosario Gelano Vda. de Schuetze delivered the money to said Bank of the
Philippine Islands, as administrator of the deceased's estate, which entered it in the inventory of the testamentary
estate, and then returned the money to said widow.
Section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835 and section 1 of Act No. 3031,
contains the following relevant provision:

SEC. 1536. Conditions and rate of taxation. Every transmission by virtue of inheritance, devise, bequest,
gift mortis causa or advance in anticipation of inheritance, devise, or bequest of real property located in the
Philippine Islands and real rights in such property; of any franchise which must be exercised in the
Philippine Islands; of any shares, obligations, or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippine Islands in accordance with its laws; of any shares or rights in any
partnership, business or industry established in the Philippine Islands or of any personal property located in
the Philippine Islands shall be subject to the following tax:
xxx

xxx

xxx

In as much as the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetze were paid to the
Bank of the Philippine Islands, as administrator of the deceased's estate, for management and partition, and as such
proceeds were turned over to the sole and universal testamentary heiress Rosario Gelano Vda. de Schuetze, the
plaintiff-appellant, here in Manila, the situs of said proceeds is the Philippine Islands.
In his work "The Law of Taxation," Cooley enunciates the general rule governing the levying of taxes upon tangible
personal property, in the following words:
GENERAL RULE. The suits of tangible personal property, for purposes of taxation may be where the
owner is domiciled but is not necessarily so. Unlike intangible personal property, it may acquire a taxation
situs in a state other than the one where the owner is domiciled, merely because it is located there. Its
taxable situs is where it is more or less permanently located, regardless of the domicile of the owner. It is
well settled that the state where it is more or less permanently located has the power to tax it although the
owner resides out of the state, regardless of whether it has been taxed for the same period at the domicile
of the owner, provided there is statutory authority for taxing such property. It is equally well settled that the
state where the owner is domiciled has no power to tax it where the property has acquired an actual situs in
another state by reason of its more or less permanent location in that state. ... (2 Cooley, The Law of
Taxation, 4th ed., p. 975, par. 451.)
With reference to the meaning of the words "permanent" and "in transit," he has the following to say:
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. In order to acquire a situs in a state or taxing district
so as to be taxable in the state or district regardless of the domicile of the owner and not taxable in another
state or district at the domicile of the owner, tangible personal property must be more or less permanently
located in the state or district. In other words, the situs of tangible personal property is where it is more or
less permanently located rather than where it is merely in transit or temporarily and for no considerable
length of time. If tangible personal property is more or less permanently located in a state other than the
one where the owner is domiciled, it is not taxable in the latter state but is taxable in the state where it is
located. If tangible personal property belonging to one domiciled in one state is in another state merely in
transitu or for a short time, it is taxable in the former state, and is not taxable in the state where it is for the
time being. . . . .
Property merely in transit through a state ordinarily is not taxable there. Transit begins when an article is
committed to a carrier for transportation to the state of its destination, or started on its ultimate passage.
Transit ends when the goods arrive at their destination. But intermediate these points questions may arise
as to when a temporary stop in transit is such as to make the property taxable at the place of stoppage.
Whether the property is taxable in such a case usually depends on the length of time and the purpose of
the interruption of transit. . . . .
. . . It has been held that property of a construction company, used in construction of a railroad, acquires a
situs at the place where used for an indefinite period. So tangible personal property in the state for the
purpose of undergoing a partial finishing process is not to be regarded as in the course of transit nor as in
the state for a mere temporary purpose. (2 Cooley, The Law of Taxation, 4th ed., pp. 982, 983 and 988, par.
452.)
If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar Schuetze and made payable to his
estate, were delivered to the Bank of the Philippine Islands for administration and distribution, they were not in

transit but were more or less permanently located in the Philippine Islands, according to the foregoing rules. If this
be so, half of the proceeds which is community property, belongs to the estate of the deceased and is subject to the
inheritance tax, in accordance with the legal provision quoted above, irrespective of whether or not the late Adolphe
Oscar Schuetze was domiciled in the Philippine Islands at the time of his death.
By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of a life-insurance policy payable to
the insured's estate, on which the premiums were paid by the conjugal partnership, constitute community property,
and belong one-half to the husband and the other half to the wife, exclusively; (2) that if the premiums were paid
partly with paraphernal and partly conjugal funds, the proceeds are likewise in like proportion paraphernal in part
and conjugal in part; and (3) that the proceeds of a life-insurance policy payable to the insured's estate as the
beneficiary, if delivered to the testamentary administrator of the former as part of the assets of said estate under
probate administration, are subject to the inheritance tax according to the law on the matter, if they belong to the
assured exclusively, and it is immaterial that the insured was domiciled in these Islands or outside.1awphil.net
Wherefore, the judgment appealed from is reversed, and the defendant is ordered to return to the plaintiff the onehalf of the tax collected upon the amount of P20,150, being the proceeds of the insurance policy on the life of the
late Adolphe Oscar Schuetze, after deducting the proportional part corresponding to the first premium, without
special pronouncement of costs. So ordered.
----PI vs. Posadas
GR No. 34583, October 22, 1931
FACTS:
BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI Manila absolving defendant,
Collector of Internal Revenue, from the complaint filed against him in recovering the inheritance tax amounting to
P1209 paid by the plaintiff, Rosario Gelano Vda de Schuetze, under protest, and sum of P20,150 representing the
proceeds of the insurance policy of the deceased.
Rosario and Adolphe were married in January 1914. The wife was actually residing and living in Germany when
Adolphe died in December 1927. The latter while in Germany, executed a will in March 1926, pursuant with its law
wherein plaintiff was named his universal heir. The deceased possessed not only real property situated in the
Philippines but also personal property consisting of shares of stocks in 19 domestic corporations. Included in the
personal property is a life insurance policy issued at Manila on January 1913 for the sum of $10,000 by the Sun Life
Assurance Company of Canada, Manila Branch. In the insurance policy, the estate of the deceased was named the
beneficiary without any qualification. Rosario is the sole and only heir of the deceased. BPI, as administrator of the
decedents estate and attorney in fact of the plaintiff, having been demanded by Posadas to pay the inheritance tax,
paid under protest. Notwithstanding various demands made by plaintiff, Posadas refused to refund such amount.
ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.
HELD:
SC ruled that(1)the proceeds of a life-insurance policy payable to the insured's estate, on which the premiums were
paid by the conjugal partnership, constitute community property, and belong one-half to the husband and the other
half to the wife, exclusively; (2)if the premiums were paid partly with paraphernal and partly conjugal funds, the
proceeds are likewise in like proportion paraphernal in part and conjugal in part; and (3)the proceeds of a lifeinsurance policy payable to the insured's estate as the beneficiary, if delivered to the testamentary administrator of
the former as part of the assets of said estate under probate administration, are subject to the inheritance tax
according to the law on the matter, if they belong to the assured exclusively, and it is immaterial that the insured
was domiciled in these Islands or outside.
Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected upon the amount of
P20,150, being the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetze, after deducting
the proportional part corresponding to the first premium.
------------2. Marcos II vs. CA
273 SCRA 47 1997
Facts: Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax
assessments and estate tax assessments upon the estate and properties of his late father despite the pendency of
the probate proceedings of the will of the late President. On the other hand, the BIR argued that the States
authority to collect internal revenue taxes is paramount.

Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or
interests in several properties (both real and personal) make the total value of his estate, and the consequent estate
tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax
and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of
Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership
and interests of the late President in real and personal properties located within and outside the Philippines.
Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes
upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed,
the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Issue: Is the contention of Marcos correct?
Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceaseds estate, is not
a mandatory requirement in the collection of estate taxes.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or
estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and
collected.
The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of
government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance.
However, such collection should be made in accordance with law as any arbitrariness will negate the existence of
government itself.
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due
upon the subject estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed
correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any
irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based
on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous.
Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this
instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which
gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere
rhetoric cannot supply the basis for the charge of impropriety of the assessments made.
------------Marcos
II
vs.
CA
273

SCRA

47

1997

Facts:
Ferdinand Marcos II assailed the decision of the CA declaring the deficiency income tax assessments upon
the estate and the properties of his late father final despite the pendency of the probate proceedings of the will of
the late president. On the other hand, the BIR argued that the state authority to collect taxes is paramount.
Issue:

is

the

approval

of

the

court

mandatory

requirement

in

the

collection

of

taxes?

Ruling:
No. the enforcement of tax laws and collection of taxes are of paramount importance for the sustenance
of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance.
However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interest of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
(Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax
assessments and estate tax assessments upon the estate and properties of his late father despite the pendency of
the probate proceedings of the will of the late President. On the other hand, the BIR argued that the States
authority
to
collect
internal
revenue
taxes
is
paramount.
Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or
interests in several properties (both real and personal) make the total value of his estate, and the consequent estate
tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax
and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of

Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership
and interests of the late President in real and personal properties located within and outside the Philippines.
Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes
upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed,
the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties
indubitably
included
in
his
estate.
Issue:

Is

the

contention

of

Marcos

correct?

Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceaseds estate, is not
a
mandatory
requirement
in
the
collection
of
estate
taxes.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or
estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and
collected.
The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of
government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance.
However, such collection should be made in accordance with law as any arbitrariness will negate the existence of
government
itself.
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due
upon the subject estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed
correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any
irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based
on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous.
Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this
instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which
gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere
rhetoric cannot supply the basis for the charge of impropriety of the assessments made.)
-----------G.R. No. L-27059

February 14, 1928

BUENAVENTURA
BALBOA,
vs.
CECILIO L. FARRALES, defendant-appellant.
Ernesto
Zaragoza
Alejo Labrador for defendant-appellant.

plaintiff-appellant,

for

plaintiff-appellant.

JOHNSON, J.:
The material facts in this case, as disclosed by the record, may be briefly stated as follows.
(1) Sometime in the year 1913, the plaintiff Buenaventura Balboa filled with the Bureau of Lands an application for
homestead, No. 10619, under the provisions of Act No. 926, covering a tract of land situated in the barrio of Culis,
municipality of Hermosa, Province of Bataan, containing 14 hectares, 49 ares and 77 centares.
(2) Five years thereafter, or in 1918, Balboa submitted proof, showing his residence upon, and cultivation of said
land, as well as his compliance with all of the other requirements of section 3 of said Act No. 926, which final proof
was approved by the Director of Lands on February 15, 1918 (Exhibit 3). On July 1, 1919, said Act No. 926 was
repealed by Act No. 2874.
(3) On September 10, 1920, or over a year after Act No. 2874 had gone into effect, the homestead patent for said
land, otherwise known as certificate of title No. 91 (Exhibit A) was issued n favor of Buenventura Balboa by the
Governor-General of the Philippine Islands.

(4) On August 11, 1924, said Buenaventura Balboa, for and in consideration of the sum of P950, sold said land to
the defendant Cecilio L. Farrales (Exhibit 2); and on October 16, 1924, the latter secured in his name transfer
certificate of title No. 650 of said land (Exhibit B).
On March 6, 1926, the plaintiff commenced the present action for the purpose of having said sale declared null and
void on the ground of lack of consent on his part and fraud on the part of the defendant, and on the further ground
that said sale was contrary to, and in violation of the provisions of section 116 of Act No. 2874.
After a careful consideration of the evidence adduced during the trial of the cause the Honorable Leopoldo Rovira,
judge, arrived at the conclusion that the deed of sale in question (Exhibit 2) had been duly executed by the plaintiff.
He held, however, that said deed was null and void, in view of the fact that it was executed before the lapse of five
years from the date of the issuance of the certificate of title in favor of Buenventura Balboa, in violation of the
prohibition contained in section 116 of Act No. 2874.
The pertinent parts of the decision read as follows:
Como cuestion basica, se discute en el presente asunto la validez del documento Exhibit 2, o sea el
traspaso hecho por el demandante al demandado referente al terreno en cuestion. El demandante sostiene
que, bajo el articulo 116 de la Ley 2874, el traspaso el nulo por cuanto tuvo lugar el 11 de agosto de 1924,
esto es sin haber transcurrido todavia los cinco anos siguientas a la fecha en que fue expedidol el
certificado de titulo No. 91 que lo fue el 10 de septiembre de 1920; el demandado, por el contrario,
sostiene, como punto de discusion legal, que el documento de traspaso exhibit 2 no cae bajo las
disposiciones de la Ley No. 2874, sino dentro de las disposiciones de la Ley No. 926 y que bajo esta Ley no
existia tal limitacion de venta dentro de los cinco aos siguientes a la fecha de la expedicion del titulo de
homestead, y que habiendo sido la solicitud de homestead aprobada 15 de febrero de 1918, aun contado
los cinco anos siguientes, resultaria que desde el 15 de febrero de 1918 hasta el 11 de agosto de 1924 han
transcurrido mas de cinco aos.
xxx

xxx

xxx

De lo expuesto, el Juzgado Ilega a la conclusion de que el Exhibit 2 es nulo e ineficaz, por cuanto que la
venta fue otorgada fuera de lo prescrito en el articulo 116 de la Ley No. 2874, que procede declarar nulo
dicho documento Exhibit 21, y, consiguintemente, el certificado de transferencia de titulo 650.
In accordance with the foregoing conclusion the trial judge rendered a judgment in favor of the plaintiff and against
the defendant, ordering the latter to return to the plaintiff the land in question, and the plaintiff to return to the
defendant the price received for said land, aggregating P652.69, with interest at the rate of 12 per cent. From the
judgment both parties appealed.
The principal question raised in this appeal is whether the 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. 2874. In other words, which of the two
Acts 926 and 2874 shall be applied in determining whether the sale in question is valid or not?
The land in question was acquired by Buenventura Balboa as homestead under the provisions and pursuant to the
requirements of Act No. 926. He filed his application and complied with all of the requisites to the acquisition of said
homestead, in conformity with the provisions of said Act No. 926. In 1918 and prior to the repeal of said Act he
submitted his final proof, showing his residence upon, and cultivation of the land, as well as his compliance with all
of the other requirements of the law, and said final proof was approved by the Director of Lands on February 15,
1918. In other words, Buenaventura Balboa, had shown, to the satisfaction of the Government, that he had
performed all of the acts required of an applicant for homestead, and, under the provisions of section 3 of Act no.
926, he became entitled to a homestead patent or certificate of title to the land covered by his application.
Section 3 of Act No. 926 provides, inter alia, that upon the filing of final proof by the applicant and the approval
thereof by the Director of Lands, "he (the applicant) shall be entitled to a patent" or certificate of title. Therefore, on
February 15, 1918, after Buenaventura Balboa had submitted his final proof and after the same had been approved
by the Government, and while Act No. 926 was still in force, he became the owner of the land and "entitled to a
patent." At least on that date his right to the land, as owner, ripened into a vested right. It was no longer expectant

as depending on the continuance of existing circumstances, or contingent as depending on some events or the
performance of some conditions.
Rights are vested when the right to enjoyment, present or prospective, has become the property of some
particular person or persons as a present interest. (12 C. J., sec. 485, p. 955.)
Vested right "is some right or interest in property which has become fixed and established and is no longer open to
doubt or controversy." (Downs vs. Blount, 170 Fed. Rep., 15, 20.)
The fact the homestead patent or certificate of title No. 91 was issued on September 10, 1920, after the repeal of
Act No. 926, and under the provisions of section 116 of the repealing Act No. 2874, cannot prejudice the vested
right acquired by Buenventura Balboa under the provisions of the former Act. The issuance of the certificate of title
was a mere ministerial act, and the certificate, an outward symbol of his vested right to the land, of which he was
virtually recognized as owner by the Government on February 15, 1918.
In the case of United States vs. Freyberg (32 Fed. Rep., 195), where the right of a homesteader was involved, it was
held that where the right to a patent for land has become vested in a purchaser the Government holds the legal title
in trust for the purchaser until the patent is issued. Again in the case of Stark vs. Starr (6 Wallace [U. S.], 402), the
Supreme Court of the United States held that where the right to a patent is once vested, it is treated by the
Government, when dealing with public lands, as equivalent to a patent issued.
A party who was has complied with all the terms and conditions which entitle him to a patent for a
particular tract of public land acquires a vested interest therein, and is to be regarded as the equitable
owner thereof. (Wirth vs. Branson, 98 U. S. 118.)
Where the right to a patent has once become vested in a purchaser of public lands, it is equivalent so far as
the Government is concerned, to a patent actually issued. The execution and delivery of the patent after
the right to it has become complete are the mere ministerial acts of the officers charged with that duty.
(Simmons vs. Wagner 101 U. S., 260.)
The moment the plaintiff had received a certificate from the Government and had done all that was necessary under
the law to secure his patent, his right had become vested before the patent was issued. His right had already vested
prior to the issuance of the patent, and his rights to the land cannot be affected by a subsequent law or by a
subsequent grant by the Government to any other person. (Herron vs. Dater, 120 U. S., 464.)
The delay in the issuance of the patent cannot affect the vested right of the homesteader. (Murphy vs. Packer, 152
U. S., 398; Belk vs. Meagher, 104 U. S., 279; Sullivan vs. Iron Silver Mining Co., 143 U. S., 431; McDaniel vs. Apacible
and Cuisia, 42 Phil., 749.)
A perfected valid appropriation of public land operates as a withdraw of the tract from the body of the public domain
and, so long as such appropriation remains valid and subsisting the land covered thereby is deemed private
property. A perfected homestead, under the law, is property in the highest sense, which may be sold and conveyed
and will pass by descent. It has the effect of a grant of the right to present and exclusive possession of said land. A
valid and subsisting perfected homestead, made and kept up in accordance with the provisions of the statute, has
the effect of a grant of the present and exclusive possession of the land. Even without a patent, a perfected
homestead is a property right in the fullest sense, unaffected by the fact that the paramount title to the land is in
the Government. Such land may be conveyed or inherited.
In the United States and in each and every State of the Union vested rights are safeguarded by the 4th Amendment
to the Federal Constitution, which provides that no State "shall deprive any person of life, liberty or property without
due process of law."
The state has no power to divest or to impair vested rights, whether such an attempt to do so be made by
legislative enactment, by municipal ordinance, or by a change in the constitution of the estate. This result
follows from prohibitions contained in the constitution or particularly all the states. Before the adoption of
the fourteenth amendment there was no prohibition in the Constitution of the United States which would
prevent the states from passing laws divesting vested rights, unless these laws also impaired the obligation

of contact, or were ex post facto laws; but vested property rights are now protected against state action by
the provision of the fourteenth amendment that no state "shall deprive any person of life, liberty or
property without due process of law." (12 C. J., sec. 486, pp. 956, 957.)
Section 3, paragragh 1, of the Jones Law provides:
"That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due
process of law, etc." Thus, in this jurisdiction, vested rights are also protected from impairment by express
constitutional provision. Therefore, the right vested in Buenaventura Balboa by Act No. 926 cannot be divested,
impaired or restricted by section 116 of Act No. 2874. Said right should be governed entirely and exclusively by the
provisions of Act No. 926, which it was acquired.
Now, the vested right of Buenaventura Balboa to his homestead land necessarily carries with it the right to alienate
and dispose of the same. The only prohibition contained in Act No. 926 against alienation of homestead acquired
under said law, appears in section 4 thereof, which reads as follows: "No lands acquired under the provisions of this
chapter shall in any event become liable to the satisfaction of any debt contracted prior to the issuance of a patent
therefor." It follows, therefore that the sale of the land in question by the plaintiff Buenventura Balboa to the
defendant Cecilio L. Farrales does not infringe said prohibition, and consequently said sale is valid and binding, and
should be given full force and effect.
Section 116 of Act No. 2874, which prohibits the sale of homestead land during the period of five years subsequent
to the issuance of the patent or certificate of title upon which rests the decision of the court a quo, cannot be
invoked to annul the sale in question. Said prohibition, if applied in the present case, would impair and diminish the
vested rights acquired under Act No. 926, contrary to the uniform doctrine followed in the United States, and in
violation of the express provisions of section 3 of the Jones Law.
The right, title and interest of the appellant having become vested under the provisions of Act No. 926, his rights
cannot be affected by any law passed subsequent thereto. The provisions of Act No. 2874 cannot be invoked for the
purpose of defeating the vested right acquired by the appellant before its adoption.
For all of the foregoing reasons, the judgment appealed from should be and is hereby reversed, and it is hereby
ordered and decreed that the defendant be absolved from all liability under the complaint, with costs against the
plaintiff-appellant. So ordered.
-----G.R. No. L-27745 October 18, 1977
MISAEL
P.
VERA,
as
Commissioner
of
Internal
Revenue,
petitioner,
vs.
Hon. Judge PEDRO C. NAVARRO, in his capacity as Judge of the Court of First Instance of Pasig, Rizal
(Branch V MAGDALENA ABANTO and CAMILO ERIBAL, as voluntary residual heirs of the Estate of the
deceased ELSIE M. GACHES; DELIA P. MEDINA, as attorney-in-fact of said heirs; BIENVENIDO A. TAN,
SR., as Executor of the Estate of ELSIE M. GACHES; PHILIPPINE NATIONAL BANK; PHILIPPINE BANKING
CORPORATION; THE OVERSEAS BANK OF MANILA; and BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
respondents.
CASTRO, C.J.:t.hqw
This is a petition for certiorari, mandamus, prohibition and injunction filed by the herein petitioner Misael P. Vera, in
his capacity as Commissioner of Internal Revenue (hereinafter referred to as "Commissioner"), against the
Honorable Judge Pedro C. Navarro, in his capacity as Judge of the Court of First Instance of Pasig, Rizal (hereinafter
referred to as "respondent Judge"), on account of three orders dated June 5, 8 and 9, 1967, which the latter issued
in Special Proceedings No. 5249 entitled "In the Matter of the Testate Estate of Elsie M. Gaches Bienvenido Tan,
Executor," which the Commissioner maintains were issued without or in excess of jurisdiction or with grave abuse of
discretion.
It appears that one Elsie M. Gaches died on March 9, 1966 without a child. The deceased, however, left a last will
and testament in which she made the following relevant disposition of her estate, to wit: +.wph!1
3. After payment of my just debts and funeral expenses I intact that the balance of my property,
both real and personal in the Philippines, he distributed as follows: +.wph!1
'a) to my driver, PACITO TROCIO Ten Thousand Pesos (P10,000.00);
b) to my lavandero, VICENTE JERODIAS One Thousand Pesos (P1,000.00);
c) to my gardener, CRISANTO SALIPOT, JR. Five Hundred Pesos (P500.00);

d) the balance of my estate in the Philippines shall then be divided in half; Onehalf (1/2) to be given to CAMILO ERIBAL and the other half to MISS MAGDALENA
ABANTO;
e) to MISS CONSUELO L. TAN My office table and chair now in the library of my
house, and one of the carpets in my house to be selected by her;'
4. All my property in the United States consisting of furs, jewelry and stocks I leave to my sister
BESS LAUER widow, and at present a resident of San Francisco, California.
On March 11, 1966, the herein respondent Judge Bienvenido Tan, Sr. (hereinafter referred to as "Judge Tan") filed
with the Court of First instance of Pasig, Rizal a petition for the probate of the aforesaid will On Aped 21, Judge Tan
was appointed as executor of the testate estate of Elsie M. Gaches without a bond.
In a letter, dated June 3, 1966, Judge Tan informed the Commissioner that the testate estate was worth about ten
million (P10 million) pesos and that the estate and inheritance taxes due thereon were about P9.5 million.
On June 11, 1966, the herein respondent Atty. Delia P. Medina (hereinafter referred to as "Atty. Medina"),
representing herself as the attorney-in-fact of the herein respondents Camilo Eribal and Magdalena Abanto, filed
with the probate court a motion praying that the executor of the estate be authority to give a monthly allowance to
the voluntary heirs Abanto and Eribal from the month of May, 1966 until "the receipt of the recommended advance
of inheritance of P100,000.00 each recommended by the Executor in his motion of June 6, 1966 and/or final
distribution has been made to said heirs of their respective shares in the estate." This prayer was granted by the
probate court in an order dated June 25, 1966 (subsequently clarified in an order dated August 11, 1966).
On July 9, 1966, the Commissioner filed with the probate court a proof of claim for the sum "of P192,364.00 as
income tax for 1965 and 1% monthly interest due from the d Elsie M. Gaches."
On July 19, 1966, Judge Tan filed with the probate court a motion praying for authority to make the following
additional advance payments (1) To Abanto and Eribal, P150,000.00; (2) To Bess Lauer, $75,000.00; (3) To Judge
Tan as advance executor's fees, P50,000.00; and (4) To Attys. Medina and Bienvenido Tan, Jr., P75,000.00 each as
advance attomey's fees. In this motion, Judge Tan claimed that the estate was very liquid and that "any claims
whatsoever against the Estate and the Government shall be amply protected since over P7,000,000.00 worth of
shares shall still remain to answer therefor (Sec. 1, Rule 90, Rules of Court)." The respondent Judge granted Judge
Tan's prayer in an order dated July 23, 1966,
In a letter, dated November 4, 1966, the Commissioner advised Judge Tan to Pay to the Bureau of Internal Revenue
the sum of P1,398,436.30 as estate tax and P7,140,060.69 as inheritance tax, the investigation of his office having
allegedly disclosed that the next value of the testate estate was P10,212,899.20. 1 Judge Tan disputed the
correctness of the assessment in a letter sent to the Commissioner.
On November 26, 1966, the Commissioner filed with the probate court a proof of claim for the death taxes stated in
the assessment notice sent to Judge Tan. On the same date, the Commissioner also submitted to the probate court
for its resolution a motion praying: (1) for the revocation of the court's orders dated June 25, July 6, July 23 and
August 11, 1966 and all other orders granting the payment of advance inheritance, allowances and fees; (2) for the
appointment of a co-administrator of the estate to represent the Government; and (3) for the non-disbursement of
funds of the estate without prior notice to the Commissioner. Although the records do not disclose that the probate
court specifically disposed of this motion, the said court, from its subsequent actuations, may be considered to have
impliedly denied the Commissioner's prayers for the appointment of a co-administrator and the non-payment of
advance allowances and fees.
On January 19, 1967, the probate court authorized the conversion of the amount of P75,000.00 previously ruled to
be paid to Atty. Medina as advance attomey's fees in its order of July 23, 1966 into allowances for Eribal and Abanto.
On April 14, 1967, with the Probate court's approval, Judge 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 P1,055,776.00 as inheritance tax. These
payments were based on a tax return filed by Atty. Medina on March 8, 1967 with the Bureau of Internal Revenue.
On June 3, 1967, Judge Tan submitted to the probate court for approval a final accounting and project of partition of
the testate estate. Acting thereon, the respondent Judge issued an order, dated June 5, 1967, for the partial
distribution of the estate as follows: +.wph!1
Submitted for resolution of this Court is the Amended Final Accounting and Project of Partition
dated May 27, 1967, presented by The executor.
Atty. Paredes manifested that he has no objection to the approval thereof provided that certain
items enumerated therein be corrected or modified, as follows: the amount of shares in the
Lepanto consolidated Mining Co. should be 6,105,429 instead of 6,015,429, as reported; the
amount of P11,537.60 reported as expenses made on January 30, 1967 should be cancelled or
excluded . . . and that the time appearing as expenses made on May 10, 1967 payable to Apolonio
manifastation illegal should be only P114,000.00 instead of P135,000.00 . . . which manifestations
were also adopted by Atty. Virgilio Saldajeno of the Bureau of Internal Revenue, and in addition, he
objected in principle to the Executor Fees and to the Attorney's Fees as excessive but left the
matter to the discretion of the Court.
Considering, further, the manifestations of Atty. Saidajeno that him has no objection to the partial
distribution of the estate as long as it an he shown that the rights and interests of the government
can be full protected, and it appearing from the subsequent manifestation of Atty. Paredes, counsel
for the heirs, that sufficient assets with a nutrient market value of at least P8,000,000.00 will be left
to the estate even if a partial distribution in the amount of P3,000,000.00 is made for which reason
the rights of the government to collect whatever deficiency, taxes, if any may be asses it may be
assessed in the future the heirs have already paid in good faith even ahead of its due dates

transfer taxes in the total amount of P1,241,062.93, the Amended Final Accounting and Project of
Partition dated May 27, 1967 may be approved, subject Lo this following, terms and conditions:
1. The Executor is hereby discharged from any and all responsibilities that lie has pertaining to the
estate;
2. The voluntary heirs Magdalena Abanto and Camilo Eribal shill be responsible for all taxes of any
nature whatsoever which may be due the government arising out of the transaction of the
properties ol' the estate and the environment can, if it so desires, register its tax lien in the
remaining assets after a partial distribution of the estate;
3. Bess Lauer, sister and heir of the deceased shall be fully for, all United States taxes pertaining to
her share in the estate.
WHEREFORE, subject to the above terms and conditions, entitled Final Accounting and Project of Partition dated May
27, 1967 submitted by the Executor. as modified in the, manifestation of Atty. Paredes and Saidajeno, is hereby
approved.
The aforesaid amount is hereby ordered to be taken from the funds of the estate deposited with the
Philippine National bank.
As to the other properties remaining after this partial distribution, consisting of the following:
A. BANK DEPOSITS:
B. HOUSE AND LOT LOCATED AT NO. 50 TAMARIND ROAD, FORBES PARK, MAKATI, RIZAL;
C. SHARES OF STOCK IN THE FOLLOWING:
(10 shares, management & 642 common)
The same shall be turned over and delivered to the attorney-in-fact of the voluntary heirs. Atty.
Delia P. Medina, to be held by her to answer for whatever deficiency estate and inheritance taxes
may still be due from the estate and the heirs in favor of the government.
SO ORDERED.
Pasig, Rizal, June 5,1967.
C. NAVARRO+.wph!1
On the same day (that is, June 5, 1967), the Commissioner, having been informed in advance about the foregoing
order by certain undisclosed sources, issued warrants of garnishment against the funds of the estate deposited with
the Philippine National Manial, the overseas Bank of Manila, and the Philippine Banking Corporation, on the strength
of sections 315-330 of the National Internal Revenue Code.
On June 7, 1967, Atty. Medina filed in the probate court a 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.
On June 9, 1967, the Philippine National Bank filed a motion in the probate court praying that it be authority to
deposit with the said court the money in its hands in view of the conflicting claims of the parties over the funds in
dispute. On the same day (that is, June 9, 1967), the respondent Judge issued an order denying the said motion and
threatening the bank officials who refuse to implement its orders of June 5 and 8, 1967 with contempt. Atty. Medina
was consequently able to withdraw the sum of P2,330,000.00 from the PNB. A copy of this order of June 9, 1967 as
well as the orders of June 5 and 8, 1967 were received by the Commissioner on June 13, 1967.
On June 16, 1967, the Commissioner filed a motion for reconsideration (supplemented on June 22, 1967) of the
orders of the probate court dated June 5, 8 and 9, 1967. On July 6, 1967, however, the Commissioner, on the belief
that the probate court's resolution on its motion was not legally necessary, filed with this Court the instant petition
for certiorari, mandamus, prohibition and injunction against the aforesaid orders of the respondent Judge. The
petition at bar is based on the following propositions:
(1) That the distributive shares of an heir can only be paid after full payment of the death taxes. As this case
subsequently progressed before this Court, the position of the Commissioner would seem to be that the deficiency
income taxes due and payable during the lifetime of the deceased should also be paid first.
(2) While partial distribution of the estate of a deceased may allowed, a bond must be filed by the distributees to
secure the payment of the transfer taxes. Subsequently, however, the Commissioner changed his position, stating
that such distribute may be made so long as the payment of the taxes due the government is "provided for," citing
section 1, rule go of the Rules of Court in relation to sections 95 (c), 97, 103, 106 and 107 (c) the National lnternal
Revenue Code.
(3) That the executor of an estate cannot be discharged without the payment of estate and inheritance taxes. The
Commissioner later modified his stand on this ProPosition in line with the view that it is sufficient if the payment of
the said taxes is "Provided for.,,
(4) That the delivery of properties of the estate to a stranger [that is, to the voluntary heirs herein] is not sanctioned
by law. Later, as the case at bar Progressed, and in view of a compromise offer made by the respondents Abanto
and Eribal to pay the taxes being claimed by the Bureau of Internal Revenue, the Commissioner advanced the view
that this proposition is already moot and academic.
(5) That the respondent Judge has no authority to quash or dissolve writs of garnishment issued by the
Commissioner. Subsequently, however, the Commissioner reversed his stand on this point and stated that the
probate court may so dissolve said writs of punishment as the assets in question were then in custodia legis, citing
Collector vs. Vda. de Codeniera L-9675, Sept. 28, 1957.
Taking stock of the Commissioner's complaint that the disputed orders Were issued without or in excess of
jurisdiction or with grave abuse of discretion, the herein respondents Atty. Medina and Judge Tan put up a number of
factual and legal arguments, the material ones of which may be stated, in sum, as follows:
(1) The Commissioner's notice of assessment, dated November 10, 966, was based on wrong premises and
valuation of the assets in question; in fact, the Commissioner had agreed during the pretrial conference in the
probate court to reconsider certain items therein;

(2) The allowance granted to Abanto and Eribal were taken solely from the income of the estate, a fact admitted by
Atty. Saldajeno of the Bureau of Internal Revenue; it is claimed that in 1965 the estate had an income of P41
1,000.00 and over P750,000.00 in 1966, which could more than cover the questioned allowances;
(3) Eribal and Abanto are willing and bound themselves to assume the responsibility for the payment of the taxes
due against the estate except for the properties located in the United States which should be charged against Bess
Lauer;
(4) The Commissioner does not object to the partition of the estate in question provided that enough assets are left
to pay the taxes against the estate;
(5) The estate has sufficient assets with which to pay the taxes being claimed by the government;
(6) There was nothing unusual in the institution of Abanto and Eribal as residual heirs of the deceased; Abanto was
the testator's special nurse, companion, secretary and cook from 1945 until Elsie M. Gaches death in March, 1966;
Eribal, on the other hand, was the deceased's cook, caretaker, companion and driver since 1929;
(7) The grant of allowances was never contested below and cannot now be raised in the-instant proceedings;
(8) Adequate safeguards were specified in the probate court's order of June 5, 1967 to cover the tax claims; and
(9) There had been no full distribution of the estate in question without payment of the transfer taxes since the said
taxes are being disputed by the heirs.
In a reply filed on September 7, 1967, the Commissioner stated that he had issued a revised assessment dated
August 24, 1967 and that, furthermore, there were due from the estate deficiency income taxes for the years 1961
to 1965 in the total sum of P1,182,296.16, for which reason the estate should not be ordered distributed until the
same is fully satisfied. In a rejoinder, Judge Tan claimed that the August 24, 1967 assessment could still be reduced
considerably. The contents of the mentioned revised assessment which was addressed to Atty. Medina are, inter alia,
as follows: +.wph!1
Madam:
... I have the honor to advise that in a reinvestigation conducted by this Office, for transfer tax
purposes, it was ascertained that she left real and personal properties in the sums of P377,912.50
and P5,963,822.31 respectively, or a gross estate of P9,341,734.81. The amounts of P193,892.38,
P462,022.83 and Pl,226,783.53, representing accrued household and medical expenses, funeral
expenses and income taxes (1961-1965) payable, respectively, or a total of P1,882,198.74, were
allowed as deductions resulting in a net taxable estate in,the sum of P7,459.536.07 subject to
estate and inheritance taxes.
In view thereof, there are hereby further assessed the sums of P891,673.68 and P4,353,972.87 as deficiency estate
and inheritance taxes and penalty still due on the transmission of the decedent's estate, after, crediting the sums of
P185,286.73 and P1,055,776.00, which were paid on April 4, 1967 and April 24, 1967, details of which are shown
hereunder:
Estate tax

Pl,076.960.4
1

Less: Amount Paid

185,286.7

Total

P891,673.69

Inheritance tax

5,448.87

Corporation CPA Certificate

300.00

Total

P5,409,748.
87

Less Amount Paid

1,055,776.0
0

Deficiency
Penalty

Inheritance

Tax

&

P4,353,972.
87

xxx xxx xxx

The deadlines for the payment of the aforementioned transfer taxes without penalty were December 9, 1967 for the
estate tax and March 9, 1968 for the inherit tax.
On Sepember 9, 1967, Atty. Medina riled with this Court a pleading captioned "Compliance and Offer of Compromise
to Terminate this Case" in which she stated the following:+.wph!1
xxx xxx xxx
4. Although respondents voluntary heirs intend to assail and question the correctness of said
assessment only insofar as the same has disallowed the deductions claimed by them for personal
services rendered by various persons in the total sum of P366,800.00, foregoing thereby other

possible objections to the other items just so this case can be earlier disposed of, said repondents,
nevertheless, are willing to pay even before these due dates the entire amount-specified in said
assessment, but under protest insofar as the same has disallowance is concerned, in order to
already terminate and dispose of this case before this Honorable Court.
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 the funds of the estate on deposit with the Philippine National (P238,500.00), the Banking Corporation
(P559,147.41), the Banco Filipino savings and Mortgage Bank (P581.00), and the Bank of Manila (P700,000.00), and
to gradually dispose of and 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 said offer of
were 2,442,000 Lepanto Consolidated Co. which Abanto and Eribal with the probate court niether this Court issued a
pre injunction in the case at bar on july 10, 1967 ordering, among others, Atty. Medina, Abanto and Eribal to restore
to the court a quo the amount of P2,330,000.00 withdrawn from the Philippine National Bank pursuant to the
questioned orders of the probate court, and every other money or property revived by them by of said questioned
orders. The mentioned Lepanto shares had then an estimated market value of P2,588,520.00. It should bear
mention, at this point, that the money withdrawn from the Philippine National Bank was not returned by Atty.
Medina, Abanto or Eribal to the probate court, 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.
On September 19, 1967, this Court issued a resolution requiring the Commissioner to submit a memorandum on
how he arrived at his original assessment of more than ?8.83 million and the revised assessment of only about ?
6.48 million, showing a reduced difference of more than P2 million. The Commissioner submitted to this Court the
required memorandum on May 25, 1968, the important items and figures described in which may be summed up
comparatively as follows: +.wph!1
ESTATE OF ELSIER GACHES
ASSETS

ORIGINAL

REVISED

ASSESSMENT

ASSESSMENT

Philippine

Pl,172.635.62

P1,172,635.62

Foreign (US$ P3.95)

559,335.00

559,335.00

(Vauxhalll)

25.000.00

12,000.00

Furnitures

30,000.00

30,000.00

Shares of stock

7,923,576.23

7,189,851.69

Cash in bank -

CarsLincoln Pl8,000.00
Volkswagen 7,000.00

Forbes Park lot

(at P144.73/sq. in.)

383,202.35

(at P97.50/sq.m.)

258,862.50

House ------- P111,850.00

Swimming Pool 5,000.00
Fence -------- 2,200.00

119,050.00

119,050.00

TOTAL ASSETS

P10,212,899.20

P9,341,734.81

+.wph!1
LIABILITIES AND DEDUCTIONS
Estimated Income Tax
Payable (1965)
(1961-1965)

P192,364.00
P1,882,783.53

Aaccrued medical expenses

13,000.00)

Funeral expenses

73,320.00)

193,392.38

Judicial exercises

331,026.40

462,022.83

P610,190.60

P1,882,198.74

TOTAL LIABS. &

DEDUCTIONS

TRANSFER TAXES PAYABLE

Gross Estate

P10,212,899.20

P9,341,734.81

Less: Laibs. & Deductions

610,190.60

1,882,198.74

Net Taxable Estate

P9,602,708.60

P7,459,536.07

Less Estate'tax Due

P 1,398,436.30

Pl,076,960.41

Estate Subj. to Inh. Tax

P 8,204,272.30

P6,382,575.66

Distribution of Hereditary
Estate
C. Salipot, Jr.

P 500.00

P 500.00

V. Jerodias

1,000.00

1,000.00

P. Trocio

10,000.00

10,000.00

Bess Lauer

672,305.00

672,305.00

M. Abanto

3,760,233.65

2,849,385.33

C. Eribal

3,760,233.65

2,849,385.33

Inheritance Tax Due

C. Salipot, Jr.

P10.00

P 10.00

V. Jerodias

20.00 20.00

P. Trocio

600.00

600.00

Bess Lauer

192,186.75

192,186.75

M. Abanto

3,473,621.97

2,608,316.06

C. Eribal

3,473,621.97

2,698,316.06

Total inheritance Tax due

P 7,140,060.69

P5,409,448.87

Add: Estate Tax Due

P 1,398,436.30

Pl,076,960.41

P8,538,496.99

P6,486,409.28

TOTAL TRANSFER
TAXES DUE

On November 17, 1967, this Court authorized the herein respondents Abanto, Eribal and Atty. Medina to withdraw
funds of the estate deposited with the Philippine Banking Corporation (P191,673,68) and the Overseas Bank of
Manila (P700,000.00) in the form of cashier's checks payable to the Commissioner for the payment of the estate tax
still unpaid under the terms of the revised assessment.
On November 23, 1967, the Solicitor General filed with this court a manifestation expressing his conformity, in
behalf of the Commissioner, to the offer of compromise dated September 9, 1967 made by Atty. Medina, subject to
certain conditions, such as, that the cash in the banks of the estate as well as the proceeds to be realized from the
sale of the shares of stock should be turned over to the Commissioner for the payment of the taxes due against the

estate and the heirs thereof. This manifestation was first opposed by the Acting Commissioner of Internal Revenue
on the ground that the Commissioner (who was then abroad) had actually requested the Solicitor General 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.
On December 5, 1967, Atty. Medina filed with this Court a petition to declare the Overseas Bank of Manila in
contempt for allowing the renewal, without court authority, of the time deposit of P700,000.00 with the said bank
for another year. In a supplemental motion filed on December 8, 1967, Atty. Medina also prayed that the said bank
and those responsible for extending the maturity date of said time deposit be held liable for the payment of
whatever surcharges, interest and penalties may be imposed as a consequence of the late payment of the balance
of the estate tax assessed against the estate. It appears that the time deposit in question was held by the said bank
under two certificates, one for P100,000.00 to mature on May 12, 1967, and the other, for P600,000.00 to mature
on June 16, 1967. Judge Tan, however, extended the maturity date of said time deposits to May 12, 1968. The
certificates of time deposit covering the said funds had been endorsed in favor of the Commissioner in payment of
the unpaid balance of the estate then December 7, 1967) amounted to P700,000.00.
Commmoner, however. mentioned the respondents End an Abanto through their counsel that his Office - +.
wph!1
... regrets that the same cannot be accepted as payment of the deficiency estate tax in this case
since they cannot, at present or on before December 9, 1967, be. converted into cash. However,
we are holding said certificates of time deposit for possible application in payment of the unpaid
balance of the deficiency estate tax in this case as soon as said certificates can be converted into
cash. It will be understood in this connection that if the balance of the deficiency estate tax in this
case is not paid on or before December 9, 1967, the same shall be subject to the interest on
deficiency, 5% surcharge and 1% monthly interest for deliquency.
According to Judge Tan, he caused the extension of the maturity date of the said deposit but that in doing so he
acted in good faith in that the testate estate then had ample funds and assets and the said time deposit earned a
higher interest than a savings deposit; that he needed no specific court authority for the purpose; and that he had a
gentleman's agreement with the officials of the bank that said deposit could be withdrawn in advance, such being
the custom in banking circles. The Overseas Bank of Manila, on the other hand, in answer to Atty. Medina's
mentioned petition, claimed that the deposit in question was renewed before the bank received any letter
demanding its release. In view of this impasse and the fast approaching deadline for the payment of the estate tax,
Atty. Medina requested the Commissioner to credit P700,000.00 to the amount previously paid as inheritance tax;
but, apparently, this request was not honored by the Commissioner.
On January 26, 1968, Atty. Medina filed with this Court a manifestation in which she alleged that even as the
proposed joint manifestation between the parties which was supposed to describe the matters agreed upon
between them and the Commissioner during a conference hearing held on January 24, 1968 had not yet been
shown to her, she already wished to express her principals, conformity to pay, but under protest, the deficiency
estate tax of P700,000.00 plus surcharges, interest and penalties due thereon and the inheritance tax in the amount
of P4,161,986.12 appearing, to Atty. Medina, in the mentioned assessment notice dated August 24, 1967; that she
was likewise agreeable to pay, under protest however, the income taxes for 1961 to 1965 against the estate in the
demand letter of the Commissioner dated August 29, 1967 in the amount of P1,175,974.51 plus whatever interest,
surcharges and penalties were due'thereon; and that she was also agreeable to being authority to sell such
properties of the estate as may be necessary for the mentioned On the following day, however, that is, January 27, 1968, the herein respondents Eribal, Abanto and Atty. Medina, on
the one hand, and the Commissioner and the Solicitor General, on the other, filed with this Court a joint
manifestation which, inter alia, reads as follows:+.wph!1
l. That the respondent taxpayers will pay the estate, inheritance and deficiency income taxes
covered by existing assessments; which are due and collectible from the estate of Elsie M. Gaches,
including the delinquency penaltiesthereon, but without prejudice to any right of the taxpayer to
contest or protest the said assessments at the proper time and in the proper court;
2. That the respondents Delia P. Medina, Magdalena Abanto and Camilo Eribal shall submit to this
Honorable Court an inventory of all the properties and assets of the estate ... ;
3. That is order to generate the necessary funds for the purpose of paying the said taxes and
delinquency penalties, so much of the assets of the estate ... shall be sold ...
4. That respondent Delia P. Medina, . and. Mr. Rodolfo U. Arrano Supervising Revenue Examiner of
the Bureau of Internal Revenue, ... are hereby proposed to be constituted as the authorized agents
of the parties herein to effect the sale ...;
5. That the said agents shall be direct to sell the assets of the estate ... ;
6. That all negotiations and transactions for the sale of the assets of the estate shall be made
jointly by the authorized agents ... ;
7. That no disposition of any property or assets of the estate shall be effected except for the
foregoing purpose;
8. That this case shall not be terminated until ... the above mentioned ... taxes and delinquency
penalties are fully paid; and liquidated;
9. That the parties pray for the approval of the foregoing propositions.
On February 6, 1968, this Court, acting on the abovement manifestation of Atty. Medina and the at manifestation of
the Parties, issued a resolution authorizing Atty. Medina to pay, amt, under at, the transfer and in taxes collectible
from the estate, including the accopanying delinquency penalties. A Medina was given the necessary authority to
collect and receive funds payable to the estate in question and to sell such a thereof as may be necessary.

On February 10, 1968, a motion to declare in contempt Lepanto Consolidated Mining Co. was filed by Atty. Medina
on t ground that the said corporation refused to tum over to dividends payable to the testate estate unless the
Commissioner first lifted his garnishment order on said dividends.
On February 16, 1968, this Court issued a resolution suspendi the writs to preliminary junction issued by this Court
on July and 17, 1967 and all warrants of garnishment issued by the Commissioner relative to the estate of Elsie M.
Gaches, said suspension to be effective until such time that Atty. Medina, End and Abanto shall save fully paid the
transfer and income tax including the penalties thereon, covered by existing assessment Atty. Medina thereafter
submitted to this Court performance reports on her activities relative to the authority given her.
On March 9, 1968, Atty. Medina filed with this Court manifestation stating that she received a demand letter dated
March 9, 1968 from the Commissioner for the payment of the following 1'756 900- 00 as estate tax, including
penalties; (2) P192,186.75 as inheritance tax corresponding to the share of Bess Lauer; and (3) P451.435.91 as
balance of the income tax for the years 1961 to 1965 Atty. Medina claimed the said demands to be erroneous for
the following reasons' (1) as to the estate tax, the time deposit in the Overseas Bank of Manila of P700,000.00 plus
interest earned of P60,000.00 as of March 9, 1968 would more than cover the said tax and the certificates of time
deposits were already endorsed to the Cmmissioner on December 6, 1967; (2) as to the inheritance tax, she (that is.
he principals Abanto and Eribal) was not responsible therefore, as the resolution of this Court dated February 6,
1968 required her "to pay only the estate, inheritance and in income taxes, under protest covered by existing
assessments, against the Estate, and against the heirs Magdalena Abanto and Camilo Eribal;" in a supplemental
motion, Atty. medina further argued that Bess Lauer alone was solely responsible for the payment of the inheritance
tax on her share and not the decedent's estate in the Philippines, and that the properties of the testate estate in the
United States of America which consisted of shares of stock and deposits in banks, being personal properties, were
to be excluded from the computation of the gross estate of the deceased in the Philippines and the computation of
the Philippine estate and inheritance taxes because, under philippine law, the sites of those properties is the place
where 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) as to tile deficiency income tax for
1961-1965, she had paid the same in the total amount of P1,182,296.16 as of March 9, 1968, which was the amount
stated in the assessment letter of the Commissioner cited August 9, 1967. According to Atty. Medina, the payment
of the taxes was made in the following manner: on February 27, she paid a total of ?838,518.62 as follows: the
income tax (P715,619.46) in full; interest (P106,855.29) in full, compromise penalty (P5.,000.00) in full and
surcharges P1,052.07) in. part only; and, on March 8, 1968. the amount of P343,773.54 as payment of the
remaining surcharges, Consequently, she argued the the surcharges and interest, if any were still due, could legally,
accrue only from September 29, 1967 up to February 27, 1968 and only on the tax proper.
On April 16, 1968, a counter-manifestation was filed with this court by the Commissiorner to the above-metioned
manifestation according to the Commissioner, (that is under existing assessments that is under the letter of
demand of August 24 and 29, 1967)
Estate tax (Balance-

P700,000.00 (x)

Inheritance tax

4,353,927.87 (xx)

Total Estate and

Inheritance taxes

P5,053,927.87

Deficiency income taxes

for 1961 to 1965

P1,175,974.51 (xxx)

Delinquency penalties for late filing

of income tax return and late payment
of
income tax for 1965 per return filed-

6,321.65 (xxxx)

Total deficiency income taxes for

1961 to 1965 and the delinquency
penalties of income tax 1965 per
return

P1,182,296.16

GRAND TOTAL

P6,236,269.03

+.wph!1
(x) pIus 5% surcharge and 1% monthly interest thereon from December 9, 1967 until full payment
thereof; (xx) plus 5% surcharge and 1%, monthly interest thereon, if the same is not paid in full on

or before March 9, 1968; (xxx) plus 5% surcharge and 1% monthly interest thereon from August 29,
1967 until full payment thereof; and (xxxx) pIus additional 1% monthly interest from September
29, 1967 until full payment thereof.
Further, the Commissioner alleged that after taking into consideration the payments made by Atty. Medina, the
balances as of March 9, 1968 of the death and income taxes still compatible were as follows:
Estate Tax
Balance of the estate tax

P700,000.00

5%, surcharge

35,000.00

1% monthly interest from

12/9/67 to 3/9/68

21,000.00

Total

P 756,000.00

plus additional 1% monthly interest

from March 9, 1968 until full payment
thereof.
Inheritance Tax
Inheritance tax due and collectible
per letter of demand dated August 24,
1967 (Annex "A")

P4,353,972.87

Less: Payments of inheritance Tax

on March 1 and March 6, 1968 per O.R.
2519938 and 2520026, respectively

4,161,986.12

Inheritance taxs due and collectible

P191,986.75

plus 5% surcharge and 1% monthly

interest thereon from March 8, 1968
until full payment.
Deficiency Income Taxes
Deficiency income taxes from 1961
to 1965 per letter of demand dated
August 29, 1967 plus 5% surcharge and
1% monthly interest up to March 1968

P1,289,818.17

Less: Payments made on February

27, 1968 and March 8, 1968 under O.R.
207001 and 207002

P1,182,296.16

Deficiency income taxes still due

and collectivele

P107,522.01

plus additional 1% monthly interest

thereon from March 8, 1968 until full
payment.
The Commissioner also explained that the i taxes paid by Atty. Medina in the total amount of P1,182,296.16
"included only the 1/2% monthly interest On deficiency with respect to the deficiency income taxes for 1961 to 1965
and the 1% monthly Interest for delinquency up to September 29, 1967 with respect to the income tax for 1965
which was paid per return, Out did not include the 5% surcharge and 1% monthly interest for delinquency from
August 29, 1967 until full Payment with respect to the income tax for the 1965 return." The Commissioner
consequently prayed that Atty. Medina be ordered to pay: +.wph!1
(1) The amount of P756,000.00 as balance of the estate tax, 5% surcharge and 1% monthly
interest from December 9, 1967 to March 9, 1968, plus additional 1% monthly interest from March
9, 1968 until full payment;
(2) The amount of P191,986.75 as balance of the inheritance tax, plus 5% surcharge and 1%
monthly interest thereon from March 9, 1968 until full payment; and
(3) The amount of P107,522.01 as balance of the deficiency income taxes, 5% surcharge and 1%
monthly interest for delinquency up to M arch 8, 1968, plus additional 1% monthly interest thereon
from March 8, 1968 until full payment ... ;
On August 23, 1968, Atty. Medina filed a manifestation with this Court adverting to the refusal of the Overseas Bank
of Manila to permit the withdrawal of the time deposit of the testate estate in the said bank in spite of the fact that
the extended maturity date of said deposit had may expired. Atty. Medina payed that the bank Ida as one boss able
the deposit of the funds of is well as the who made i of the estate of Elsie M. Gaches with the said bank be declared
in contempt. on September 18, 1968, the Central Bank Of the Philippines filed with this Court a comment on the
urgent manifestation of Atty. Medina concerning the deposit in question. The Central Bank, which according to the
Overseas Bank of Manila had restrained it from paying its time deposits to the bank's depositors, averred that this
Court's resolution of November 17, 1967 merely authorized Atty. Medina to withdraw the deposit from the said bank
and did not order the bank to pay the time deposit in question. Moreover, according to the Central Bank, the
nonpayment of the said deposit was not wilful as the Overseas Bank of Manila was in a state of insolvency. A
comment was filed on October 11 1968 by the Overseas Bank of Manila stating that the majority stockholders of the
bank filed a petition against the Central Bank for certiorari. prohibition and mandamus in this Court in L-29352
entitled "Emerito M. Ramos, et at. vs. Central Bank;" 2 that the time deposit in question was an unrecorded
transaction; and that the Central Bank prohibited the bank to do business due to its distressed financial condition,
for which reason it could not give preference of the payment of the said deposit as it might prejudice other creditors
of the bank.
On November 11, 19681, Atty. Medina filed with this Court a M. motion ,- reiterating a previous one to allow the
payment of the announced of P6.000.00 to Atty. Manuel M. Paredes whom she and tile other herein respondent
herein Abanto and Eribal hired as counsel in collection with the settlement proceedings of Elsie M. Gaches
estate. On March 29, 1969. pursuant to a resolution of this Court, Atty. Paredes ssubmitted knitted a memorandum
on the nature and extent for the legal services he had rendered to tile herein respondents Atty. Medina Eribal and
Abanto.
On June 26, 1971, Abanto and Eribal Jointly wrote the Chief Justice, expressing willingness and agreement to pay the
amount due tile government as taxes against the estate and the heirs thereof, however, the two respondents herein
subsequently retracted their statement in the said letter, claiming they signed and sent the same without knowing
and understanding its effect and consequences.
A perusal in depth of the facts of the instant case discloses quite plainly that the respondent Judge committed a
grave abuse of discretion amounting to lack of jurisdiction in issuing its orders of June 5, 8 and 9, 1967. Section 103
of the National Internal Revenue Code (hereinafter referred to as "Tax Code") unequivocally provides that "No judge
shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the
estate unless it shall appear that the estate tax has been paid." 3 The aforesaid orders of the respondent Judge are
clearly in diametric opposition to the mentioned Section 103 of the Tax Code and, consequently, the same cannot
merit approval of this Court.
While this Court thus holds that the questioned orders are not in accordance with statutory requirements, the
fundamental question raised herein regarding the objectionable character of the probate court's mentioned orders
has opened other issues which, not alone their importance to jurisprudence, but the indispensability of forestalling
needless delays when those issues are raised anew, have, perforce, persuaded this Court that their complete and
final adjudication here and now is properly called for. Said issues may be specificaly framed as follows:
(1) Should the herein respondent heirs be required to pay first the inheritance tax before the probate court may
authorize the delivery of the hereditary share pertaining to each of them?
(2) Are the respondent heirs herein who are citizens and residents of the Philippines liable for the payment of the
Philippine inheritance tax corresponding to the hereditary share of another heir who is a citizen and resident of the
United States of America. said share of the latter consisting of personal (cash deposits and, shares) properties
located in the mentioned court
(3) Does the assignment of a certificate of time deposit to the comissioner of Internal Revenue for the purpose of
paying t I hereby the estate tax constitute payment of such tax?

(4) Should the herein respondent heirs be held liable for the payment of surcharge and interest on the amount
(P700,000.00) representing the face value of time deposit certificates assigned to the Commissioner which could
not be converted into cash?
Aside from the foregoing, there are also other incidental questions which are raised in the present recourse, viz.,
(5) What should be the liability of the respondents herein on the contempt charges respectively lodged against
them?
(6) What should be a reasonable fee for the counsel of the respondents Atty. Medina, Eribal and Abanto for
professional services rendered In connection with the settlement of the estate of Elsie M. Gaches?
1. On the matter of the authority of a probate court to allow distribution of an estate prior to the complete Nuidation
of the inheritance tax, the Tax Code apparently lacks any provision substantially Identical to the mentioned Section
103 thereof. There are provisions of the Tax Code, e.g., Section 104, which makes it the duty of registers of deeds
not to register the transfer to any new owner of a hereditary estate unless payment of the death taxes sham be
shown; Section 106, which imposes a similar obligation on business establishments; and Section 107, which
penalizes the executor who delivers to an heir or devise, and the officers and employees of business establishments
who transfer in their books to any new owner, any property forming part of a hereditary estate without the payment
of the death taxes first being shown; but those provisions by themselves do not clearly establish that the purchase
and object of the statute is to make the payment of the inheritance tax a pre-condition to an order for the
distribution and delivery of the decedent's estate to the lawful heirs there. The cloud of vagueness in the statute,
however, is not entirely unreachable. Section 1, Rule 90 of the Rules of Court erases this hiatus in the statute by
providing thus: +.wph!1
Section 1. When order for distribution of residue made. When the debts, funeral charges, and
expenses of administration, the allowance to the widow, and inheritance tax, if any, chargeable to
the estate in accordance with law, have been paid, the court, on the application of the executor or
administrator, or of a person interested in the estate, and after hearing upon notice, shall assign
the residue of the estate to the persons entitled to the same, naming them and the proportions, or
parts, to which each is entitled, and such persons may demand and recover their respective shares
from the executor or administrator, or any person having the same in his possession. If there is a
controversy before the court as to who are the lawful heirs of the deceased person or as to the
distributive shares to which each person is entitled under the law, the controversy shall be beard
and decided as in ordinary cases.
No distribution shall be allowed until the payment of the obligations above mentioned has been
made or provided for, unless the distributees, or any of them, give a bond, in a sum to be fixed by
the court, conditioned for the payment of said obligations within such time as the court directs.
Under the provisions Of the aforequoted Rule, the distribution of a decedent's assets may only be ordered under any
of the following three circumstances, namely, (1) when the inheritance tax, among others, is paid; (2) who bond a
suffered bond is given to meet the payment of the tax and all the other options of the nature enumerated in the
above-cited provision; or (3) when the payment of the said tax and at the other obligations mentioned in the said
Rule has been provided for one of these thru camar as the satisfaction of the when tax due from the festate is were
present when the question orders were issued in the case at bar. Although the respondent Judo did make a condition
in its order of June 5, 1967 that the distribution of the estate of Elsie M. Gaches (except the cash deposits of more
than P2 million) shall be trusted to Atty. Medina for the payment of whatever taxes may be due to the government
from the estate and the heirs them to, this Court cannot subscribe to the proposition that the payment of the tax
due was thereby adequately provided for. In the first place, the order of June 5, l967 was, for all intents and , a
complete distribution of the estate to the heirs for, the executor who is supposed to take care of the estate was
absolutely discharged the attorney's fees for the of a lawyer who presumably acted as legal counsel for the estate in
the court below were ordered paid as were also the fees for the executor's the cash funds of the estate were red
paid to the cash and the non-cash (real property and shares of stock) properties were likewise ordered delivered to
Atty. Medina whose participation in the said proceedings was in the capacity of an attorney-in-fact of the herein
respondent Eribal and Abanto. In short, the probate court virtually withdrew its custodial jurisdiction over the estate
which is the subject of settlement before it. In the second place the respondent Judge, in the distribution of the
properties of the estate in question, relief solely upon the mere mandestation of the counsel for the heirs Eribal and
Abanto that them were affiant of the estate with which to pay the taxes due to the government. There is no
evidence on record that would show that the probate court ever made a serious attempt to de what the values of
the different assets the correctness of that such properties shall be preserved for the satisfaction of those case In
the third place that main of pesos taxes were being called by the Bureau of Inc. Revenue, the least reasonable thing
that the probate court should have done was to require the heirs to deposit the amount of inheritance tax being
claimed in a suitable institution or to authorize the sale of non-cash assets under the court's control and supervision.
The record is likewise bereft of any evidence to show that sufficient bond has been filed to meet this particular
outstanding obligation.
2. The liability of the herein respondents Eribal and Abanto to pay the inheritance tax corresponding to the share of
Bess Lauer in the inheritance must be negated, The inheritance tax is an imposition created by law on the privilege
to receive property. 4 Consequently, the scope and subjects of this tax and other related matters in which it is
involved must be traced and sought in the law itself. An analysis of our tax statutes supplies no sufficient indication
that the inheritance tax, as a rule, was meant to be the joint and solidary liability of the heirs of a decedent. Section
95(c) of the Tax Code, in fact, indicates that the general presumption must be otherwise. The said subsection reads
thus: +.wph!1
(c) xxx xxx xxx

The inheritance tax imposed by Section 86 shall, in the absence of contrary disposition by the
predecessor, be charged to the account of each beneficiary, in proportion to the value of the
benefit received, and in accordance with the scale fixed for the class or group to which is pertains:
Provided, That in cases where the heirs divide extrajudicially the property left to them by their
predecessor or otherwise convey, sell, transfer, mortgage, or encumber the same without being
the estate or inheritance taxes within the period prescribed in the preceding subsections (a) and
(b), they shall be solidarity liable for the payment of the said taxes to the extent of the estate they
have received.
The statute's enumeration of the specific cases when the heirs may be held solidarity liable for the payment of the
inheritance tax is, in the opinion of this Court, a clear indication that beyond those cases, the payment of the
inheritance tax should be taken as'the individual responsibility, to the extent of the benefits received, of each heir.
3. And the effect of the indorsement of the time deposit certificates to the Commissioner, the same cannot be held
to have extinguished the estate's liability for the estate tax. In the first place,in accepting the indorsement and
delivery of the said certificates, the Commissioner expressly gave notice that his Office +.wph!1
... Regrets that the same cannot be accepted as payment of the deficiency estate tax in this case
may they cannot, at present or on or therefore December 9, 1967, be converted into cash.
However, we are holding said certificates of time deposit for possible application in payment of the
unpaid balance of the deficiency estate tax in this case ,is soon as said certificates can be
converted into cash. ...
In the second place, a time deposit certificate is a mercantile document and is essentially a promissory note. 5 By
the express terms of Article 1249 of the Civil Code of the Philippines, the use of this medium to clear an obligation
will "produce the effect of payment only when they have been cashed, or when through the fault of the creditor they
have been impaired." From the records of the case at bar, the Commissioner as well as the herein respondents Atty.
Medina, Eribal and Abanto spared no time trying to collect the value of said certificates from the Overseas Bank of
Manila but all to no avail. Consequently, the value of the said certificates (P700,000.00) should still be considered
outstanding.
4. The estate of Elsie M. Gaches is likewise liable for the payment of the interest and surcharges on the said amount
of P700.000.00 imposed under Section 101 (a) (1) and (c), respectively, of the Tax Code. 6
The Interest charge for 1% per month imposed under Section 101 (a) (1) of the Tax Code is essentially a commotion
to the State for delay in the payment of the tax due thereto 7 As for the accountant use by the tax payer of funds
that nightday shall be in the government's funds. 8 As the indorsement and delivery of the mentioned time deposit
certificates to the did not result in the payment of the estate tax (for which it was in the respondents estate is
fluently liable for the interest charge imposed in the Tax Code.
The estate cannot likewise be exempted from the payment of the 5% surcharge imposed by Section 101 (c) of the
Tax Code. While there are cases in this jurisdiction holding that a surcharge shall not be visited upon a taxpayer
whose failure to pay the tax on time is in good faith, 9 this element does not appear to be present in the case at bar.
The Commissioner, as aforesaid, fully informed the respondents Atty. Medina, Eribal and Abanto of the condition to
this acceptance of the said time deposit certificates. The Commissioner, in fact, advised them in the same letter
that "It will be understood in this connection that if the balance of the deficiency estate tax in this case is not paid
on or before December 9, 1967, the name shall be subject to the interest on deficiency, 5% surcharge and 1%
monthly interest for deficiency." Moreover, Judge Tan himself, as executor of the estate of Elsie M. Gaches,
specifically admitted that he was the one who caused the extension (and consolidation) of the maturity dates of the
two time deposit certificates in question (one for P100,000.00 to mature on May 12, 1967 and the other for
P600,000.00 to mature on June 16, 1967) to May 12, 1968,
It will be worthwhile to mention also, in this connection, that when Atty. Medina applied to this Court for authorize to
the amount of P700,000.00 from the Overseas Bank of Manila on September 9, 1967, the resolution of this Court
dated November 17, 1967, approve her request authorized her to withdraw the said amount in the form of cashier's
checks payable to the Commissioner. Apparently, because the Overseas Bank of Manila refused to issue such checks
or to allow her to withdraw said amount in view of the extension of the nuturity date of the deposit in question, Atty.
Medina thought that by simply assigning the time deposit certificates to the Commissioner, she would be deemed to
have paid the estate's obligation in its corresponding amount. However, as aforesaid the Commissioner was also
unable to convert said amount to cash and he gave announce to that effect to Atty. Medina. Since the refusal of the
Overseas Bank of Manila to snow the withdrawal of the said deposit was then well-known to the parties, it saw to
reas that the tentatives of the estate who stand to be benefited. therefrom, such as the respondents Eribal and
Abanto, should have forthwith asked for authority to pay the from other funds of the estate. Atty. Medina was, in
fact, given the authority by this Court to sell assets of the estate for the payment of the taxes due to the State, but
she never tried to pay the equivalent amount of P700,000.00 in question from the proceeds of the Wm she made
afterwards. Moreover, it will also be noted that the respondents EAbal and Abanto, during the pendency of this case,
had in their actual ion at least P2.3 million (the amount they were able to withdraw from the Philippine National
Bank on account of the questioned orders) which they could have very well used for the payment of the estate tax.
They, however, opted to put the same to other uses.
5. We now consider the several petitions for contempt riled in the case at bar, namely, (a) against the Philippine
National Bank on account for allowing Atty. Medina to withdraw P2,330,000.00 in contravention of the writ of
punishment issued by the Commissioner; (b) against the officer of the Overseas Bank of Manila for allowing the
extension of the maturity date of the mentioned time deposit of P700,000.00 and for refusing to pay the same after
the extended term expired; (c) against Judge Tan who renewed the maturity date of the said time deposits; (d)
against the Lepanto Consolidated Mining Co. for refusing to turn over dividends payable to the estate of Elsie M.
Gaches unless the Commissioner first lifted his punishment order; and (e) against the herein respondents Atty.

Medina, Eribal and Abonto for citing shares of stock with the probate court instead of the cash amount of
P2,330,000.00 which they withdrew from the renewed National Bank on account of the questioned orders of the
probate court, contrary to the resolutions of this Court dated July 10 and 17, 1967.
(a) The contempt charge against the officials of the Philippine National Bank is without merit, it appearing to the
satisfaction of this Court that they excited reasonable efforts not to disobey the writ of garnishing issued by the
Commissioner. Indeed, said officials merely acted in obedience to the order of the probate court which threatened
them with contempt of court after they 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, admitted
later that its writ of garnishment cannot be superior to that of the probate court,s order as the estate in Question
was then in custodia legis.
(b) The contempt charges against the officials of the Overseas Bank of Manila likewise merit dismissal. In the case of
the renewal of the term of the time deposits in question, the said extension was made by no less than the executor
of the estate himself- The renewal of said term may be considered as purely an act of administration for the
enhancement (due to the higher interest rates) of the value of the estate, and the officials of the bank cannot
consequently be blamed or acting favorably on the executor's application. Judge Tan himself explained that he did
what he did honest the belief that it would redound to the benefit of the estate on the account of the higher interest
rate on time deposits.
With reference, to the refuse of the bank's officials to allow the witldrawal of time deposit in question after the
extended term expired on May 12, 1968, this Court takes notice of the fact, as stated in our decision in Ramos vs.
Central Bank (L-293250, Oct. 4, 1971; 41 SCRA 565), that as early as November 20, 1967 the Central Bank required
the Overseas Bank of Manila, in view of its distressed financial condition, to execute a voting trust agreement in
order to bail it out through a change of management and the promise of fresh funds to replenish the bank's financial
portfolio. The Overseas Bank of Manila was not able to normalize its operations in spite of the voting trust
agreement for, on July 31, 1968, it was excluded by the Central Bank from inter-bank clearing; on August 1, 1968,
its operations were suspended; and on August 13, 1968, it was completely forbidden by the Central Bank to do
business preparatory to its forcible liquidation. Under the circumstances, this Court is satisfied with the explanation
that to allow Atty. Medina to withdraw the said time deposits after the extended term would have worked an undue
prejudice to the other depositors and creditors of the bank.
(c) The contempt charge against Judge Tan is also not meritorious. There is no sufficient and convincing evidence to
show that he renewed the maturity date of the time deposits in question maliciously or to the prejudice of the
interest of the estate.
(d) The Lepanto Consolidated Mining Company is likewise entitled to exoneration from the contempt charge lodged
against it. It is refusing to turn over to Atty. Medina stock dividends payable to the estate of Elsie M. Gaches, it is
evident that the said corporation acted in good faith in view of the writ of garnishment issued to it by the
Commissioner. Moreover, on February 16, 1968, this Court passed a resolution suspending temporarily the warrants
of punishment issued by the Commissioner, and it does not appear that thereafter the turnover of the stock
dividends to the estate was refused.
(e) With reference to the charge for contempt against the respondents Atty. Medina, Eribal and Abanto, although
admittedly the resolutions of this Court dated July 10 and 17, 1967 were not strictly complied with by the said
respondents, it appears clearly that they immediately deposited with the probate court shares of stock with a fairly
stable liquidity value of P2,588,520.00. In any case, the main objective of the instant petition is to assure the State
that the assessed tax obligations shall be paid and, from the records, more than P2 million had already been paid to
the State during the pendency of the instant proceeding, in this Court.
6. With reference to the attorney's fees to be paid to Atty. Manuel M. Paredes, this court is of the opinion, after a
careful study of the statement of services rendered by said counsel to the respondents Eribal and Abanto which was
submitted to this Court, that the amount of Fifty Thousand Pesos (P50,000.00) is fair and reasonable. The payment
of this amount, however, is the personal liability of the said respondents Eribal and Abanto. and not that of the
estate of Elsie M. Gaches, as the said counsel was hired by the said respondents to give legal aid to them in
connection with the settlement of the various claims preferred in the probate court and in this Court.
7. The Court's intended adjudication of the main issue has been rendered academic by supervening events which
dictate that the court refrain from issuing any further order relating thereto. On July 18, 1977 a "Manifestation and
Compliance" was filed by the, respondent Delia P. Medina which states that a compromise payment of P700,000 as
all estate tax, evidence by an official receipt (annex A of the Manifestation), was accepted and duly approved by
Acting Commissioner of Internal Revenue Efren I. Plana (annex B of the same Manifestation), and that "with the said
compromise payment of P700,000, all estate, inheritance and deficiency income taxes . . . including pertinent
delinquency penalties thereof have been fully paid and liquidated, aggregating to P7,929,498.55 ..." No objection
thereto was interpored by any of this parties concerned despite due notice thereof. This was further supplemented
by a communication, dated July 19, 1977, of Deputy Commissioner Conrado P. Diaz, informing the Register of Deeds
of Pasig, Metro Manila, that the Gaches estate has already paid all the estate and inheritance taxes assessed
against it, and that, consequently, the notice of tax then inscribed on the property and property rights of the estate
can now be considered cancelled. With the full settlement of the tax claims, the requirements of the law have been
fully met, and it has unnecessary for the Court to issue orders relative to the main issue.
ACCORDINGLY, the respondent Delia P. Medina is to deliver the remaining assets of the estate to the voluntary heirs
in the proportions adjudicated in the will and to submit a report of compliance. On the incidental issues, the Court
renders judgment as for:
(1) The amount of FIFTY THOUSAND (P50,000.00) PESOS is hereby awarded to Manuel M. Paredes as legal fee for his
services,
the same to be Paid by the respondent End will the estate of Abanto, now

(2) The contempt charges against the officials of the Philippine National Bank and the Overseas Bank of Manila,
Judge Bienvenido Tan, Sr., and Lepanto Consolidated Co. are hereby ordered dismissed;
(3) The authority given to the respondent Delia P. Medina in the resolution of the court dated February 6, 1968, to
pay the death and income taxes, including delinquency penalties, claimed by the State and, for that, to withdraw all
cash deposits in various banks and sell such properties of the estate as my be necessary, is hereby terminated; and
(4) The writs of preliminary injunction issued by the Court pursuant to its resolutions dated July 10 and 17, 1967 are
hereby dissolved.
No costs.
---------G.R. No. L-9776

July 31, 1957

TESTATE ESTATE OF CARLOS PALANCA Y TAGUINLAY, deceased. ROMAN OZAETA, Special Administrator,
Appellant,
vs.
TERESA PALANCA DEL RIO, CARMEN PALANCA, CONSUELO PALANCA, MANUEL PALANCA and ALFREDO
PALANCA, oppositors-appellees.
G.R. No. L-9851

July 31, 1957

TESTATE ESTATE OF CARLOS PALANCA, deceased. SYCIP GORRES, VELAYO & CO., movant-appellant,
vs.
ROMAN
OZAETA,
Special
Administrator
and
appellee.
TERESA PALANCA DEL RIO, ET AL., oppositors-appellees.
Arturo
S.
Monzon
for
the
movant
and
Lichauco
and
Picazo
for
special
administrator
and
Sison
and
Sison
for
the
Cuartero
De
los
Santos
and
De
los
Santos
for
Sebastian
C.
Rafael Dinglasan for Angel C. Palanca. Manuel V. San Jose for Rosa Gonzales and her children.

appellant.
appellant.
children.
Palanca.

LABRADOR, J.:
On May 5, 1955, the special administrator filed a petition in court for authority to pay the accounting firm of Sycip,
Gorres, Velayo & Co. the sum of P3,650, for services rendered in taking inventory of assets in 1950, tax
consultations in 1950 to 1954, and preparation of income tax returns for 1953 and 1954. The court below denied
this motion, on the ground that the services covered by the fees of the accounting firm were rendered to the former
special administrator Philippine Trust Company. Upon being notified of the denial of the special administrator's
petition to pay it, the accounting firm appeared in court and asked for the reconsideration of the order of denial.
Opposition to this motion for reconsideration was filed by heirs Teresa, Carmen, Consuelo, Manuel, Elena and
Alfredo, all surnamed Palanca y Cuartero, on the following grounds: as to the fees for services in the taking of the
inventory in 1950, Mr. Ozaeta, who asked for said services, was not yet the special administrator when said services
were rendered; the tax consultations from 1950 to 1954 cover years in which Mr. Ozaeta was not yet the special
administrator, and as the same was rendered during the incumbency of the Philippine Trust, the fees should be paid
for by Mr. Ozaeta himself. After various arguments, the court refused to grant the reconsideration of its original
order denying the petition, and so appeal therefrom was taken to this Court.
Since the pendency of the case in court, the oppositors-appellees have presented a withdrawal of their opposition,
on the ground that they have already assigned their rights, titles and participations in the said estate to the eight
children of Rosa Gonzales Vda. de Palanca, and no longer have any interest in the estate, nor do they have any
personality to further intervene in the proceedings. A similar motion has also been filed by Sebastian Palanca, who
states that he has transferred his share to the inheritance to Carlos Palanca, Jr. For their part Rosa Gonzales Vda. de
Palanca and her eight children have filed a statement expressing conformity to the payment of the fees.
The withdrawal of the objections notwithstanding, it seems that it is still necessary to decide the questions raised,
i.e., whether the services rendered to the special administrator named in the will, previous to his actual
appointment as such and at his instance, are chargeable against the estate.

There is no question that the services rendered were for the benefit of the estate. The Rules require that the
administrator should submit an inventory of the properties of the estate within three months from his appointment
(Sec. 1, Rule 84, Rules of Court). As Mr. Ozaeta expected to be appointed administrator of the estate immediately, in
view of his designation as executor of the will of the decedent, it was proper, necessary and expedient for him, even
before his actual appointment to employ the services of accountants in order that they can prepare the accounts or
the inventory in due time and within the period prescribed by the Rules.
The general rule is that acts done by an executor in the interest of his trust, prior to his qualification as such,
become binding on the estate upon his qualification (Baker vs. Cauthorn, et al., 55 N. E. 963). In the said case the
court held:
It is contended by appellant that the services rendered by appellees were to the said James E. Baker before
he actually became the executor of decedent's will, and that said Baker is individually liable for the value of
whatever services were so rendered, and not said estate. It is not contended that appellees were not
retained, nor that the advice was not given, nor that the services were not of the value of $100, but the sole
contention seems to be that, because the actual work which was done occupied prior to the time appellant
in fact qualified as executor, said Baker was individually liable, and appellees had no claim against the
estate which he (Baker) was representing. . . .
We think the evidence sustains the finding and judgment of the lower court. It shows that the services
rendered by appellees were connected with the settlement of his decedent's estate. There was no special
agreement between James E. Baker and appellees that they were to look to the estate alone for payment;
hence they could, if they so desired, look to said James E. Baker personally for the value of such services.
Long vs. Rodman, 58 Ind. 58. Appellees waived the right to hold said James E. Baker personally and elected
to hold the estate, for the value of such services. . . . After the executor has qualified, his authority over the
decedent's property reaches back to the time of the decedent's death, and covers all acts done by him in
the interest of his trust. Gilkey vs. Hamilton, 22 Mich. 283. Under the evidence in this case, we think the
executor of the will of Nancy L. Baker could have the claim of appellees, and rightfully insisted upon its
allowance as a credit in his settlement of the trust. Not having done this, the only way open to appellees to
secure payment for their services from the trust fund was to file the claim against the estate, and proceed
as the record shows they have done. We find no error in the record. (Baker vs. Cauthorn, et al., supra, pp.
963-964.)
The services rendered in the years 1953-54 were also as useful to the estate as those rendered in connection with
the preparation of the inventory. Whoever may have contracted the services of the accountants, whether it was Mr.
Ozaeta before his appointment or the Philippine Trust, such services were for the benefit of the estate and have
redounded to the estate's benefit.
For the foregoing considerations, the order denying payment to the firm of Sycip, Gorres, Velayo & Co. of the sum of
P3,650 is hereby reversed, and the authority for the payment of the same by the special administrator from the
funds of the estate is hereby granted. Without costs.
-------------G.R. No. L-9271
March 29, 1957
In the matter of the testate estate of the late DA. MARGARITA DAVID. CARLOS MORAN SISON, Judicial
Administrator,
petitioner-appellant,
vs.
NARCISA F. TEODORO, heiress, oppositor-appellee.
Teodoro
R.
Dominguez
for
appellant.
Manuel O. Chan for appellee.
BAUTISTA ANGELO, J.:
On December 20, 1948, the Court of First Instance of Manila, which has jurisdiction over the estate of the late
Margarita David, issued an order appointing Carlos Moran Sison as judicial administrator, without compensation,
after filing a bond in the amount of P5,000. The next day, Carlos Moran Sison took his oath of office and put up the
requisite bond which was duly approved by the court. On the same day, letters of administration were issued to him.
On January 19, 1955, the judicial administrator filed an accounting of his administration which contains, among
others, the following disbursement items:
13. Paid to Visayan Surety & Insurance Corporation on P380.7
August 6, 1954, as renewal premiums on the 0
Administrator's bond of Judicial Administrator Carlos

Moran Sison covering the period from December 20,

1949
to
December
20,
1954,
inclusive .................................
15. Paid to Visayan Surety & Insurance Corporation on
December 21, 1954, for premiums due on the
Administrator's bond of judicial Administrator Carlos
Moran Sison for the period from December 21, 1954 to
December
21,
1955 ...............................................................
76.14
Narcisa F. Teodoro, one of the heirs, objected to the approval of the above- quoted items on the grounds that they
are not 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 items objected to on the ground that they
cannot be considered as expenses of administration. The administrator filed a motion for reconsideration and when
the same was denied, he took the present appeal.
The only issue to be determined is "whether a judicial administrator, serving without compensation, is entitled to
charge as an expense of administration the premiums paid on his bond."
The lower court did not consider the premiums paid on the bond filed by the administrator as an expense of
administration taking into account undoubtedly the ruling laid down in the case of Sulit vs. Santos, 56 Phil., 626.
That is a case which also involves the payment of certain premium on the bond put up by the judicial administrator
and when he asked the court that the same be considered as an expense of administration, it was disapproved for
the same reasons advanced by the trial court. In sustaining this finding, this Court ruled that the "expense incurred
by an executor or administrator to produce a bond is not a proper charge against the estate. Section 680 of the
Code of Civil Procedure (similar to section 7, Rule 86) does not authorize the executor or administrator to charge
against the estate the money spent for the presentation, filing, and substitution of a bond." And elaborating on this
matter, the Court made the following comment:
The aforementioned cases, in reality, seem superfluous in ascertaining the true principle. The position of an
executor or administrator is one of trust. In fact, the Philippine Code of Civil Procedure so mentions it. It is
proper for the law to safeguard the estate of deceased persons by requiring the executor or administrator
to give a suitable bond. The ability to give this bond is in the nature of a qualification for the office. The
execution and approval of the bond constitute a condition precedent to acceptance of the responsibilities of
the trust. If an individual does not desire to assume the position of executor of administrator, he may refuse
to do so. On the other hand, when the individual prefers an adequate bond and has it approved by the
probate court, he thereby admits the adequacy of the compensation which is permitted him pursuant to
law. It would be a very far-fetched construction to deduce the giving of a bond in order to qualify for the
office of executor or administrator is a necessary expense in the care, management, and settlement of the
estate within the meaning of section 680 of the Code of Civil Procedure, for these are expenses incurred
after the executor of administrator has met the requirements of the law and has entered upon the
performance of his duties. (See In re Eby's Estate [1894], 30 Atl., 124.)
We feel that the orders of Judge Mapa in this case rested on a fine sense of official duty, sometimes lacking
in cases of this character, to protect the residue of the estate of a deceased person from 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 pronouncement from this court. We rule that the expense incurred by an execution or
administrator to procure a bond is not a proper charge against the estate, and that section 680 of the Code
of Civil Procedure does not authorize the executor or administrator to charge against the estate the money
spent for the presentation, filing, and substitution of a bond.
It is true that the Sulit case may be differentiated from the present in the sense that, in the former the administrator
accepted the trust with the emolument that the law allows, whereas in the latter the administrator accepted the
same without compensation, but this difference is of no moment, for there is nothing in the decision that may justify
the conclusion that the allowance or disallowance of premiums paid on the bond of the administrator is made
dependent on the receipt of compensation. On the contrary, a different conclusion may be inferred considering the
ratio decidendi on which the ruling is predicated. Thus, it was there stated that the position of an executor or
administrator is one of trust: that it is proper for the law to safeguard the estates of deceased persons by requiring
the administrator to give a suitable bond, and that the ability to give this bond is in the nature of a qualification for
the office. It is also intimated therein that "If an individual does not desire to assume the position of executor or
administrator, he may refuse to do so," and it is far-fetched to conclude that the giving of a bond by an
administrator is an necessary expense in the care, management and settlement of the estate within the meaning of
the law, because these expenses are incurred "after the executor or administrator has met the requirement of the
law and has entered upon the performance of his duties." Of course, a person may accept the position of executor
or administrator with all the incident appertaining thereto having in mind the compensation which the law allows for
the purpose, but he may waive this compensation in the same manner as he may refuse to serve without it.
Appellant having waived compensation, he cannot now be heard to complain of the expenses incident to his
qualification.
The orders appealed from are hereby affirmed, without costs.
-----------Moran Sison v. Teodoro Digest
Moran Sison vs. Teodoro
G.R. No. L-9271 March 29, 1957

Bautista Angelo, J.:

Facts:
1. The CFI of Manila which had jurisdiction over the estate of Margarita David, issued an order appointing
appellantCarlos Moran Sison as judicial administrator without compensation after filing a bond. After entering into
his duties as administrator, he filed an accounting of his administration which included items as an expense of
administration the premiums he paid on his bond.
2. One of the heirs, herein appellee Narcisa Teodoro, objected to the approval of the items. The court approved the
report but disallowed the items objected to on the ground that these cannot be considered as expenses of
administration. Moran Sison filed a motion for reconsideration but was denied hence this appeal.
Issue: Whether or not an executor or judicial administrator can validly charge the premiums on his
bond as an expense of administration against the estate
NO.
The premiums paid by an executor or administrator serving without a compensation for his bond cannot be charged
against the estate. Further Sec. 7 of Rule 86 of the Rules of Court does not authorize the executor or administrator
to charge to the estate the money spent for the bond. As held in the case of Sulit v. Santos (56 Phil 626), the
position of an executor or administrator is one of trust. The law safeguards the estates of deceased persons by
making as a requirement for qualification the ability to give a suitable bond. The execution of said bond is therefore
a condition precedent to acceptance of the responsibilities of the trust.
Further, the giving of the bond is not a necessary expense in the care, management, and settlement of the estate
within the meaning of Sec. 680 of the Civil Code of Procedure, since such are the requirements after the executor or
administrator has already qualified for the office and has entered the performance of his duties.
-------------------G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue
Region
No.
14,
Bureau
of
Internal
Revenue,
petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V, and
FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.

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

1. The lower court erred in holding that the claim for taxes by the government against the estate of
Luis D. Tongoy was filed beyond the period provided in Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was already barred
under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New Rule of Court,
bars claim of the government for unpaid taxes, still within the period of limitation prescribed in Section 331 and 332
of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for Allowance of
Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or implied, whether the
same be due, not due, or contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent, must be filed within the
time limited in they notice; otherwise they are barred forever, except that they may be set forth as
counter claims in any action that the executor or administrator may bring against the claimants.
Where the executor or administrator commence an action, or prosecutes an action already
commenced by the deceased in his lifetime, the debtor may set forth may answer the claims he
has against the decedents, instead of presenting them independently to the court has herein
provided, and mutual claims may be set off against each other in such action; and in final judgment
is rendered in favored of the decedent, the amount to determined shall be considered the true
balance against the estate, as though the claim has been presented directly before the court in the
administration proceedings. Claims not yet due, or contingent may be approved at their present
value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary obligation of the
decedent created by law, such as taxes which is entirely of different character from the claims expressly
enumerated therein, such as: "all claims for money against the decedent arising from contract, express or implied,
whether the same be due, not due or contingent, all claim for funeral expenses and expenses for the last sickness of
the decedent and judgment for money against the decedent." Under the familiar rule of statutory construction of
expressio unius est exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned.
Thus, if a statute enumerates the things upon which it is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081, December
30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the matter of prescription
thereof are governed by the provisions of the National Internal revenue Code, particularly Sections 331 and 332
thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals &
Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958). Even without being specifically mentioned, the
provisions of Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind
of the Court as not affecting the aforecited Section of the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes assessed against
the estate of a deceased person ... need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes
upon motion showing that the taxes have been assessed against the estate." The abolition of the Committee on
Claims does not alter the basic ruling laid down giving exception to the claim for taxes from being filed as the other
claims mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after the
distribution of the decedent's estate among his heirs who shall be liable therefor in proportion of their share in the
inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception
from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and
their prompt and certain availability are imperious need. (Commissioner of Internal Revenue vs. Pineda, G. R. No. L22734, September 15, 1967, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for
whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted

with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as
private persons may be made to suffer individually on account of his own negligence, the presumption being that
they take good care of their personal affairs. This should not hold true to government officials with respect to
matters not of their own personal concern. This is the philosophy behind the government's exception, as a general
rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA
177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001,
September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571;
Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic
vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77;
E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes
may be collected even after the distribution of the estate of the decedent among his heirs (Government of the
Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
Internal Revenue, G. R. No. L-16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of Section 315
of the Tax Code payment of income tax shall be a lien in favor of the Government of the Philippines from the time
the assessment was made by the Commissioner of Internal Revenue until paid with interests, penalties, etc. By
virtue of such lien, this court held that the property of the estate already in the hands of an heir or transferee may
be subject to the payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the
unpaid taxes due the decedent may be collected, even without its having been presented under Section 2 of Rule
86 of the Rules of Court. It may truly be said that until the property of the estate of the decedent has vested in the
heirs, the decedent, represented by his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death. Thus in the case above cited, the income taxes
sought to be collected were due from the estate, for the three years 1946, 1947 and 1948 following his death in
May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86 of
the Rules of Court, the claim in question may be filed even after the expiration of the time originally fixed therein, as
may be gleaned from the italicized portion of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the notice provided in the preceding section,
the court shall state the time for the filing of claims against the estate, which shall not be more
than twelve (12) nor less than six (6) months after the date of the first publication of the notice.
However, at any time before an order of distribution is entered, on application of a creditor who has
failed to file his claim within the time previously limited the court may, for cause shown and on
such terms as are equitable, allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of Payment of
Taxes) which, though filed after the expiration of the time previously limited but before an order of the distribution is
entered, should have been granted by the respondent court, in the absence of any valid ground, as none was
shown, justifying denial of the motion, specially considering that it was for allowance Of claim for taxes due from the
estate, which in effect represents a claim of the people at large, the only reason given for the denial that the claim
was filed out of the previously limited period, sustaining thereby private respondents' contention, erroneously as
has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total amount of
P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final one and the
respondent estate's sole defense of prescription has been herein overruled, the Motion for Allowance of Claim is
herein granted and respondent estate is ordered to pay and discharge the same, subject only to the limitation of the
interest collectible thereon as provided by the Tax Code. No pronouncement as to costs.
----------VERA
GR
89 SCRA 199

v.
No.

L-31364

March

30,

FERNANDEZ
1979

FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the
estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy. The administrator opposed
arguing that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the
Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or
implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the
notice; otherwise they are barred forever.
ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes?
HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the
Government and their prompt and certain availability are imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon
taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard
such interest, neglect or omission of government officials entrusted with the collection of taxes should not be
allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer
individually on account of his own negligence, the presumption being that they take good care of their personal
affairs. This should not hold true to government officials with respect to matters not of their own personal concern.
This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of
estoppel.
-------------[G.R. No. 118671. January 29, 1996]
THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner, vs. THE COURT OF APPEALS (Former Special
Sixth Division), MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ, CANDICE ALBERTINE RUIZ, MARIA ANGELINE
RUIZ and THE PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF PASIG, BRANCH 156, respondents.
DECISION
PUNO, J.:
This petition for review on certiorari seeks to annul and set aside the decision dated November 10, 1994 and the
resolution dated January 5, 1995 of the Court of Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a holographic will naming as his heirs his only son,
Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three granddaughters,
private respondents Maria Cathryn, Candice Albertine and Maria Angeline, all children of Edmond Ruiz. The testator
bequeathed to his heirs substantial cash, personal and real properties and named Edmond Ruiz executor of his
estate.2
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate was distributed
among Edmond Ruiz and private respondents in accordance with the decedents will. For unbeknown reasons,
Edmond, the named executor, did not take any action for the probate of his fathers holographic will.
On June 29, 1992, four years after the testators death, it was private respondent Maria Pilar Ruiz Montes who filed
before the Regional Trial Court, Branch