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RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.L19865July31,1965

MARIACARLAPIROVANO,etc.,etal.,petitionersappellants,
vs.
THECOMMISSIONEROFINTERNALREVENUE,respondentappellee.

AngelS.Gamboaforpetitionersappellants.
OfficeoftheSolicitorGeneralforrespondentappellee.

REYES,J.B.L.,J.:

ThiscaseisasequeltothecaseofPirovanovs.DelaRamaSteamshipCo.,96Phil.335.

Briefly,thefactsoftheaforestatedcasemaybestatedasfollows:

Enrico Pirovano was the father of the herein petitionersappellants. Sometime in the early part of 1941, De la
RamaSteamshipCo.insuredthelifeofsaidEnricoPirovano,whowasthenitsPresidentandGeneralManager
until the time of his death, with various Philippine and American insurance companies for a total sum of one
millionpesos,designatingitselfasthebeneficiaryofthepolicies,obtainedbyit.DuetotheJapaneseoccupation
of the Philippines during the second World War, the Company was unable to pay the premiums on the policies
issuedbyitsPhilippineinsurersandthesepolicieslapsed,whilethepoliciesissuedbyitsAmericaninsurerswere
kept effective and subsisting, the New York office of the Company having continued paying its premiums from
yeartoyear.

DuringtheJapaneseoccupation,ormoreparticularlyinthelatterpartof1944,saidEnricoPirovanodied.

AftertheliberationofthePhilippinesfromtheJapaneseforces,theBoardofDirectorsofDelaRamaSteamship
Co. adopted a resolution dated July 10, 1946 granting and setting aside, out of the proceeds expected to be
collected on the insurance policies taken on the life of said Enrico Pirovano, the sum of P400,000.00 for equal
division among the four (4) minor children of the deceased, said sum of money to be convertible into 4,000
sharesofstockoftheCompany,atpar,or1,000sharesforeachchild.Shortlythereafter,theCompanyreceived
thetotalsumofP643,000.00asproceedsofthesaidlifeinsurancepoliciesobtainedfromAmericaninsurers.

Upon receipt of the last stated sum of money, the Board of Directors of the Company modified, on January 6,
1947, the abovementioned resolution by renouncing all its rights title, and interest to the said amount of
P643,000.00 in favor of the minor children of the deceased, subject to the express condition that said amount
shouldberetainedbytheCompanyinthenatureofaloantoit,drawinginterestattherateoffivepercentum
(5%) per annum, and payable to the Pirovano children after the Company shall have first settled in full the
balance of its present remaining bonded indebtedness in the sum of approximately P5,000,000.00. This latter
resolutionwascarriedoutinaMemorandumAgreementonJanuary10,1947andJune17,1947.,respectively,
executed by the Company and Mrs. Estefania R. Pirovano, the latter acting in her capacity as guardian of her
children(petitionersappellantsherein)findpursuanttoanexpressauthoritygrantedherbythecourt.

OnJune24,1947,theBoardofDirectorsoftheCompanyfurthermodifiedthelastmentionedresolutionproviding
therein that the Company shall pay the proceeds of said life insurance policies to the heirs of the said Enrico
PirovanoaftertheCompanyshallhavesettledinfullthebalanceofitspresentremainingbondedindebtedness,
but the annual interests accruing on the principal shall be paid to the heirs of the said Enrico Pirovano, or their
dulyappointedrepresentative,whenevertheCompanyisinapositiontomeetsaidobligation.

OnFebruary26,1948,Mrs.EstefaniaR.Pirovano,inbehalfofherchildren,executedapublicdocumentformally
acceptingthedonationand,onthesamedate,theCompanythroughitsBoardofDirectors,tookofficialnoticeof
thisformalacceptance.
On September 13, 1949, the stockholders of the Company formally ratified the various resolutions hereinabove
mentioned with certain clarifying modifications that the payment of the donation shall not be effected until such
time as the Company shall have first duly liquidated its present bonded indebtedness in the amount of
P3,260,855.77 with the National Development Company, or fully redeemed the preferred shares of stock in the
amountwhichshallbeissuedtotheNationalDevelopmentCompanyinlieuthereofandthatanyandalltaxes,
legal fees, and expenses in any way connected with the above transaction shall be chargeable and deducted
fromtheproceedsofthelifeinsurancepoliciesmentionedintheresolutionsoftheBoardofDirectors.

OnMarch8,1951,however,themajoritystockholdersoftheCompanyvotedtorevoketheresolutionapproving
thedonationinfavorofthePirovanochildren.

AsaconsequenceofthisrevocationandrefusaloftheCompanytopaythebalanceofthedonationamountingto
P564,980.90 despite demands therefor, the herein petitionersappellants represented by their natural guardian,
Mrs.EstefaniaR.Pirovano,broughtanactionfortherecoveryofsaidamount,plusinterestanddamagesagainst
DelaRamaSteamshipCo.,intheCourtofFirstInstanceofRizal,whichcaseultimatelyculminatedtoanappeal
tothisCourt.OnDecember29,1954,thiscourtrendereditsdecisionintheappealedcase(96Phil.335)holding
thatthedonationwasvalidandremunerativeinnature,thedispositivepartofwhichreads:

Wherefore,thedecisionappealedfromshouldbemodifiedasfollows:(a)thatthedonationinfavorofthe
childrenofthelateEnricoPirovanooftheproceedsoftheinsurancepoliciestakenonhislifeisvalidand
binding on the defendant corporation (b) that said donation, which amounts to a total of P583,813.59,
includinginterest,asitappearsinthebooksofthecorporationasofAugust31,1951,plusinterestthereon
attherateof5percentperannumfromthefilingofthecomplaint,shouldbepaidtotheplaintiffsafterthe
defendantcorporationshallhavefullyredeemedthepreferredsharesissuedtotheNationalDevelopment
CompanyunderthetermsandconditionsstaredintheresolutionsoftheBoardofDirectorsofJanuary6,
1947 and June 24, 1947, as amended by the resolution of the stockholders adopted on September 13,
1949 and (c) defendant shall pay to plaintiffs an additional amount equivalent to 10 per cent of said
amountofP583,813.59asdamagesbywayofattorney'sfees,andtopaythecostsofaction.(Pirovanoet
al.vs.DelaRamaSteamshipCo.,96Phil.367368)

Theabovedecisionbecamefinalandexecutory.Incompliancetherewith,DelaRamaSteamshipCo.made,on
April6,1955,apartialpaymentontheamountofthejudgmentandpaidthebalancethereofonMay12,1955.

On March 6, 1955, respondent Commissioner of Internal Revenue assessed the amount of P60,869.67 as
donees'gifttax,inclusiveofsurcharges,interestsandotherpenalties,againsteachofthepetitionersappellants,
orforthetotalsumofP243,478.68and,onApril23,1955,adonor'sgifttaxinthetotalamountofP34,371.76
wasalsoassessedagainstDelaRamaSteamshipCo.,whichthelatterpaid.

Petitionersappellants herein contested respondent Commissioner's assessment and imposition of the donees'
gifttaxesanddonor'sgifttaxandalsomadeaclaimforrefundofthedonor'sgifttaxsocollected.Respondent
Commissioner overruled petitioners' claims hence, the latter presented two (2) petitions for review against
respondent's rulings before the Court of Tax Appeals, said petitions having been docketed as CTA Cases Nos.
347 and 375. CTA Case No. 347 relates to the petition disputing the legality of the assessment of donees' gift
taxes and donor's gift tax while CTA Case No. 375 refers to the claim for refund of the donor's gift tax already
paid.

After the filing of respondent's usual answers to the petitions, the two cases, being interrelated to each other,
weretriedjointlyandterminated.

On January 31, 1962, the Court of Tax Appeals rendered its decision in the two cases, the dispositive part of
whichreads:

In resume, we are of the opinion, that (1) the donor's gift tax in the sum of P34,371.76 was erroneously
assessedandcollected,hence,petitionersareentitledtotherefundthereof(2)thedonees'gifttaxeswere
correctly assessed (3) the imposition of the surcharge of 25% is not proper (4) the surcharge of 5% is
legallydueand(5)theinterestof1%permonthonthedeficiencydonees'gifttaxesisduefrompetitioners
fromMarch8,1955untilthetaxesarepaid.

INLINEWITHTHEFOREGOINGOPINION,petitionersareherebyorderedtopaythedonees'gifttaxesas
assessedbyrespondent,plus5%surchargeandinterestattherateof1%permonthfromMarch8,1955
tothedateofpaymentofsaiddonees'gifttaxes.RespondentisorderedtoapplythesumofP34,371.76
whichisrefundabletopetitioners,againsttheamountduefrompetitioners.Withcostsagainstpetitionersin
CaseNo.347.

Petitionersappellants herein filed a motion to reconsider the above decision, which the lower court denied.
Hence,thisappealbeforeus.
In the instant appeal, petitionersappellants herein question only that portion of the decision of the lower court
orderingthepaymentofdonees'gifttaxesasassessedbyrespondentaswellastheimpositionofsurchargeand
interestontheamountofdonees'gifttaxes.

In their brief and memorandum, they dispute the factual finding of the lower court that De la Rama Steamship
Company'srenunciationofitsrights,title,andinterestovertheproceedsofsaidlifeinsurancepoliciesinfavorof
thePirovanochildren"wasmotivatedsolelyandexclusivelybyitssenseofgratitude,anactofpureliberality,and
not to pay additional compensation for services inadequately paid for." Petitioners now contend that the lower
court's finding was erroneous in seemingly considering the disputed grant as a simple donation, since our
previous decision (96 Phil. 335) had already declared that the transfer to the Pirovano children was a
remuneratorydonation.Petitionersfurthercontendthatthesamewasmadenotforaninsufficientorinadequate
considerationbutratheritawasmadeforafullandadequatecompensationforthevaluableservicesrendered
bythelateEnricoPirovanototheDelaRamaSteamshipCo.hence,thedonationdoesnotconstituteataxable
giftundertheprovisionsofSection108oftheNationalInternalRevenueCode.

The argument for petitionersappellants fails to take into account the fact that neither in Spanish nor in Anglo
Americanlawwasitconsideredthatpastservices,renderedwithoutrelyingonacoetaneouspromise,expressor
implied,thatsuchserviceswouldbepaidforinthefuture,constitutedcauseorconsiderationthatwouldmakea
conveyanceofpropertyanythingelsebutagiftordonation.ThisconclusionflowsfromthetextofArticle619of
theCodeof1889(identicalwithArticle726ofthepresentCivilCodeofthePhilippines):

Whenapersongivestoanotherathing...onaccountofthelatter'smeritsoroftheservicesrenderedby
himtothedonor,providedtheydonotconstituteademandabledebt,...,thereisalsoadonation.....

There is nothing on record to show that when the late Enrico Pirovano rendered services as President and
General Manager of the De la Rama Steamship Co. he was not fully compensated for such services, or that,
because they were "largely responsible for the rapid and very successful development of the activities of the
company"(Res.ofJuly10,1946).Pirovanoexpectedorwaspromisedfurthercompensationoverandinaddition
to his regular emoluments as President and General Manager. The fact that his services contributed in a large
measuretothesuccessofthecompanydidnotgiverisetoarecoverabledebt,andtheconveyancesmadeby
thecompanytohisheirsremainagiftordonation.Thisisemphasizedbythedirectors'ResolutionofJanuary6,
1947,that"outofgratitude"thecompanydecidedtorenounceinfavorofPirovano'sheirstheproceedsofthelife
insurancepoliciesinquestion.Thetrueconsiderationforthedonationwas,therefore,thecompany'sgratitudefor
hisservices,andnottheservicesthemselves.

That the tax court regarded the conveyance as a simple donation, instead of a remuneratory one as it was
declared to be in our previous decision, is but an innocuous error whether remuneratory or simple, the
conveyanceremainedagift,taxableunderChapter2,TitleIIIoftheInternalRevenueCode.

Butthenappellantscontend,theentirepropertyorrightdonatedshouldnotbeconsideredasagiftfortaxation
purposesonlythatportionofthevalueofthepropertyorrighttransferred,ifany,whichisinexcessofthevalue
oftheservicesrenderedshouldbeconsideredasataxablegift.TheyciteinsupportSection111oftheTaxCode
whichprovidesthat

Wherepropertyistransferredforless,thananadequateandfullconsiderationinmoneyormoney'sworth,
thentheamountbywhichthevalueofthepropertyexceededthevalueoftheconsiderationshall,forthe
purposeofthetaximposedbythisChapter,bedeemedagift,....

Theflawinthisargumentliesinthefactthat,ascopiedfromAmericanlaw,thetermconsiderationusedinthis
sectionreferstothetechnical"consideration"definedbytheAmericanLawInstitute(RestatementofContracts)
as"anythingthatisbargainedforbythepromisorandgivenbythepromiseeinexchangeforthepromise"(Also,
CorbinonContracts,Vol.I,p.359).But,aswehaveseen,Pirovano'ssuccessfulactivitiesasofficeroftheDela
Rama Steamship Co. cannot be deemed such consideration for the gift to his heirs, since the services were
renderedlongbeforetheCompanycededthevalueofthelifepoliciestosaidheirscessionandserviceswere
nottheresultofonebargainorofamutualexchangeofpromises.

And the AngloAmerican law treats a subsequent promise to pay for past services (like one to pay for
improvements already made without prior request from the promisor) to be a nudum pactum (Roscorla vs.
Thomas,3Q.B.234Petersvs.Poro,25ALR615Carsonvs.Clark,25Am.Dec.79Bostonvs.Dodge,12Am.
Dec.206),i.e.,onethatisunenforceableinviewofthecommonlawrulethatconsiderationmustconsistinalegal
benefittothepromiseeorsomelegaldetrimenttothepromisor.

Whatismore,theactualconsiderationforthecessionofthepolicies,aspreviouslyshown,wastheCompany's
gratitudetoPirovanosothatundersection111oftheCodethereisnoconsiderationthevalueofwhichcanbe
deductedfromthatofthepropertytransferredasagift.Like"loveandaffection,"gratitudehasnoeconomicvalue
andisnot"consideration"inthesensethatthewordisusedinthissectionoftheTaxCode.
As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his wellknown book, "Outlines of the
Law"(p.204)

Loveandaffectionarenotconsiderationsofvaluetheyarenotestimableintermsofvalue.Noraresentiments
ofgratitudeforgratuitouspartfavorsorkindnessesnorareobligationswhicharemerelymoral.Ithasbeenwell
saidthatifamoralobligationwerealonesufficientitwouldremovethenecessityforanyconsiderationatall,since
thefactofmakingapromiseimpose,themoralobligationtoperformit."

Itisofcourseperfectlypossiblethatadonationorgiftshouldatthesametimeimposeaburdenorconditionon
thedoneeinvolvingsomeeconomicliabilityforhim.A,forexample,maydonateaparceloflandtoBoncondition
thatthelatterassumeamortgageexistingonthedonatedland.Inthiscasethedoneemayrightfullyinsistthat
the gift tax be computed only on the value of the land less the value of the mortgage. This, in fact, is
contemplated by Article 619 of the Civil Code of 1889 (Art. 726 of the Tax Code) when it provides that there is
alsoadonation"whenthegiftimposesuponthedoneeaburdenwhichislessthanthevalueofthethinggiven."
Section111oftheTaxCodehasinviewsituationsofthiskind,sinceitalsoprescribesthat"theamountbywhich
thevalueofthepropertyexceededthevalueoftheconsideration"shallbedeemedagiftforthepurposeofthe
tax..

Petitionersfinallycontendthat,evenassumingthatthedonationinquestionissubjecttodonees'gifttaxes,the
impositionofthesurchargeof5%andinterestof1%permonthfromMarch8,1955wasnotjustifiedbecausethe
proceeds of the life insurance policies were actually received on April 6, 1955 and May 12, 1955 only and in
accordance with Section 115(c) of the Tax Code the filing of the returns of such tax became due on March 1,
1956andthetaxbecamepayableonMay15,1956,asprovidedforinSection116(a)ofthesameCode.Inother
words,petitionersmaintainthattheassessmentanddemandfordonees'gifttaxeswasprematurelymadeandof
nolegaleffecthence,theyshouldnotbeheldliableforsuchsurchargeandinterest.

Itiswelltonote,anditisnotdisputed,thatpetitionersdoneeshavefailedtofileanygifttaxreturnandthatthey
also failed to pay the amount of the assessment made against them by respondent in 1955. This situation is
coveredbySection119(b)(1)and(c)andSection120oftheTaxCode:

(b)Deficiency.

(1)Paymentnotextended.Whereadeficiency,oranyinterestassessedinconnectiontherewith,orany
additiontothetaxesprovidedforinsectiononehundredtwentyisnotpaidinfullwithinthirtydaysfromthe
date of the notice and demand from the Commissioner, there shall be collected as a part of the taxes,
interestupontheunpaidamountattherateofonepercentumamonthfromthedateofsuchnoticeand
demanduntilitispaid.(section119)

(c)Surcharge.IfanyamountofthetaxesincludedinthenoticeanddemandfromtheCommissionerof
InternalRevenueisnotpaidinfullwithinthirtydaysaftersuchnoticeanddemand,thereshallbecollected
in addition to the interest prescribed above as a part of the taxes a surcharge of five per centum of the
unpaidamount.(sec.119)

Thefailuretofileareturnwasfoundbythelowercourttobeduetoreasonablecauseandnottowillfulneglect.
Onthisscore,theeliminationbythelowercourtofthe25%surchargeisadvalorem penalty which respondent
CommissionerhadimposedpursuanttoSection120oftheTaxCodewasproper,sincesaidSection120vestsin
theCommissionerofInternalRevenueorinthetaxcourtpowerandauthoritytoimposeornottoimposesuch
penaltydependinguponwhetherornotreasonablecausehasbeenshowninthenonfilingofsuchreturn.

Ontheotherhand,unlikesaidSection120,Section119,paragraphs(b)(1)and(c)oftheTaxCode,doesnot
conferontheCommissionerofInternalRevenueoronthecourtsanypoweranddiscretionnottoimposesuch
interest and surcharge. It is likewise provided for by law that an appeal to the Court of Tax Appeals from a
decisionoftheCommissionerofInternalRevenueshallnotsuspendthepaymentorcollectionofthetaxliabilityof
thetaxpayerunlessamotiontothateffectshallhavebeenpresentedtothecourtandgrantedbyitontheground
thatsuchcollectionwilljeopardizetheinterestofthetaxpayer(Sec.11,RepublicActNo.1125Rule12,Rulesof
theCourtofTaxAppeals).Itshouldfurtherbenotedthat

It has been the uniform holding of this Court that no suit for enjoining the collection of a tax, disputed or
undisputed,canbebrought,theremedybeingtopaythetaxfirst,formerlyunderprotestandnowwithout
needofprotect,filetheclaimwiththeCollector,andifhedeniesit,bringanactionforrecoveryagainsthim.
(Davidv.Ramos,etal.,90Phil.351)

Section 306 of the National Internal Revenue Code ... lays down the procedure to be followed in those
caseswhereinataxpayerentertainssomedoubtaboutthecorrectnessofataxsoughttobecollected.Said
sectionprovidesthatthetax,shouldfirstbepaidandthetaxpayershouldsueforitsrecoveryafterwards.
Thepurposeofthelawobviouslyistopreventdelayinthecollectionoftaxes,uponwhichtheGovernment
depends for its existence. To allow a taxpayer to first secure a ruling as regards the validity of the tax
beforepayingitwouldbetodefeatthispurpose.(NationalDentalSupplyCo.vs.Meer,90Phil.265)

Petitionersdidnotfileinthelowercourtanymotionforthesuspensionofpaymentorcollectionoftheamountof
assessmentmadeagainstthem.

Onthebasisoftheabovestatedprovisionsoflawandapplicableauthorities,itisevidentthattheimpositionof
1% interest monthly and 5% surcharge is justified and legal. As succinctly stated by the court below, said
imposition is "mandatory and may not be waived by the Commissioner of Internal Revenue or by the courts"
(Resolutiononpetitioners'motionforreconsideration,AnnexXIV,petition).Hence,saidimpositionofinterestand
surchargebythelowercourtshouldbeupheld.

WHEREFORE,thedecisionoftheCourtofTaxAppealsisaffirmed.CostsagainstpetitionersPirovano.

Bengzon,C.J.,BautistaAngelo,Paredes,Dizon,Regala,Makalintal,Bengzon,J.P.,andZaldivar,JJ.,concur.
Concepcion,J.,tooknopart.
Barrera,J.,isonleave.

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