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THE BANK OF THE PHILIPPINE ISLANDS, administrator of the sum of P20,150, which is the amount of an insurance policy on the

estate of the late Adolphe Oscar Schuetze,plaintiff-appellant, deceased's life, wherein his own estate was named the beneficiary.
vs. At the hearing, in addition to documentary and parol evidence, both
JUAN POSADAS, JR., Collector of Internal Revenue, defendant- parties submitted the following agreed statement of facts of the court
appellee. for consideration:
1.LIFE INSURANCE; AMOUNT OF POLICY; KIND OF PROPERTY.— It is hereby stipulated and agreed by and between the parties
The proceeds of a life-insurance policy payable to the insured in the above-entitled action through their respective
person's estate, on which the premiums were paid by the conjugal undersigned attorneys:
partnership, constitute community property, and belong onehalf to 1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window
the husband exclusively, and the other half to the wife. of the late Adolphe Oscar Schuetze, is of legal age, a native
2.ID.; ID.; ID.—If the premiums were paid partly with paraphernal of Manila, Philippine Islands, and is and was at all times
and partly conjugal funds, the proceeds are in like proportion hereinafter mentioned a resident of Germany, and at the time
paraphernal in part and conjugal in part. of the death of her husband, the late Adolphe Oscar Schuetze,
3.ID.; ID.; INHERITANCE TAX.—The proceeds of a lif e-insurance she was actually residing and living in Germany;
policy payable to the insured person's estate as beneficiary, if 2. That the Bank of the Philippine Islands, is and was at all
delivered to the testamentary administrator of the former as part of times hereinafter mentioned a banking institution duly
the assets of said estate under probate administration, are subject to organized and existing under and by virtue of the laws of the
the inheritance tax according to the law on the matter, if they belong Philippine Islands;
to the assured exclusively, and it is immaterial that he was domiciled 3. That on or about August 23, 1928, the herein plaintiff
in these Islands or outside. before notary public Salvador Zaragoza, drew a general power
appointing the above-mentioned Bank of the Philippine
The Bank of the Philippine Islands, as administrator of the estate of the Islands as her attorney-in-fact, and among the powers
deceased Adolphe Oscar Schuetze, has appealed to this court from the conferred to said attorney-in-fact was the power to represent
judgment of the Court of First Instance of Manila absolving the her in all legal actions instituted by or against her;
defendant Juan Posadas, Jr., Collector of Internal Revenue, from the 4. That the defendant, of legal age, is and at all times
complaint filed against him by said plaintiff bank, and dismissing the hereinafter mentioned the duly appointed Collector of Internal
complaint with costs. Revenue with offices at Manila, Philippine Islands;
The appellant has assigned the following alleged errors as committed by 5. That the deceased Adolphe Oscar Schuetze came to the
the trial court in its judgment, to wit: Philippine Islands for the first time of March 31, 1890, and
1. The lower court erred in holding that the testimony of Mrs. worked in the several German firms as a mere employee and
Schuetze was inefficient to established the domicile of her that from the year 1903 until the year 1918 he was partner in
husband. the business of Alfredo Roensch;
2. The lower court erred in holding that under section 1536 of 6. That from 1903 to 1922 the said Adolphe Oscar Schuetze
the Administrative Code the tax imposed by the defendant is was in the habit of making various trips to Europe;
lawful and valid. 7. That on December 3, 1927, the late Adolphe Oscar
3. The lower court erred in not holding that one-half (½) of Schuetze coming from Java, and with the intention of going
the proceeds of the policy in question is community property to Bremen, landed in the Philippine Islands where he met his
and that therefore no inheritance tax can be levied, at least death on February 2, 1928;
on one-half (½) of the said proceeds. 8. That on March 31, 1926, the said Adolphe Oscar Schuetze,
4. The lower court erred in not declaring that it would be while in Germany, executed a will, in accordance with its law,
unconstitutional to impose an inheritance tax upon the wherein plaintiff was named his universal heir;
insurance policy here in question as it would be a taking of 9. That the Bank of the Philippine Islands by order of the Court
property without due process of law. of First Instance of Manila under date of May 24, 1928, was
The present complaint seeks to recover from the defendant Juan appointed administrator of the estate of the deceased Adolphe
Posadas, Jr., Collector of Internal Revenue, the amount of P1,209 paid Oscar Schuetze;
by the plaintiff under protest, in its capacity of administrator of the 10. That, according to the testamentary proceedings
estate of the late Adolphe Oscar Schuetze, as inheritance tax upon the instituted in the Court of First Instance of Manila, civil case
No. 33089, the deceased at the time of his death was
1
possessed of not only real property situated in the Philippine the estate of the deceased submitted on June 18, 1929, by
Islands, but also personal property consisting of shares of the administrator to the Court of First Instance of Manila, civil
stock in nineteen (19) domestic corporations; case No. 33089;
11. That the fair market value of all the property in the 21. That the Bank of the Philippine Islands delivered to the
Philippine Islands left by the deceased at the time of his death plaintiff herein the said sum of P20,150;
in accordance with the inventory submitted to the Court of 22. That the herein defendant on or about July 5, 1929,
First Instance of Manila, civil case No. 33089, was imposed an inheritance tax upon the transmission of the
P217,560.38; proceeds of the policy in question in the sum of P20,150 from
12. That the Bank of the Philippine Islands, as administrator the estate of the late Adolphe Oscar Schuetze to the sole heir
of the estate of the deceased rendered its final account on of the deceased, or the plaintiff herein, which inheritance tax
June 19, 1929, and that said estate was closed on July 16, amounted to the sum of P1,209;
1929; 23. That the Bank of the Philippine Islands as administrator of
13. That among the personal property of the deceased was the decedent's estate and as attorney-in-fact of the herein
found life-insurance policy No. 194538 issued at Manila, plaintiff, having been demanded by the herein defendant to
Philippine Islands, on January 14, 1913, for the sum of pay inheritance tax amounting to the sum of P1,209, paid to
$10,000 by the Sun Life Assurance Company of Canada, the defendant under protest the above-mentioned sum;
Manila branch, a foreign corporation duly organized and 24. That notwithstanding the various demands made by
existing under and by virtue of the laws of Canada, and duly plaintiff to the defendant, said defendant has refused and
authorized to transact business in the Philippine Islands; refuses to refund to plaintiff the above mentioned sum of
14. That in the insurance policy the estate of the said Adolphe P1,209;
Oscar Schuetze was named the beneficiary without any 25. That plaintiff reserves the right to adduce evidence as
qualification whatsoever; regards the domicile of the deceased, and so the defendant,
15. That for five consecutive years, the deceased Adolphe the right to present rebuttal evidence;
Oscar Schuetze paid the premiums of said policy to the Sun 26. That both plaintiff and defendant submit this stipulation
Life Assurance Company of Canada, Manila branch; of facts without prejudice to their right to introduce such
16. That on or about the year 1918, the Sun Life Assurance evidence, on points not covered by the agreement, which they
Company of Canada, Manila branch, transferred said policy to may deem proper and necessary to support their respective
the Sun Life Assurance Company of Canada, London branch; contentions.
17. That due to said transfer the said Adolphe Oscar Schuetze In as much as one of the question raised in the appeal is whether an
from 1918 to the time of his death paid the premiums of said insurance policy on said Adolphe Oscar Schuetze's life was, by reason of
policy to the Sun Life Assurance Company of Canada, London its ownership, subject to the inheritance tax, it would be well to decide
Branch; first whether the amount thereof is paraphernal or community property.
18. That the sole and only heir of the deceased Adolphe Oscar According to the foregoing agreed statement of facts, the estate of
Schuetze is his widow, the plaintiff herein; Adolphe Oscar Schuetze is the sole beneficiary named in the life-
19. That at the time of the death of the deceased and at all insurance policy for $10,000, issued by the Sun Life Assurance Company
times thereafter including the date when the said insurance of Canada on January 14, 1913. During the following five years the
policy was paid, the insurance policy was not in the hands or insured paid the premiums at the Manila branch of the company, and in
possession of the Manila office of the Sun Life Assurance 1918 the policy was transferred to the London branch.
Company of Canada, nor in the possession of the herein The record shows that the deceased Adolphe Oscar Schuetze married
plaintiff, nor in the possession of her attorney-in-fact the Bank the plaintiff-appellant Rosario Gelano on January 16, 1914.
of the Philippine Islands, but the same was in the hands of With the exception of the premium for the first year covering the period
the Head Office of the Sun Life Assurance Company of from January 14, 1913 to January 14, 1914, all the money used for
Canada, at Montreal, Canada; paying the premiums, i. e., from the second year, or January 16, 1914,
20. That on July 13, 1928, the Bank of the Philippine Islands or when the deceased Adolphe Oscar Schuetze married the plaintiff-
as administrator of the decedent's estate received from the appellant Rosario Gelano, until his death on February 2, 1929, is
Sun Life Assurance Company of Canada, Manila branch, the conjugal property inasmuch as it does not appear to have exclusively
sum of P20,150 representing the proceeds of the insurance belonged to him or to his wife (art. 1407, Civil Code). As the sum of
policy, as shown in the statement of income and expenses of P20,150 here in controversy is a product of such premium it must also
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be deemed community property, because it was acquired for a valuable The appellee alleges that it is a fundamental principle that a life-
consideration, during said Adolphe Oscar Schuetze's marriage with insurance policy belongs exclusively to the beneficiary upon the death
Rosario Gelano at the expense of the common fund (art. 1401, No. 1, of the person insured, and that in the present case, as the late Adolphe
Civil Code), except for the small part corresponding to the first premium Oscar Schuetze named his own estate as the sole beneficiary of the
paid with the deceased's own money. insurance on his life, upon his death the latter became the sole owner
In his Commentaries on the Civil Code, volume 9, page 589, second of the proceeds, which therefore became subject to the inheritance tax,
edition, Manresa treats of life insurance in the following terms, to wit: citing Del Val vs. Del Val (29 Phil., 534), where the doctrine was laid
The amount of the policy represents the premiums to be paid, down that an heir appointed beneficiary to a life-insurance policy taken
and the right to it arises the moment the contract is perfected, out by the deceased, becomes the absolute owner of the proceeds of
for at the moment the power of disposing of it may be such policy upon the death of the insured.
exercised, and if death occurs payment may be demanded. It The estate of a deceased person cannot be placed on the same footing
is therefore something acquired for a valuable consideration as an individual heir. The proceeds of a life-insurance policy payable to
during the marriage, though the period of its fulfillment, the estate of the insured passed to the executor or administrator of such
depend upon the death of one of the spouses, which estate, and forms part of its assets (37 Corpus Juris, 565, sec. 322);
terminates the partnership. So considered, the question may whereas the proceeds of a life-insurance policy payable to an heir of the
be said to be decided by articles 1396 and 1401: if the insured as beneficiary belongs exclusively to said heir and does not form
premiums are paid with the exclusive property of husband or part of the deceased's estate subject to administrator. (Del Val vs. Del
wife, the policy belongs to the owner; if with conjugal Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of
property, or if the money cannot be proved as coming from the Code of Commerce.)
one or the other of the spouses, the policy is community Just as an individual beneficiary of a life-insurance policy taken out by a
property. married person becomes the exclusive owner of the proceeds upon the
The Supreme Court of Texas, United States, in the case of Martin vs. death of the insured even if the premiums were paid by the conjugal
Moran (11 Tex. Civ. A., 509) laid down the following doctrine: partnership, so, it is argued, where the beneficiary named is the estate
COMMUNITY PROPERTY — LIFE INSURANCE POLICY. — A of the deceased whose life is insured, the proceeds of the policy become
husband took out an endowment life insurance policy on his a part of said estate upon the death of the insured even if the premiums
life, payable "as directed by will." He paid the premiums have been paid with conjugal funds.
thereon out of community funds, and by his will made the In a conjugal partnership the husband is the manager, empowered to
proceeds of the policy payable to his own estate. Held, that alienate the partnership property without the wife's consent (art. 1413,
the proceeds were community estate, one-half of which Civil Code), a third person, therefore, named beneficiary in a life-
belonged to the wife. insurance policy becomes the absolute owner of its proceeds upon the
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of death of the insured even if the premiums should have been paid with
California laid down the following doctrine: money belonging to the community property. When a married man has
A testator, after marriage, took out an insurance policy, on his life insured and names his own estate after death, beneficiary, he
which he paid the premiums from his salary. Held that the makes no alienation of the proceeds of conjugal funds to a third person,
insurance money was community property, to one-half of but appropriates them himself, adding them to the assets of his estate,
which, the wife was entitled as survivor. in contravention of the provisions of article 1401, paragraph 1, of the
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down Civil Code cited above, which provides that "To the conjugal partnership
the following doctrine: belongs" (1) Property acquired for a valuable consideration during the
A decedent paid the first third of the amount of the premiums marriage at the expense of the common fund, whether the acquisition
on his life-insurance policy out of his earnings before is made for the partnership or for one of the spouses only." Furthermore,
marriage, and the remainder from his earnings received after such appropriation is a fraud practised upon the wife, which cannot be
marriage. Held, that one-third of the policy belonged to his allowed to prejudice her, according to article 1413, paragraph 2, of said
separate estate, and the remainder to the community Code. Although the husband is the manager of the conjugal partnership,
property. he cannot of his own free will convert the partnership property into his
Thus both according to our Civil Code and to the ruling of those North own exclusive property.
American States where the Spanish Civil Code once governed, the As all the premiums on the life-insurance policy taken out by the late
proceeds of a life-insurance policy whereon the premiums were paid Adolphe Oscar Schuetze, were paid out of the conjugal funds, with the
with conjugal money, belong to the conjugal partnership. exceptions of the first, the proceeds of the policy, excluding the
3
proportional part corresponding to the first premium, constitute GENERAL RULE. — The suits of tangible personal property, for
community property, notwithstanding the fact that the policy was made purposes of taxation may be where the owner is domiciled but
payable to the deceased's estate, so that one-half of said proceeds is not necessarily so. Unlike intangible personal property, it
belongs to the estate, and the other half to the deceased's widow, the may acquire a taxation situs in a state other than the one
plaintiff-appellant Rosario Gelano Vda. de Schuetze. where the owner is domiciled, merely because it is located
The second point to decide in this appeal is whether the Collector of there. Its taxable situs is where it is more or less permanently
Internal Revenue has authority, under the law, to collect the inheritance located, regardless of the domicile of the owner. It is well
tax upon one-half of the life-insurance policy taken out by the late settled that the state where it is more or less permanently
Adolphe Oscar Schuetze, which belongs to him and is made payable to located has the power to tax it although the owner resides out
his estate. of the state, regardless of whether it has been taxed for the
According to the agreed statement of facts mentioned above, the same period at the domicile of the owner, provided there is
plaintiff-appellant, the Bank of the Philippine Islands, was appointed statutory authority for taxing such property. It is equally well
administrator of the late Adolphe Oscar Schuetze's testamentary estate settled that the state where the owner is domiciled has no
by an order dated March 24, 1928, entered by the Court of First Instance power to tax it where the property has acquired an actual situs
of Manila. On July 13, 1928, the Sun Life Assurance Company of Canada, in another state by reason of its more or less permanent
whose main office is in Montreal, Canada, paid Rosario Gelano Vda. de location in that state. ... (2 Cooley, The Law of Taxation, 4th
Schuetze upon her arrival at Manila, the sum of P20,150, which was the ed., p. 975, par. 451.)
amount of the insurance policy on the life of said deceased, payable to With reference to the meaning of the words "permanent" and "in
the latter's estate. On the same date Rosario Gelano Vda. de Schuetze transit," he has the following to say:
delivered the money to said Bank of the Philippine Islands, as PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. — In
administrator of the deceased's estate, which entered it in the inventory order to acquire a situs in a state or taxing district so as to be
of the testamentary estate, and then returned the money to said widow. taxable in the state or district regardless of the domicile of the
Section 1536 of the Administrative Code, as amended by section 10 of owner and not taxable in another state or district at the
Act No. 2835 and section 1 of Act No. 3031, contains the following domicile of the owner, tangible personal property must be
relevant provision: more or less permanently located in the state or district. In
SEC. 1536. Conditions and rate of taxation. — Every other words, the situs of tangible personal property is where
transmission by virtue of inheritance, devise, bequest, it is more or less permanently located rather than where it is
gift mortis causa or advance in anticipation of inheritance, merely in transit or temporarily and for no considerable length
devise, or bequest of real property located in the Philippine of time. If tangible personal property is more or less
Islands and real rights in such property; of any franchise permanently located in a state other than the one where the
which must be exercised in the Philippine Islands; of any owner is domiciled, it is not taxable in the latter state but is
shares, obligations, or bonds issued by any corporation taxable in the state where it is located. If tangible personal
or sociedad anonima organized or constituted in the Philippine property belonging to one domiciled in one state is in another
Islands in accordance with its laws; of any shares or rights in state merely in transitu or for a short time, it is taxable in the
any partnership, business or industry established in the former state, and is not taxable in the state where it is for the
Philippine Islands or of any personal property located in the time being. . . . .
Philippine Islands shall be subject to the following tax: Property merely in transit through a state ordinarily is not
xxx xxx xxx taxable there. Transit begins when an article is committed to
In as much as the proceeds of the insurance policy on the life of the late a carrier for transportation to the state of its destination, or
Adolphe Oscar Schuetze were paid to the Bank of the Philippine Islands, started on its ultimate passage. Transit ends when the goods
as administrator of the deceased's estate, for management and arrive at their destination. But intermediate these points
partition, and as such proceeds were turned over to the sole and questions may arise as to when a temporary stop in transit is
universal testamentary heiress Rosario Gelano Vda. de Schuetze, the such as to make the property taxable at the place of stoppage.
plaintiff-appellant, here in Manila, the situs of said proceeds is the Whether the property is taxable in such a case usually
Philippine Islands. depends on the length of time and the purpose of the
In his work "The Law of Taxation," Cooley enunciates the general rule interruption of transit. . . . .
governing the levying of taxes upon tangible personal property, in the . . . It has been held that property of a construction company,
following words: used in construction of a railroad, acquires a situs at the place
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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 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, without special
pronouncement of costs. So ordered.
Avanceña, C.J., Johnson, Street, Malcolm, Villamor, and Ostrand, JJ.,
concur.

5
RAFAEL ARSENIO S. DIZON, in his G.R. No. 140944
capacity as the Judicial Administrator of Before this Court is a Petition for Review on Certiorari[1] under Rule 45
the Estate of the deceased JOSE P. Present: of the Rules of Civil Procedure seeking the reversal of the Court of
FERNANDEZ, Appeals (CA) Decision[2] dated April 30, 1999 which affirmed the
Petitioner, YNARES- Decision[3] of the Court of Tax Appeals (CTA) dated June 17, 1997.[4]
SANTIAGO, J.,
Chairperson, The Facts
- versus - AUSTRIA-
MARTINEZ,
CHICO-NAZARIO, On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a
COURT OF TAX APPEALS NACHURA, and petition for the probate of his will[5] was filed with Branch 51 of the
and COMMISSIONER OF INTERNAL REYES, JJ. Regional Trial Court (RTC) of Manila (probate court).[6] The probate
REVENUE, court then appointed retired Supreme Court Justice Arsenio P. Dizon
Respondents. Promulgated: (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner)
as Special and Assistant Special Administrator, respectively, of the Estate
April 30, 2008 of Jose (Estate). In a letter[7] dated October 13, 1988, Justice
x------------------------------------------------------------------------------------x Dizon informed respondent Commissioner of the Bureau of Internal
Revenue (BIR) of the special proceedings for the Estate.
Taxation; Statutory Construction; Court agrees with the date-of-
death valuation rule; Tax burdens are not to be imposed nor Petitioner alleged that several requests for extension of the period to file
presumed to be imposed beyond what the statute expressly and the required estate tax return were granted by the BIR since the assets
clearly imports, tax statutes being construed strictissimi juris against of the estate, as well as the claims against it, had yet to be collated,
the government.—We express our agreement with the date-of-death determined and identified. Thus, in a letter[8] dated March 14, 1990,
valuation rule, made pursuant to the ruling of the U.S. Supreme Court Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign
in Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S. Ct. 291, 73 and file on behalf of the Estate the required estate tax return and to
L.Ed. 647 (1929). First. There is no law, nor do we discern any represent the same in securing a Certificate of Tax Clearance.
legislative intent in our tax laws, which disregards the date-of-death Eventually, on April 17, 1990, Atty. Gonzales wrote a letter[9] addressed
valuation principle and particularly provides that post-death to the BIR Regional Director for San Pablo City and filed the estate tax
developments must be considered in determining the net value of return[10] with the same BIR Regional Office, showing therein a NIL
the estate. It bears emphasis that tax burdens are not to be imposed, estate tax liability, computed as follows:
nor presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against
the government. Any doubt on whether a person, article or activity
is taxable is generally resolved against taxation. Second. Such
construction finds relevance and consistency in our Rules on Special COMPUTATION OF TAX
Proceedings wherein the term “claims” required to be presented
against a decedent’s estate is generally construed to mean debts or Conjugal Real Property (Sch. 1) P10,855,020.00
demands of a pecuniary nature which could have been enforced Conjugal Personal Property (Sch.2) 3,460,591.34
against the deceased in his lifetime, or liability contracted by the Taxable Transfer (Sch. 3)
deceased before his death. Therefore, the claims existing at the time Gross Conjugal Estate 14,315,611.34
of death are significant to, and should be made the basis of, the Less: Deductions (Sch. 4) 187,822,576.06
determination of allowable deductions. Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
xxx
DECISION Net Taxable Estate NIL .
Estate Tax Due NIL .[11]
NACHURA, J.:
6
On April 27, 1990, BIR Regional Director for San Pablo City, As found by the CTA, the respective parties presented the following
Osmundo G. Umali issued Certification Nos. 2052[12] and 2053[13] stating pieces of evidence, to wit:
that the taxes due on the transfer of real and personal properties [14]
of
Jose had been fully paid and said properties may be transferred to his In the hearings conducted, petitioner did not
heirs. Sometime in August 1990, Justice Dizon passed away. Thus, present testimonial evidence but merely
on October 22, 1990, the probate court appointed petitioner as the documentary evidence consisting of the following:
administrator of the Estate.[15]
Nature of Document (sic) Exhibits
Petitioner requested the probate court's authority to sell
several properties forming part of the Estate, for the purpose of paying 1. Letter dated October 13, 1988
its creditors, namely: Equitable Banking Corporation (P19,756,428.31), from Arsenio P. Dizon addressed
Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, to the Commissioner of Internal
1988), Manila Banking Corporation (P84,199,160.46 as of February 28, Revenue informing the latter of
1989) and State Investment House, Inc. (P6,280,006.21). Petitioner the special proceedings for the
manifested that Manila Bank, a major creditor of the Estate was not settlement of the estate (p. 126,
included, as it did not file a claim with the probate court since it had BIR records); "A"
security over several real estate properties forming part of the Estate. [16]

2. Petition for the probate of the


will and issuance of letter of
However, on November 26, 1991, the Assistant Commissioner administration filed with the
for Collection of the BIR, Themistocles Montalban, issued Estate Tax Regional Trial Court (RTC) of
Assessment Notice No. FAS-E-87-91-003269, [17]
demanding the Manila, docketed as Sp. Proc.
payment of P66,973,985.40 as deficiency estate tax, itemized as No. 87-42980 (pp. 107-108, BIR
follows: records); "B" & "B-1

Deficiency Estate Tax- 1987 3. Pleading entitled "Compliance"


filed with the probate Court
Estate tax P31,868,414.48 submitting the final inventory
25% surcharge- late filing 7,967,103.62 of all the properties of the
late payment 7,967,103.62 deceased (p. 106, BIR records); "C"
Interest 19,121,048.68
Compromise-non filing 25,000.00 4. Attachment to Exh. "C" which
non payment 25,000.00 is the detailed and complete
no notice of death 15.00 listing of the properties of
no CPA Certificate 300.00 the deceased (pp. 89-105, BIR rec.); "C-1" to "C-
17"
Total amount due & collectible P66,973,985.40 [18]

5. Claims against the estate filed


by Equitable Banking Corp. with
In his letter [19]
dated December 12, 1991, Atty. Gonzales moved for the the probate Court in the amount
reconsideration of the said estate tax assessment. However, in her of P19,756,428.31 as of March 31,
letter[20] dated April 12, 1994, the BIR Commissioner denied the request 1988, together with the Annexes
and reiterated that the estate is liable for the payment to the claim (pp. 64-88, BIR records); "D" to "D-24"
of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner
received the letter of denial. On June 2, 1994, petitioner filed a petition 6. Claim filed by Banque de L'
for review [21]
before respondent CTA. Trial on the merits ensued. Indochine et de Suez with the
7
probate Court in the amount of Fernandez through its authorized
US $4,828,905.90 as of January 31, representative, Atty. Jesus M.
1988 (pp. 262-265, BIR records); "E" to "E-3" Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
7. Claim of the Manila Banking BIR records); "K" to "K-5"
Corporation (MBC) which as of
November 7, 1987 amounts to
P65,158,023.54, but recomputed 13. Certified true copy of the
as of February 28, 1989 at a Letter of Administration
total amount of P84,199,160.46; issued by RTC Manila, Branch
together with the demand letter 51, in Sp. Proc. No. 87-42980
from MBC's lawyer (pp. 194-197, appointing Atty. Rafael S.
BIR records); "F" to "F-3" Dizon as Judicial Administrator
of the estate of Jose P.
8. Demand letter of Manila Banking Fernandez; (p. 102, CTA records)
Corporation prepared by Asedillo, and "L"
Ramos and Associates Law Offices
addressed to Fernandez Hermanos, 14. Certification of Payment of
Inc., represented by Jose P. estate taxes Nos. 2052 and
Fernandez, as mortgagors, in the 2053, both dated April 27, 1990,
total amount of P240,479,693.17 issued by the Office of the
as of February 28, 1989 Regional Director, Revenue
(pp. 186-187, BIR records); "G" & "G-1" Region No. 4-C, San Pablo
City, with attachments
9. Claim of State Investment (pp. 103-104, CTA records.). "M" to "M-5"
House, Inc. filed with the
RTC, Branch VII of Manila, Respondent's [BIR] counsel presented on
docketed as Civil Case No. June 26, 1995 one witness in the person of
86-38599 entitled "State Alberto Enriquez, who was one of the
Investment House, Inc., revenue examiners who conducted the
Plaintiff, versus Maritime investigation on the estate tax case of the
Company Overseas, Inc. and/or late Jose P. Fernandez. In the course of the
Jose P. Fernandez, Defendants," direct examination of the witness, he
(pp. 200-215, BIR records); "H" to "H-16" identified the following:

10. Letter dated March 14, 1990 Documents/


of Arsenio P. Dizon addressed Signatures BIR Record
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I" 1. Estate Tax Return prepared by
the BIR; p. 138
11. Letter dated April 17, 1990
from J.M. Gonzales addressed 2. Signatures of Ma. Anabella
to the Regional Director of Abuloc and Alberto Enriquez,
BIR in San Pablo City Jr. appearing at the lower
(p. 183, BIR records); "J" Portion of Exh. "1"; -do-

12. Estate Tax Return filed by 3. Memorandum for the Commissioner,


the estate of the late Jose P. dated July 19, 1991, prepared by
8
revenue examiners, Ma. Anabella A. 14. Assessment Notice FAS-E-87-91-00 pp. 169-
Abuloc, Alberto S. Enriquez and 170[22]
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144
The CTA's Ruling
4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do- On June 17, 1997, the CTA denied the said petition for review. Citing
this Court's ruling in Vda. de Oate v. Court of Appeals,[23] the CTA opined
5. Signature of Ma. Anabella A. that the aforementioned pieces of evidence introduced by the BIR were
Abuloc appearing at the admissible in evidence. The CTA ratiocinated:
lower portion on p. 2 of Exh. "2"; -do- Although the above-mentioned documents were
not formally offered as evidence for respondent,
6. Signature of Raymund S. considering that respondent has been declared to
Gallardo appearing at the have waived the presentation thereof during the
Lower portion on p. 2 of Exh. "2"; -do- hearing on March 20, 1996, still they could be
considered as evidence for respondent since they
7. Signature of Maximino V. were properly identified during the presentation of
Tagle also appearing on respondent's witness, whose testimony was duly
p. 2 of Exh. "2"; -do- recorded as part of the records of this case.
Besides, the documents marked as respondent's
8. Summary of revenue exhibits formed part of the BIR records of the
Enforcement Officers Audit case.[24]
Report, dated July 19, 1991; p. 139

9. Signature of Alberto
Enriquez at the lower Nevertheless, the CTA did not fully adopt the assessment made by the
portion of Exh. "3"; -do- BIR and it came up with its own computation of the deficiency estate
tax, to wit:
10. Signature of Ma. Anabella A.
Abuloc at the lower Conjugal Real Property P 5,062,016.00
portion of Exh. "3"; -do- Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
11. Signature of Raymond S. Less: Deductions 26,250,000.00
Gallardo at the lower Net Conjugal Estate P 11,834,015.93
portion of Exh. "3"; -do- Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
12. Signature of Maximino Add: Capital/Paraphernal
V. Tagle at the lower Properties P44,652,813.66
portion of Exh. "3"; -do- Less: Capital/Paraphernal
Deductions 44,652,813.66
13. Demand letter (FAS-E-87-91-00), Net Taxable Estate P 50,569,821.62
signed by the Asst. Commissioner ============
for Collection for the Commissioner
of Internal Revenue, demanding Estate Tax Due P 29,935,342.97
payment of the amount of Add: 25% Surcharge for Late Filing 7,483,835.74
P66,973,985.40; and p. 169 Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
9
Total deficiency estate tax P 37,419,493.71 2. Whether or not the Court of Tax Appeals and the
============= Court of Appeals erred in
recognizing/considering the estate tax return
exclusive of 20% interest from due date of its prepared and filed by respondent BIR knowing
payment until full payment thereof that the probate court appointed administrator
[Sec. 283 (b), Tax Code of 1987]. [25]
of the estate of Jose P. Fernandez had
previously filed one as in fact, BIR Certification
Clearance Nos. 2052 and 2053 had been issued
Thus, the CTA disposed of the case in this wise: in the estate's favor;

3. Whether or not the Court of Tax Appeals and the


WHEREFORE, viewed from all the foregoing, the Court of Appeals erred in disallowing the valid
Court finds the petition unmeritorious and denies and enforceable claims of creditors against the
the same. Petitioner and/or the heirs of Jose P. estate, as lawful deductions despite clear and
Fernandez are hereby ordered to pay to respondent convincing evidence thereof; and
the amount of P37,419,493.71 plus 20% interest
from the due date of its payment until full payment 4. Whether or not the Court of Tax Appeals and the
thereof as estate tax liability of the estate of Jose Court of Appeals erred in validating erroneous
P. Fernandez who died on November 7, 1987. double imputation of values on the very same
estate properties in the estate tax return it
SO ORDERED. [26]
prepared and filed which effectively bloated
the estate's assets.[31]

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


for review.[27] The petitioner claims that in as much as the valid claims of creditors
against the Estate are in excess of the gross estate, no estate tax was
The CA's Ruling due; that the lack of a formal offer of evidence is fatal to BIR's cause;
that the doctrine laid down in Vda. de Oatehas already been abandoned
in a long line of cases in which the Court held that evidence not formally
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the offered is without any weight or value; that Section 34 of Rule 132 of
CTA's findings, the CA ruled that the petitioner's act of filing an estate the Rules on Evidence requiring a formal offer of evidence is mandatory
tax return with the BIR and the issuance of BIR Certification Nos. 2052 in character; that, while BIR's witness Alberto Enriquez (Alberto) in his
and 2053 did not deprive the BIR Commissioner of her authority to re- testimony before the CTA identified the pieces of evidence
examine or re-assess the said return filed on behalf of the Estate. [28]
aforementioned such that the same were marked, BIR's failure to
formally offer said pieces of evidence and depriving petitioner the
opportunity to cross-examine Alberto, render the same inadmissible in
On May 31, 1999, petitioner filed a Motion for Reconsideration [29]
which evidence; that assuming arguendo that the ruling in Vda. de Oate is still
the CA denied in its Resolution[30] dated November 3, 1999. applicable, BIR failed to comply with the doctrine's requisites because
the documents herein remained simply part of the BIR records and were
Hence, the instant Petition raising the following issues: not duly incorporated in the court records; that the BIR failed to consider
that although the actual payments made to the Estate creditors were
1. Whether or not the admission of evidence lower than their respective claims, such were compromise agreements
which were not formally offered by the reached long after the Estate's liability had been settled by the filing of
respondent BIR by the Court of Tax Appeals its estate tax return and the issuance of BIR Certification Nos. 2052 and
which was subsequently upheld by the Court 2053; and that the reckoning date of the claims against the Estate and
of Appeals is contrary to the Rules of Court and the settlement of the estate tax due should be at the time the estate tax
rulings of this Honorable Court; return was filed by the judicial administrator and the issuance of said

10
BIR Certifications and not at the time the aforementioned Compromise held that courts cannot consider evidence which has not been formally
Agreements were entered into with the Estate's creditors. [32]
offered,[37] nevertheless, petitioner cannot validly assume that the
doctrine laid down in Vda. de Oate has already been abandoned.
Recently, in Ramos v. Dizon,[38] this Court, applying the said doctrine,
On the other hand, respondent counters that the documents, being part ruled that the trial court judge therein committed no error when he
of the records of the case and duly identified in a duly recorded admitted and considered the respondents' exhibits in the resolution of
testimony are considered evidence even if the same were not formally the case, notwithstanding the fact that the same
offered; that the filing of the estate tax return by the Estate and the were not formally offered. Likewise, in Far East Bank & Trust Company
issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR v. Commissioner of Internal Revenue,[39] the Court made reference to
of its authority to examine the return and assess the estate tax; and that said doctrine in resolving the issues therein. Indubitably, the doctrine
the factual findings of the CTA as affirmed by the CA may no longer be laid down in Vda. De Oate still subsists in this jurisdiction. In Vda. de
reviewed by this Court via a petition for review.[33] Oate, we held that:

The Issues
From the foregoing provision, it is clear that for
There are two ultimate issues which require resolution in this case: evidence to be considered, the same must be
formally offered. Corollarily, the mere fact that a
First. Whether or not the CTA and the CA gravely erred in allowing the particular document is identified and marked as an
admission of the pieces of evidence which were not formally offered by exhibit does not mean that it has already been
the BIR; and offered as part of the evidence of a party.
In Interpacific Transit, Inc. v. Aviles [186 SCRA
Second. Whether or not the CA erred in affirming the CTA in the latter's 385], we had the occasion to make a distinction
determination of the deficiency estate tax imposed against the Estate. between identification of documentary evidence
and its formal offer as an exhibit. We said that the
The Courts Ruling first is done in the course of the trial and is
accompanied by the marking of the evidence as an
The Petition is impressed with merit. exhibit while the second is done only when the
party rests its case and not before. A party,
Under Section 8 of RA 1125, the CTA is categorically described as a court therefore, may opt to formally offer his evidence if
of record. As cases filed before it are litigated de novo, party-litigants he believes that it will advance his cause or not to
shall prove every minute aspect of their cases. Indubitably, no do so at all. In the event he chooses to do the latter,
evidentiary value can be given the pieces of evidence submitted by the the trial court is not authorized by the Rules to
BIR, as the rules on documentary evidence require that these consider the same.
documents must be formally offered before the CTA. [34]
Pertinent is
Section 34, Rule 132 of the Revised Rules on Evidence which reads: However, in People v. Napat-a [179 SCRA 403]
citing People v. Mate [103 SCRA 484], we relaxed
SEC. 34. Offer of evidence. The court shall the foregoing rule and allowed evidence not
consider no evidence which has not been formally formally offered to be admitted and
offered. The purpose for which the evidence is considered by the trial court provided the
offered must be specified. following requirements are present, viz.:
first, the same must have been duly
identified by testimony duly recorded and,
second, the same must have been
The CTA and the CA rely solely on the case of Vda. de Oate, incorporated in the records of the case.[40]
which reiterated this Court's previous rulings in People v. Napat-
a[35] and People v. Mate[36] on the admission and consideration of From the foregoing declaration, however, it is clear that Vda.
exhibits which were not formally offered during the trial. Although in a de Oate is merely an exception to the general rule. Being an exception,
long line of cases many of which were decided after Vda. de Oate, we it may be applied only when there is strict compliance with the requisites
11
mentioned therein; otherwise, the general rule in Section 34 of Rule 132 which may be disregarded considering that it is the only means by which
of the Rules of Court should prevail. the CTA may ascertain and verify the truth of BIR's claims against the
Estate.[46] The BIR's failure to formally offer these pieces of evidence,
In this case, we find that these requirements have not been satisfied. despite CTA's directives, is fatal to its cause.[47] Such failure is
The assailed pieces of evidence were presented and marked during the aggravated by the fact that not even a single reason was advanced by
trial particularly when Alberto took the witness stand. Alberto identified the BIR to justify such fatal omission. This, we take against the BIR.
these pieces of evidence in his direct testimony.[41] He was also
subjected to cross-examination and re-cross examination by Per the records of this case, the BIR was directed to present its
petitioner.[42] But Albertos account and the exchanges between Alberto evidence[48] in the hearing of February 21, 1996, but BIR's counsel failed
and petitioner did not sufficiently describe the contents of the said pieces to appear.[49] The CTA denied petitioner's motion to consider BIR's
of evidence presented by the BIR. In fact, petitioner sought that the lead presentation of evidence as waived, with a warning to BIR that such
examiner, one Ma. Anabella A. Abuloc, be summoned to testify, presentation would be considered waived if BIR's evidence would not be
inasmuch as Alberto was incompetent to answer questions relative to presented at the next hearing. Again, in the hearing of March 20, 1996,
the working papers. [43]
The lead examiner never testified. Moreover, BIR's counsel failed to appear.[50] Thus, in its Resolution[51] dated March
while Alberto's testimony identifying the BIR's evidence was duly 21, 1996, the CTA considered the BIR to have waived presentation of
recorded, the BIR documents themselves were not incorporated in the its evidence. In the same Resolution, the parties were directed to file
records of the case. their respective memorandum. Petitioner complied but BIR failed to do
so.[52] In all of these proceedings, BIR was duly notified. Hence, in this
A common fact threads through Vda. de Oate and Ramos that does not case, we are constrained to apply our ruling in Heirs of Pedro Pasag v.
exist at all in the instant case. In the aforementioned cases, the exhibits Parocha:[53]
were marked at the pre-trial proceedings to warrant the pronouncement A formal offer is necessary because
that the same were duly incorporated in the records of the case. Thus, judges are mandated to rest their findings of facts
we held in Ramos: and their judgment only and strictly upon the
evidence offered by the parties at the trial. Its
function is to enable the trial judge to know the
In this case, we find and so rule that these purpose or purposes for which the proponent is
requirements have been satisfied. The exhibits in presenting the evidence. On the other hand, this
question were presented and marked during allows opposing parties to examine the evidence
the pre-trial of the case thus, they have been and object to its admissibility. Moreover, it
incorporated into the records. Further, Elpidio facilitates review as the appellate court will not be
himself explained the contents of these exhibits required to review documents not previously
when he was interrogated by respondents' scrutinized by the trial court.
counsel...
Strict adherence to the said rule is not a trivial
xxxx matter. The Court in Constantino v. Court of
Appeals ruled that the formal offer of one's
But what further defeats petitioner's cause on this evidence is deemed waived after failing to
issue is that respondents' exhibits were marked and submit it within a considerable period of
admitted during the pre-trial stage as shown by the time. It explained that the court cannot
Pre-Trial Order quoted earlier. [44]
admit an offer of evidence made after a lapse
of three (3) months because to do so would
"condone an inexcusable laxity if not non-
compliance with a court order which, in
effect, would encourage needless delays and
While the CTA is not governed strictly by technical rules of derail the speedy administration of justice."
evidence,[45] as rules of procedure are not ends in themselves and are Applying the aforementioned principle in this case,
primarily intended as tools in the administration of justice, the we find that the trial court had reasonable ground
presentation of the BIR's evidence is not a mere procedural technicality to consider that petitioners had waived their right
12
to make a formal offer of documentary or object gross estate of Jose despite the fact that the said claims were reduced
evidence. Despite several extensions of time to or condoned through compromise agreements entered into by the
make their formal offer, petitioners failed to comply Estate with its creditors.
with their commitment and allowed almost five
months to lapse before finally submitting Claims against the estate, as allowable deductions from the gross estate
it. Petitioners' failure to comply with the rule under Section 79 of the Tax Code, are basically a reproduction of the
on admissibility of evidence is anathema to deductions allowed under Section 89 (a) (1) (C) and (E) of
the efficient, effective, and expeditious Commonwealth Act No. 466 (CA 466), otherwise known as the National
dispensation of justice. Internal Revenue Code of 1939, and which was the first codification of
Philippine tax laws. Philippine tax laws were, in turn, based on the
federal tax laws of the United States. Thus, pursuant to established rules
of statutory construction, the decisions of American courts construing
Having disposed of the foregoing procedural issue, we proceed to the federal tax code are entitled to great weight in the interpretation of
discuss the merits of the case. our own tax laws.[60]

Ordinarily, the CTA's findings, as affirmed by the CA, are It is noteworthy that even in the United States, there is some dispute as
entitled to the highest respect and will not be disturbed on appeal unless to whether the deductible amount for a claim against the estate is fixed
it is shown that the lower courts committed gross error in the as of the decedent's death which is the general rule, or the same should
appreciation of facts. [54]
In this case, however, we find the decision of be adjusted to reflect post-death developments, such as where a
the CA affirming that of the CTA tainted with palpable error. settlement between the parties results in the reduction of the amount
actually paid.[61] On one hand, the U.S. court ruled that the appropriate
It is admitted that the claims of the Estate's aforementioned creditors deduction is the value that the claim had at the date of the decedent's
have been condoned. As a mode of extinguishing an death.[62]Also, as held in Propstra v. U.S., [63] where a lien claimed
obligation,[55] condonation or remission of debt[56] is defined as: against the estate was certain and enforceable on the date of the
decedent's death, the fact that the claimant subsequently settled for
an act of liberality, by virtue of which, without lesser amount did not preclude the estate from deducting the entire
receiving any equivalent, the creditor renounces the amount of the claim for estate tax purposes. These pronouncements
enforcement of the obligation, which is essentially confirm the general principle that post-death developments
extinguished in its entirety or in that part or aspect are not material in determining the amount of the deduction.
of the same to which the remission refers. It is an
essential characteristic of remission that it be
gratuitous, that there is no equivalent received for On the other hand, the Internal Revenue Service (Service)
the benefit given; once such equivalent exists, the opines that post-death settlement should be taken into consideration
nature of the act changes. It may become dation in and the claim should be allowed as a deduction only to the extent of the
payment when the creditor receives a thing amount actually paid.[64] Recognizing the dispute, the Service released
different from that stipulated; or novation, when Proposed Regulations in 2007 mandating that the deduction would be
the object or principal conditions of the obligation limited to the actual amount paid.[65]
should be changed; or compromise, when the
matter renounced is in litigation or dispute and in In announcing its agreement
exchange of some concession which the creditor with Propstra, [66]
the U.S. 5 Circuit Court of Appeals held:
th

receives.[57]
We are persuaded that the Ninth Circuit's
decision...in Propstra correctly apply the Ithaca
Verily, the second issue in this case involves the construction of Section Trust date-of-death valuation principle to
79 [58]
of the National Internal Revenue Code [59]
(Tax Code) which enforceable claims against the estate. As we
provides for the allowable deductions from the gross estate of the interpret Ithaca Trust, when the Supreme Court
decedent. The specific question is whether the actual claims of the announced the date-of-death valuation principle, it
aforementioned creditors may be fully allowed as deductions from the was making a judgment about the nature of the
13
federal estate tax specifically, that it is a tax
imposed on the act of transferring property by will
or intestacy and, because the act on which the tax
is levied occurs at a discrete time, i.e., the instance
of death, the net value of the property transferred
should be ascertained, as nearly as possible, as of
that time. This analysis supports broad application
of the date-of-death valuation rule.[67]

We express our agreement with the date-of-death valuation rule, made


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

WHEREFORE, the instant Petition is GRANTED. Accordingly, the


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

SO ORDERED.

14
URSULINA GANUELAS, METODIO GANUELAS and ANTONIO as the validity or revocation of the donation
GANUELAS, vs. HON. ROBERT T. CAWED, Judge of the depends upon its nature. If the donation is inter
Regional Trial Court of San Fernando, La Union vivos, it must be executed and accepted with the
(Branch 29), LEOCADIA G. FLORES, FELICITACION G. formalities prescribed by Articles 748 and 749 of
AGTARAP, CORAZON G. SIPALAY and ESTATE OF the Civil Code, except when it is onerous in which
ROMANA GANUELAS DE LA ROSA, represented by case the rules on contracts will apply. If it is mortis
GREGORIO DELA ROSA, Administrator, respondent. causa, the donation must be in the form of a will,
Donations; Wills and Succession; Donations Mortis with all the formalities for the validity of wills,
Causa and Donations Inter Vivos; Words and otherwise it is void and cannot transfer ownership.
Phrases; Donation inter vivos differs from donation
mortis causa in that in the former, the act is Same; Same; Same; Distinguishing Characteristics
immediately operative even if the actual execution of a Donation Mortis Causa.—The distinguishing
may be deferred until the death of the donor, while characteristics of a donation mortis causa are the
in the latter, nothing is conveyed to or acquired by following: 1. It conveys no title or ownership to the
the donee until the death of the donor-testator.— transferee before the death of the transferor; or,
The issue is thus whether the donation is inter vivos what amounts to the same thing, that the
or mortis causa. Crucial in the resolution of the transferor should retain the ownership (full or
issue is the determination of whether the donor naked) and control of the property while alive; 2.
intended to transfer the ownership over the That before his death, the transfer should be
properties upon the execution of the deed. revocable by the transferor at will, ad nutum; but
Donation inter vivos differs from donation mortis revocability may be provided for indirectly by
causa in that in the former, the act is immediately means of a reserved power in the donor to dispose
operative even if the actual execution may be of the properties conveyed; 3. That the transfer
deferred until the death of the donor, while in the should be void if the transferor should survive the
latter, nothing is conveyed to or acquired by the transferee.
donee until the death of the donor-testator. The
following ruling of this Court in Alejandro v. Same; Same; Same; Same; The phrase “to become
Geraldez is illuminating: If the donation is made in effective upon the death of the DONOR” admits of
contemplation of the donor’s death, meaning that no other interpretation but that the donor intended
the full or naked ownership of the donated to transfer the ownership of the properties to the
properties will pass to the donee only because of donee on the former’s death, not during her
the donor’s death, then it is at that time that the lifetime.—In the donation subject of the present
donation takes effect, and it is a donation mortis case, there is nothing therein which indicates that
causa which should be embodied in a last will and any right, title or interest in the donated properties
testament. But if the donation takes effect during was to be transferred to Ursulina prior to the death
the donor’s lifetime or independently of the donor’s of Celestina. The phrase “to become effective upon
death, meaning that the full or naked ownership the death of the DONOR” admits of no other
(nuda proprietas) of the donated properties passes interpretation but that Celestina intended to
to the donee during the donor’s lifetime, not by transfer the ownership of the properties to Ursulina
reason of his death but because of the deed of on her death, not during her lifetime.
donation, then the donation is inter vivos.
Same; Same; Same; Same; One of the decisive
Same; Same; Same; The distinction between a characteristics of a donation mortis causa is that
transfer inter vivos and mortis causa is important the transfer should be considered void if the donor
as the validity or revocation of the donation should survive the donee.—More importantly, the
depends upon its nature.—The distinction between provision in the deed stating that if the donee
a transfer inter vivos and mortis causa is important should die before the donor, the donation shall be

15
deemed rescinded and of no further force and effect Regional Trial Court of San Fernando, La Union, Branch 29, in Civil Case
shows that the donation is a postmortem No. 3947, an action for declaration of nullity of a deed of donation.
disposition. As stated in a long line of cases, one of The facts, as culled from the records of the case, are as follows:
the decisive characteristics of a donation mortis On April 11, 1958, Celestina Ganuelas Vda. de Valin (Celestina)
causa is that the transfer should be considered void executed a Deed of Donation of Real Property[2] covering seven parcels
if the donor should survive the donee. of land in favor of her niece Ursulina Ganuelas (Ursulina), one of herein
petitioners.
Same; Same; Same; To classify the donation as The pertinent provision of the deed of donation reads,
inter vivos simply because it is founded on quoted verbatim:
considerations of love and affection is erroneous—
love and affection may also underlie transfers xxx
mortis causa.—To classify the donation as inter That, for and in consideration of the love and affection which the DONOR
vivos simply because it is founded on has for the DONEE, and of the faithful services the latter has rendered
considerations of love and affection is erroneous. in the past to the former, the said DONOR does by these presents
That the donation was prompted by the affection of transfer and convey, by way of DONATION, unto the DONEE the
the donor for the donee and the services rendered property above, described, to become effective upon the death of the
by the latter is of no particular significance in DONOR; but in the event that the DONEE should die before the DONOR,
determining whether the deed constitutes a the present donation shall be deemed rescinded and of no further force
transfer inter vivos or not, because a legacy may and effect.
have an identical motivation. In other words, love x x x.[3]
and affection may also underlie transfers mortis
causa. On June 10, 1967, Celestina executed a document denominated
as Revocation of Donation[4] purporting to set aside the deed of
Same; Same; Same; Donations mortis causa must donation. More than a month later or on August 18, 1967, Celestina died
comply with the formalities of a will under Article without issue and any surviving ascendants and siblings.
728 of the Civil Code, failing which the donation is After Celestinas death, Ursulina had been sharing the produce of
void and produces no effect.—As the subject deed the donated properties with private respondents Leocadia G. Flores, et
then is in the nature of a mortis causa disposition, al., nieces of Celestina.
the formalities of a will under Article 728 of the Civil In 1982, or twenty-four years after the execution of the Deed of
Code should have been complied with, failing which Donation, Ursulina secured the corresponding tax declarations, in her
the donation is void and produces no effect. As name, over the donated properties, to wit: Tax Declarations Nos. 18108,
noted by the trial court, the attesting witnesses 18109, 18110, 18111, 18112, 18113 and 18114, and since then, she
failed to acknowledge the deed before the notary refused to give private respondents any share in the produce of the
public, thus violating Article 806 of the Civil Code properties despite repeated demands.
which provides: Art. 806. Every will must be Private respondents were thus prompted to file on May 26, 1986
acknowledged before a notary public by the with the RTC of San Fernando, La Union a complaint[5] against Ursulina,
testator and the witnesses. The notary public shall along with Metodio Ganuelas and Antonio Ganuelas who were alleged
not be required to retain a copy of the will, or file to be unwilling plaintiffs. The complaint alleged that the Deed of
another with the office of the Clerk of Court. Donation executed by Celestina in favor of Ursulina was void for lack of
acknowledgment by the attesting witnesses thereto before notary public
Atty. Henry Valmonte, and the donation was a disposition mortis
causa which failed to comply with the provisions of the Civil Code
DECISION regarding formalities of wills and testaments, hence, it was void. The
plaintiffs-herein private respondents thus prayed that judgment be
CARPIO-MORALES, J.:
rendered ordering Ursulina to return to them as intestate heirs the
possession and ownership of the properties. They likewise prayed for
The present petition for review under Rule 45 of the Rules of Court
the cancellation of the tax declarations secured in the name of Ursulina,
assails, on a question of law, the February 22, 1996 decision[1] of the
the partition of the properties among the intestate heirs of Celestina,

16
and the rendering by Ursulina of an accounting of all the fruits of the Hence, the instant petition for review, petitioners contending that
properties since 1982 and for her to return or pay the value of their the trial court erred:
shares.
The defendants-herein petitioners alleged in their Answer[6] that I. . . . WHEN IT DECLARED NULL AND VOID THE
the donation in favor of Ursulina was inter vivos as contemplated under DONATION EXECUTED BY CELESTINA
Article 729 of the Civil Code, [7]
hence, the deed did not have to comply GANUELAS;
with the requirements for the execution of a valid will; the Revocation II. . . . WHEN IT UPHELD THE REVOCATION OF
of Donation is null and void as the ground mentioned therein is not DONATION;
among those provided by law to be the basis thereof; and at any rate, III. . . . IN RENDERING ITS DECISION ADVERSE TO
the revocation could only be legally enforced upon filing of the PETITIONER URSULINA GANUELAS.[14]
appropriate complaint in court within the prescriptive period provided by
law, which period had, at the time the complaint was filed, already Petitioners argue that the donation contained in the deed is inter
lapsed. vivos as the main consideration for its execution was the donors
By Decision of February 22, 1996, the trial court, holding that the affection for the donee rather than the donors death;[15] that the
provision in the Deed of Donation that in the event that the DONEE provision on the effectivity of the donationafter the donors deathsimply
should predecease the DONOR, the donation shall be deemed rescinded meant that absolute ownership would pertain to the donee on the
and of no further force and effect is an explicit indication that the deed donors death;[16] and that since the donation is inter vivos, it may be
is a donation mortis causa,[8] found for the plaintiffs-herein private revoked only for the reasons provided in Articles 760,[17] 764[18] and
respondents, thus: 765[19] of the Civil Code.
In a letter of March 16, 1998,[20] private respondent Corazon
WHEREFORE the Court renders judgment declaring null and void the Sipalay, reacting to this Courts January 28, 1998 Resolution requiring
Deed of Donation of Real Property executed by Celestina Ganuelas, and private respondents to SHOW CAUSE why they should not be
orders the partition of the estate of Celestina among the intestate heirs. disciplinarily dealt with or held in contempt for failure to submit the
SO ORDERED. [9] name and address of their new counsel, explains that they are no longer
interested in pursuing the case and are willing and ready to waive
The trial court also held that the absence of a reservation clause whatever rights they have over the properties subject of the
in the deed implied that Celestina retained complete dominion over her donation. Petitioners, who were required to comment on the letter, by
properties, thus supporting the conclusion that the donation is mortis Comment of October 28, 1998,[21] welcome private respondents gesture
causa,[10] and that while the deed contained an attestation clause and but pray that for the sake of enriching jurisprudence, their [p]etition be
an acknowledgment showing the intent of the donor to effect a given due course and resolved.
postmortem disposition, the acknowledgment was defective as only the The issue is thus whether the donation is inter vivos or mortis
donor and donee appear to have acknowledged the deed before the causa.
notary public, thereby rendering the entire document void.[11] Crucial in the resolution of the issue is the determination of
Lastly, the trial court held that the subsequent execution by whether the donor intended to transfer the ownership over the
Celestina of the Revocation of Donation showed that the donor intended properties upon the execution of the deed.[22]
the revocability of the donation ad nutum, thus sustaining its finding Donation inter vivos differs from donation mortis causa in that in
that the conveyance was mortis causa. [12]
the former, the act is immediately operative even if the actual execution
On herein petitioners argument that the Revocation of Donation may be deferred until the death of the donor, while in the latter, nothing
was void as the ground mentioned therein is not one of those allowed is conveyed to or acquired by the donee until the death of the donor-
by law to be a basis for revocation, the trial court held that the legal testator.[23] The following ruling of this Court in Alejandro v.
grounds for such revocation as provided under the Civil Code arise only Geraldez is illuminating:[24]
in cases of donations inter vivos, but not in donations mortis
causa which are revocable at will during the lifetime of the donor. The If the donation is made in contemplation of the donors death, meaning
trial court held, in any event, that given the nullity of the that the full or naked ownership of the donated properties will pass to
disposition mortis causa in view of a failure to comply with the the donee only because of the donors death, then it is at that time that
formalities required therefor, the Deed of Revocation was a the donation takes effect, and it is a donation mortis causa which should
superfluity.
[13] be embodied in a last will and testament.

17
But if the donation takes effect during the donors lifetime or and on the left margin of each and every page thereof in the joint
independently of the donors death, meaning that the full or naked presence of all of us who at her request and in her presence and that of
ownership (nuda proprietas) of the donated properties passes to the each other have in like manner subscribed our names as
donee during the donors lifetime, not by reason of his death but because witnesses.[31] (Emphasis supplied)
of the deed of donation, then the donation is inter vivos.
To classify the donation as inter vivos simply because it is founded
The distinction between a transfer inter vivos and mortis causa is on considerations of love and affection is erroneous. That the donation
important as the validity or revocation of the donation depends upon its was prompted by the affection of the donor for the donee and the
nature. If the donation is inter vivos, it must be executed and accepted services rendered by the latter is of no particular significance in
with the formalities prescribed by Articles 748 [25]
and 749 [26]
of the Civil determining whether the deed constitutes a transfer inter vivos or not,
Code, except when it is onerous in which case the rules on contracts will because a legacy may have an identical motivation.[32] In other words,
apply. If it is mortis causa, the donation must be in the form of a will, love and affection may also underline transfers mortis causa.[33]
with all the formalities for the validity of wills, otherwise it is void and In Maglasang v. Heirs of Cabatingan,[34] the deeds of
cannot transfer ownership.[27] donation contained provisions almost identical to those found in the
The distinguishing characteristics of a donation mortis causa are deed subject of the present case:
the following:
That for and in consideration of the love and affection of the DONOR for
1. It conveys no title or ownership to the transferee before the death of the DONEE, x x x the DONOR does hereby, by these presents, transfer,
the transferor; or, what amounts to the same thing, that the transferor convey, by way of donation, unto the DONEE the above-described
should retain the ownership (full or naked) and control of the property property, together with the buildings and all improvements existing
while alive; thereon, to become effective upon the death of the DONOR; PROVIDED,
2. That before his death, the transfer should be revocable by the HOWEVER, that in the event that the DONEE should die before the
transferor at will, ad nutum; but revocability may be provided for DONOR, the present donation shall be deemed automatically rescinded
indirectly by means of a reserved power in the donor to dispose of the and of no further force and effect. (Underscoring supplied)
properties conveyed;
3. That the transfer should be void if the transferor should survive the In that case, this Court held that the donations were mortis causa, for
transferee.[28] the above-quoted provision conclusively establishes the donors intention
to transfer the ownership and possession of the donated property to the
In the donation subject of the present case, there is nothing donee only after the formers death. Like in the present case, the deeds
therein which indicates that any right, title or interest in the donated therein did not contain any clear provision that purports to pass
properties was to be transferred to Ursulina prior to the death of proprietary rights to the donee prior to the donors death.
Celestina. As the subject deed then is in the nature of a mortis
The phrase to become effective upon the death of the DONOR causa disposition, the formalities of a will under Article 728 of the Civil
admits of no other interpretation but that Celestina intended to transfer Code should have been complied with, failing which the donation is void
the ownership of the properties to Ursulina on her death, not during her and produces no effect.[35]
lifetime. [29]
As noted by the trial court, the attesting witnesses failed to
More importantly, the provision in the deed stating that if the acknowledge the deed before the notary public, thus violating Article
donee should die before the donor, the donation shall be deemed 806 of the Civil Code which provides:
rescinded and of no further force and effect shows that the donation is
a postmortem disposition. Art. 806. Every will must be acknowledged before a notary public by the
As stated in a long line of cases, one of the decisive characteristics testator and the witnesses. The notary public shall not be required to
of a donation mortis causa is that the transfer should be considered void retain a copy of the will, or file another with the office of the Clerk of
if the donor should survive the donee. [30] Court. (Emphasis supplied)
More. The deed contains an attestation clause expressly
confirming the donation as mortis causa: The trial court did not thus commit any reversible error in
declaring the Deed of Donation to be mortis causa.
SIGNED by the above-named donor, Celestina Ganuelas, at the foot WHEREFORE, the petition is hereby DENIED for lack of merit.
of this deed of donation mortis causa, consisting of two (2) pages

18
SO ORDERED.

19
PABLO LORENZO, as trustee of the estate of Thomas Hanley, re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re
deceased, plaintiff-appellant, Collard's Estate, 161 N. Y. Supp., 455.)
vs. 6.ID.; ID.; ADMINISTRATION EXPENSES.—Judicial expenses are
JUAN POSADAS, JR., Collector of Internal Revenue, defendant- expenses of administration (61 C. J., p. 1705) but, in State vs.
appellant. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it
1.INHERITANCE TAX; ACCRUAL OF, DISTINCT FROM THE was said: "* * * the compensation of a trustee, earned, not in the
OBLIGATION TO PAY IT.—The accrual of the inheritance tax is administration of the estate, but in the management thereof for the
distinct from the obligation to pay the same. Section 1536 as benefit of the legatees or devisees, does not come properly within
amended, of the Administrative Code, imposes the tax upon "every the class or reason for exempting administration expenses. * * *
transmission by virtue of inheritance, devise, bequest, gift mortis Services rendered in that behalf have no reference to closing the
causa, or advance in anticipation of inheritance, devise, or bequest." estate for the purpose of a distribution thereof to those entitled to it,
The tax therefore is upon transmission or the transfer or devolution and are not required or essential to the perfection of the rights of the
of property of a decedent, made effective by his death, (61 C. J., p. heirs or legatees. * * * Trusts * * * of the character of that here
1592.) before the court, are created for the benefit of those to whom the
2.ID.; MEASURE OF, BY VALUE OF ESTATE.—If death is the property ultimately passes, are of voluntary creation, and intended
generating source from which the power of the state to impose for the preservation of the estate. No sound reason is given to
inheritance taxes takes its being and if, upon the death of the support the contention that such expenses should be taken into
decedent, succession takes place and the right of the state to tax consideration in fixing the value of the estate for the purposes of .this
vests instantly, the tax should be measured by the value of the estate tax.
as it stood at the time of the decedent's death, regardless of any 7.ID.; RETROACTIVE LEGISLATION.—It is well-settled that
subsequent contingency affecting value or any subsequent increase inheritance taxation is governed by the statute in force at the time
or decrease in value. (61 C. J., pp.' 1692, 1693; 26 R. C. L., p. 232; of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on
Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Taxation, 4th ed., p. 3461). The taxpayer cannot foresee and ought
Knowlton vs. Moore, 178 U. S., 41; 20 Sup. Ct. Rep., 747; 44 Law. not to be required to guess the outcome of pending measures. Of
ed., 968.) course, a tax statute may be made retroactive in its operation.
3.ID.; ID.—"The right of the state to an inheritance tax accrues at Liability for taxes under retroactive legislation has been "one of the
the moment of death, and hence is ordinarily measured as to any incidents of social life." (Seattle vs. Kelleher, 195 U. S., 351, 360; 49
beneficiary by the value at that time of such property as passes to Law. ed., 232; 25 Sup. Ct. Rep., 44.)
him. Subsequent appreciation or depreciation is immaterial." (Ross, 8.ID.; ID.—But legislative intent that a tax statute should operate
Inheritance Taxation, p. 72.) retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct.
4.ID.; ID.—Whatever may be the rule in other jurisdictions, we hold Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602;
that a transmission by inheritance is taxable at the time of the Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U.
predecessor's death, notwithstanding the postponement of the actual S., 221.) "A statute should be considered as prospective in its
possession or enjoyment of the estate by the beneficiary, and the tax operation, whether it enacts, amends, or repeals an inheritance tax,
measured by the value of the property transmitted at that time unless the language of the statute clearly demands or expresses that
regardless of its appreciation or depreciation. it shall have a retroactive effect, * * * " (61 C. J., 1602.)
5.ID.; TRUSTS AND TRUSTEES.—A trustee, no doubt, is entitled to 9.ID.; ID.—Though the last paragraph of section 5 of Regulations No.
receive a fair compensation for his services. (Barney vs. Saunders, 65 of the Department of Finance makes section 3 of Act No. 3606,
16 How., 535; 14 Law. ed., 1047.) But from this it does not follow amending section 1544 of the Revised Administrative Code,
that the compensation due him may lawfully be deducted in arriving applicable to all estates the inheritance taxes due from which have
at the net value of the estate subject to tax. There is no statute in not been paid, Act No. 3606 itself contains no provisions indicating
the Philippines which requires trustees' commissions to be deducted legislative intent to give it retroactive effect. No such effect can be
in determining the net value of the estate subject to inheritance tax. given the statute by this court.
(61 C. J., p. 1705.) Furthermore, though a testamentary trust has 10.ID.; ID.; PENAL STATUTES.—Properly speaking, a statute is penal
been created, it does not appear that the testator intended that the when it imposes punishment for an offense committed against the
duties of his executors and trustees should be separated. (Ibid.; In state which, under the Constitution, the Executive has the power to
pardon. In common use, however, this sense has been enlarged to

20
include within the term "penal statutes" all statutes which command the plaintiff's complaint and the defendant's counterclaim, both parties
or prohibit certain acts, and establish penalties for their violation, and appealed to this court.
even those which, without expressly prohibiting certain acts, impose It appears that on May 27, 1922, one Thomas Hanley died in
a penalty upon their commission. (59 C. J., p. 1110.) Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable
11.ID.; ID.; ID.; REVENUE LAW.—Revenue laws, generally, which amount of real and personal properties. On june 14, 1922, proceedings
impose taxes collected by the means ordinarily resorted to for the for the probate of his will and the settlement and distribution of his
collection of taxes are not classed as penal laws, although there are estate were begun in the Court of First Instance of Zamboanga. The will
authorities to the contrary. (See Sutherland, Statutory Construction, was admitted to probate. Said will provides, among other things, as
361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice follows:
vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 4. I direct that any money left by me be given to my nephew
101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev., 143.) Article Matthew Hanley.
22 of the Revised Penal Code is not applicable to the case at bar, and 5. I direct that all real estate owned by me at the time of my
in the absence of clear legislative intent, we cannot give Act No. 3606 death be not sold or otherwise disposed of for a period of ten
a retroactive effect. (10) years after my death, and that the same be handled and
12.ID.; TRUSTS AND TRUSTEES.—The word "trust" is not mentioned managed by the executors, and proceeds thereof to be given
or used in the will but the intention to create one is clear. No to my nephew, Matthew Hanley, at Castlemore,
particular or technical words are required to create a testamentary Ballaghaderine, County of Rosecommon, Ireland, and that he
trust. * (69 C. J., p. 711.) The words "trust" and "trustee", though be directed that the same be used only for the education of
apt for the purpose, are not necessary. In fact, the use of these two my brother's children and their descendants.
words is not conclusive on the question that a trust is created. (69 C. 6. I direct that ten (10) years after my death my property be
J., p. 714.) given to the above mentioned Matthew Hanley to be disposed
13.ID.; ID.—There is no doubt that the testator intended to create a of in the way he thinks most advantageous.
trust. He ordered in his will that certain of his properties be kept xxx xxx xxx
together undisposed during a fixed period, for a stated purpose. The 8. I state at this time I have one brother living, named Malachi
probate court certainly exercised sound judgment in appointing a Hanley, and that my nephew, Matthew Hanley, is a son of my
trustee to carry into effect the provisions of the will. (See sec. 582, said brother, Malachi Hanley.
Code of Civil Procedure.) The Court of First Instance of Zamboanga considered it proper for the
14.ID.; ID.; ERROR IN ENGLISH VERSION OF SUBSECTION (B), best interests of ther estate to appoint a trustee to administer the real
SECTION 1543, REVISED ADMINISTRATIVE CODE.—The word properties which, under the will, were to pass to Matthew Hanley ten
"trustee", appearing in subsection (b) of section 1543, should read years after the two executors named in the will, was, on March 8, 1924,
"fideicommissary" or "cestui que trust". There was an obvious appointed trustee. Moore took his oath of office and gave bond on March
mistake in translation from the Spanish to the English version. 10, 1924. He acted as trustee until February 29, 1932, when he resigned
and the plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant
Pablo Lorenzo and Delfin Joven for plaintiff-appellant. Collector of Internal Revenue, alleging that the estate left by the
Office of the Solicitor-General Hilado for defendant-appellant. deceased at the time of his death consisted of realty valued at P27,920
LAUREL, J.: and personalty valued at P1,465, and allowing a deduction of P480.81,
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee assessed against the estate an inheritance tax in the amount of
of the estate of Thomas Hanley, deceased, brought this action in the P1,434.24 which, together with the penalties for deliquency in payment
Court of First Instance of Zamboanga against the defendant, Juan consisting of a 1 per cent monthly interest from July 1, 1931 to the date
Posadas, Jr., then the Collector of Internal Revenue, for the refund of of payment and a surcharge of 25 per cent on the tax, amounted to
the amount of P2,052.74, paid by the plaintiff as inheritance tax on the P2,052.74. On March 15, 1932, the defendant filed a motion in the
estate of the deceased, and for the collection of interst thereon at the testamentary proceedings pending before the Court of First Instance of
rate of 6 per cent per annum, computed from September 15, 1932, the Zamboanga (Special proceedings No. 302) praying that the trustee,
date when the aforesaid tax was [paid under protest. The defendant set plaintiff herein, be ordered to pay to the Government the said sum of
up a counterclaim for P1,191.27 alleged to be interest due on the tax in P2,052.74. The motion was granted. On September 15, 1932, the
question and which was not included in the original assessment. From plaintiff paid said amount under protest, notifying the defendant at the
the decision of the Court of First Instance of Zamboanga dismissing both same time that unless the amount was promptly refunded suit would be
21
brought for its recovery. The defendant overruled the plaintiff's protest or the transfer or devolution of property of a decedent, made effective
and refused to refund the said amount hausted, plaintiff went to court by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
with the result herein above indicated. imposed on the right to succeed to, receive, or take property by or under
In his appeal, plaintiff contends that the lower court erred: a will or the intestacy law, or deed, grant, or gift to become operative
I. In holding that the real property of Thomas Hanley, at or after death. Acording to article 657 of the Civil Code, "the rights to
deceased, passed to his instituted heir, Matthew Hanley, from the succession of a person are transmitted from the moment of his
the moment of the death of the former, and that from the death." "In other words", said Arellano, C. J., ". . . the heirs succeed
time, the latter became the owner thereof. immediately to all of the property of the deceased ancestor. The
II. In holding, in effect, that there was deliquency in the property belongs to the heirs at the moment of the death of the ancestor
payment of inheritance tax due on the estate of said as completely as if the ancestor had executed and delivered to them a
deceased. deed for the same before his death." (Bondad vs. Bondad, 34 Phil.,
III. In holding that the inheritance tax in question be based 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-
upon the value of the estate upon the death of the testator, Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
and not, as it should have been held, upon the value thereof Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs.
at the expiration of the period of ten years after which, Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434;
according to the testator's will, the property could be and was Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship
to be delivered to the instituted heir. Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First
IV. In not allowing as lawful deductions, in the determination Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.)
of the net amount of the estate subject to said tax, the Plaintiff, however, asserts that while article 657 of the Civil Code is
amounts allowed by the court as compensation to the applicable to testate as well as intestate succession, it operates only in
"trustees" and paid to them from the decedent's estate. so far as forced heirs are concerned. But the language of article 657 of
V. In not rendering judgment in favor of the plaintiff and in the Civil Code is broad and makes no distinction between different
denying his motion for new trial. classes of heirs. That article does not speak of forced heirs; it does not
The defendant-appellant contradicts the theories of the plaintiff and even use the word "heir". It speaks of the rights of succession and the
assigns the following error besides: transmission thereof from the moment of death. The provision of section
The lower court erred in not ordering the plaintiff to pay to 625 of the Code of Civil Procedure regarding the authentication and
the defendant the sum of P1,191.27, representing part of the probate of a will as a necessary condition to effect transmission of
interest at the rate of 1 per cent per month from April 10, property does not affect the general rule laid down in article 657 of the
1924, to June 30, 1931, which the plaintiff had failed to pay Civil Code. The authentication of a will implies its due execution but once
on the inheritance tax assessed by the defendant against the probated and allowed the transmission is effective as of the death of the
estate of Thomas Hanley. testator in accordance with article 657 of the Civil Code. Whatever may
The following are the principal questions to be decided by this court in be the time when actual transmission of the inheritance takes place,
this appeal: (a) When does the inheritance tax accrue and when must it succession takes place in any event at the moment of the decedent's
be satisfied? (b) Should the inheritance tax be computed on the basis of death. The time when the heirs legally succeed to the inheritance may
the value of the estate at the time of the testator's death, or on its value differ from the time when the heirs actually receive such inheritance.
ten years later? (c) In determining the net value of the estate subject to "Poco importa", says Manresa commenting on article 657 of the Civil
tax, is it proper to deduct the compensation due to trustees? ( d) What Code, "que desde el falleimiento del causante, hasta que el heredero o
law governs the case at bar? Should the provisions of Act No. 3606 legatario entre en posesion de los bienes de la herencia o del legado,
favorable to the tax-payer be given retroactive effect? (e) Has there transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse
been deliquency in the payment of the inheritance tax? If so, should the al momento de la muerte, y asi lo ordena el articulo 989, que debe
additional interest claimed by the defendant in his appeal be paid by the considerarse como complemento del presente." (5 Manresa, 305; see
estate? Other points of incidental importance, raised by the parties in also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May
their briefs, will be touched upon in the course of this opinion. 27, 1922, the inheritance tax accrued as of the date.
(a) The accrual of the inheritance tax is distinct from the obligation to From the fact, however, that Thomas Hanley died on May 27, 1922, it
pay the same. Section 1536 as amended, of the Administrative Code, does not follow that the obligation to pay the tax arose as of the date.
imposes the tax upon "every transmission by virtue of inheritance, The time for the payment on inheritance tax is clearly fixed by section
devise, bequest, gift mortis causa, or advance in anticipation of 1544 of the Revised Administrative Code as amended by Act No. 3031,
inheritance,devise, or bequest." The tax therefore is upon transmission in relation to section 1543 of the same Code. The two sections follow:
22
SEC. 1543. Exemption of certain acquisitions and ten years after the testator's death. The plaintiff introduced evidence
transmissions. — The following shall not be taxed: tending to show that in 1932 the real properties in question had a
(a) The merger of the usufruct in the owner of the reasonable value of only P5,787. This amount added to the value of the
naked title. personal property left by the deceased, which the plaintiff admits is
(b) The transmission or delivery of the inheritance P1,465, would generate an inheritance tax which, excluding deductions,
or legacy by the fiduciary heir or legatee to the interest and surcharge, would amount only to about P169.52.
trustees. If death is the generating source from which the power of the estate to
(c) The transmission from the first heir, legatee, or impose inheritance taxes takes its being and if, upon the death of the
donee in favor of another beneficiary, in accordance decedent, succession takes place and the right of the estate to tax vests
with the desire of the predecessor. instantly, the tax should be measured by the vlaue of the estate as it
In the last two cases, if the scale of taxation appropriate to stood at the time of the decedent's death, regardless of any subsequent
the new beneficiary is greater than that paid by the first, the contingency value of any subsequent increase or decrease in value. (61
former must pay the difference. C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft,
SEC. 1544. When tax to be paid. — The tax fixed in this article Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41;
shall be paid: 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an
(a) In the second and third cases of the next inheritance tax accrues at the moment of death, and hence is ordinarily
preceding section, before entrance into possession measured as to any beneficiary by the value at that time of such
of the property. property as passes to him. Subsequent appreciation or depriciation is
(b) In other cases, within the six months immaterial." (Ross, Inheritance Taxation, p. 72.)
subsequent to the death of the predecessor; but if Our attention is directed to the statement of the rule in Cyclopedia of
judicial testamentary or intestate proceedings shall Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the case of
be instituted prior to the expiration of said period, contingent remainders, taxation is postponed until the estate vests in
the payment shall be made by the executor or possession or the contingency is settled. This rule was formerly followed
administrator before delivering to each beneficiary in New York and has been adopted in Illinois, Minnesota, Massachusetts,
his share. Ohio, Pennsylvania and Wisconsin. This rule, horever, is by no means
If the tax is not paid within the time hereinbefore prescribed, entirely satisfactory either to the estate or to those interested in the
interest at the rate of twelve per centum per annum shall be property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its
added as part of the tax; and to the tax and interest due and anterior system, we find upon examination of cases and authorities that
unpaid within ten days after the date of notice and demand New York has varied and now requires the immediate appraisal of the
thereof by the collector, there shall be further added a postponed estate at its clear market value and the payment forthwith of
surcharge of twenty-five per centum. the tax on its out of the corpus of the estate transferred. (In
A certified of all letters testamentary or of admisitration shall re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App.
be furnished the Collector of Internal Revenue by the Clerk of Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N.
Court within thirty days after their issuance. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85
It should be observed in passing that the word "trustee", appearing in App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord
subsection (b) of section 1543, should read "fideicommissary" or "cestui Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas.,
que trust". There was an obvious mistake in translation from the Spanish 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
to the English version. But whatever may be the rule in other jurisdictions, we hold that a
The instant case does fall under subsection (a), but under subsection transmission by inheritance is taxable at the time of the predecessor's
(b), of section 1544 above-quoted, as there is here no fiduciary heirs, death, notwithstanding the postponement of the actual possession or
first heirs, legatee or donee. Under the subsection, the tax should have enjoyment of the estate by the beneficiary, and the tax measured by
been paid before the delivery of the properties in question to P. J. M. the value of the property transmitted at that time regardless of its
Moore as trustee on March 10, 1924. appreciation or depreciation.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as (c) Certain items are required by law to be deducted from the appraised
the real properties are concerned, did not and could not legally pass to gross in arriving at the net value of the estate on which the inheritance
the instituted heir, Matthew Hanley, until after the expiration of ten tax is to be computed (sec. 1539, Revised Administrative Code). In the
years from the death of the testator on May 27, 1922 and, that the case at bar, the defendant and the trial court allowed a deduction of
inheritance tax should be based on the value of the estate in 1932, or only P480.81. This sum represents the expenses and disbursements of
23
the executors until March 10, 1924, among which were their fees and ought not to be required to guess the outcome of pending measures. Of
the proven debts of the deceased. The plaintiff contends that the course, a tax statute may be made retroactive in its operation. Liability
compensation and fees of the trustees, which aggregate P1,187.28 for taxes under retroactive legislation has been "one of the incidents of
(Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup.
under section 1539 of the Revised Administrative Code which provides, Ct. Rep., 44.) But legislative intent that a tax statute should operate
in part, as follows: "In order to determine the net sum which must bear retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct.
the tax, when an inheritance is concerned, there shall be deducted, in Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602;
case of a resident, . . . the judicial expenses of the testamentary or Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S.,
intestate proceedings, . . . ." 221.) "A statute should be considered as prospective in its operation,
A trustee, no doubt, is entitled to receive a fair compensation for his whether it enacts, amends, or repeals an inheritance tax, unless the
services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But language of the statute clearly demands or expresses that it shall have
from this it does not follow that the compensation due him may lawfully a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph
be deducted in arriving at the net value of the estate subject to tax. of section 5 of Regulations No. 65 of the Department of Finance makes
There is no statute in the Philippines which requires trustees' section 3 of Act No. 3606, amending section 1544 of the Revised
commissions to be deducted in determining the net value of the estate Administrative Code, applicable to all estates the inheritance taxes due
subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a from which have not been paid, Act No. 3606 itself contains no
testamentary trust has been created, it does not appear that the testator provisions indicating legislative intent to give it retroactive effect. No
intended that the duties of his executors and trustees should be such effect can begiven the statute by this court.
separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 The defendant Collector of Internal Revenue maintains, however, that
App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the certain provisions of Act No. 3606 are more favorable to the taxpayer
contrary, in paragraph 5 of his will, the testator expressed the desire than those of Act No. 3031, that said provisions are penal in nature and,
that his real estate be handled and managed by his executors until the therefore, should operate retroactively in conformity with the provisions
expiration of the period of ten years therein provided. Judicial expenses of article 22 of the Revised Penal Code. This is the reason why he applied
are expenses of administration (61 C. J., p. 1705) but, in State vs. Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1)
Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it the surcharge of 25 per cent is based on the tax only, instead of on both
was said: ". . . The compensation of a trustee, earned, not in the the tax and the interest, as provided for in Act No. 3031, and (2) the
administration of the estate, but in the management thereof for the taxpayer is allowed twenty days from notice and demand by rthe
benefit of the legatees or devises, does not come properly within the Collector of Internal Revenue within which to pay the tax, instead of ten
class or reason for exempting administration expenses. . . . Service days only as required by the old law.
rendered in that behalf have no reference to closing the estate for the Properly speaking, a statute is penal when it imposes punishment for an
purpose of a distribution thereof to those entitled to it, and are not offense committed against the state which, under the Constitution, the
required or essential to the perfection of the rights of the heirs or Executive has the power to pardon. In common use, however, this sense
legatees. . . . Trusts . . . of the character of that here before the court, has been enlarged to include within the term "penal statutes" all status
are created for the the benefit of those to whom the property ultimately which command or prohibit certain acts, and establish penalties for their
passes, are of voluntary creation, and intended for the preservation of violation, and even those which, without expressly prohibiting certain
the estate. No sound reason is given to support the contention that such acts, impose a penalty upon their commission (59 C. J., p. 1110).
expenses should be taken into consideration in fixing the value of the Revenue laws, generally, which impose taxes collected by the means
estate for the purpose of this tax." ordinarily resorted to for the collection of taxes are not classed as penal
(d) The defendant levied and assessed the inheritance tax due from the laws, although there are authorities to the contrary. (See Sutherland,
estate of Thomas Hanley under the provisions of section 1544 of the Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468;
Revised Administrative Code, as amended by section 3 of Act No. 3606. 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs.
But Act No. 3606 went into effect on January 1, 1930. It, therefore, was Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25
not the law in force when the testator died on May 27, 1922. The law at Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the
the time was section 1544 above-mentioned, as amended by Act No. case at bar, and in the absence of clear legislative intent, we cannot give
3031, which took effect on March 9, 1922. Act No. 3606 a retroactive effect.
It is well-settled that inheritance taxation is governed by the statute in (e) The plaintiff correctly states that the liability to pay a tax may arise
force at the time of the death of the decedent (26 R. C. L., p. 206; 4 at a certain time and the tax may be paid within another given time. As
Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and stated by this court, "the mere failure to pay one's tax does not render
24
one delinqent until and unless the entire period has eplased within which p. 528) and, his estate ceased upon the fulfillment of the testator's
the taxpayer is authorized by law to make such payment without being wishes. The estate then vested absolutely in the beneficiary (65 C. J., p.
subjected to the payment of penalties for fasilure to pay his taxes within 542).
the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.) The highest considerations of public policy also justify the conclusion we
The defendant maintains that it was the duty of the executor to pay the have reached. Were we to hold that the payment of the tax could be
inheritance tax before the delivery of the decedent's property to the postponed or delayed by the creation of a trust of the type at hand, the
trustee. Stated otherwise, the defendant contends that delivery to the result would be plainly disastrous. Testators may provide, as Thomas
trustee was delivery to the cestui que trust, the beneficiery in this case, Hanley has provided, that their estates be not delivered to their
within the meaning of the first paragraph of subsection (b) of section beneficiaries until after the lapse of a certain period of time. In the case
1544 of the Revised Administrative Code. This contention is well taken at bar, the period is ten years. In other cases, the trust may last for fifty
and is sustained. The appointment of P. J. M. Moore as trustee was years, or for a longer period which does not offend the rule against
made by the trial court in conformity with the wishes of the testator as petuities. The collection of the tax would then be left to the will of a
expressed in his will. It is true that the word "trust" is not mentioned or private individual. The mere suggestion of this result is a sufficient
used in the will but the intention to create one is clear. No particular or warning against the accpetance of the essential to the very exeistence
technical words are required to create a testamentary trust (69 C. J., p. of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed.,
711). The words "trust" and "trustee", though apt for the purpose, are 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane
not necessary. In fact, the use of these two words is not conclusive on County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator
the question that a trust is created (69 C. J., p. 714). "To create a trust Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law.
by will the testator must indicate in the will his intention so to do by ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law.
using language sufficient to separate the legal from the equitable estate, ed., 773.) The obligation to pay taxes rests not upon the privileges
and with sufficient certainty designate the beneficiaries, their interest in enjoyed by, or the protection afforded to, a citizen by the government
the ttrust, the purpose or object of the trust, and the property or subject but upon the necessity of money for the support of the state (Dobbins
matter thereof. Stated otherwise, to constitute a valid testamentary trust vs. Erie Country, supra). For this reason, no one is allowed to object to
there must be a concurrence of three circumstances: (1) Sufficient or resist the payment of taxes solely because no personal benefit to him
words to raise a trust; (2) a definite subject; (3) a certain or ascertain can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep.,
object; statutes in some jurisdictions expressly or in effect so providing." 340; 43 Law. ed., 740.) While courts will not enlarge, by construction,
(69 C. J., pp. 705,706.) There is no doubt that the testator intended to the government's power of taxation (Bromley vs. McCaughn, 280 U. S.,
create a trust. He ordered in his will that certain of his properties be kept 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place
together undisposed during a fixed period, for a stated purpose. The upon tax laws so loose a construction as to permit evasions on merely
probate court certainly exercised sound judgment in appointment a fanciful and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed.
trustee to carry into effect the provisions of the will (see sec. 582, Code Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No.
of Civil Procedure). 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil.,
P. J. M. Moore became trustee on March 10, 1924. On that date trust 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz &
estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation
Procedure). The mere fact that the estate of the deceased was placed vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil.,
in trust did not remove it from the operation of our inheritance tax laws 803.) When proper, a tax statute should be construed to avoid the
or exempt it from the payment of the inheritance tax. The corresponding possibilities of tax evasion. Construed this way, the statute, without
inheritance tax should have been paid on or before March 10, 1924, to resulting in injustice to the taxpayer, becomes fair to the government.
escape the penalties of the laws. This is so for the reason already stated That taxes must be collected promptly is a policy deeply intrenched in
that the delivery of the estate to the trustee was in esse delivery of the our tax system. Thus, no court is allowed to grant injunction to restrain
same estate to the cestui que trust, the beneficiary in this case. A trustee the collection of any internal revenue tax ( sec. 1578, Revised
is but an instrument or agent for the cestui que trust (Shelton vs. King, Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of
299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to
accepted the trust and took possesson of the trust estate he thereby demonstrate trenchment adherence to this policy of the law. It held that
admitted that the estate belonged not to him but to his cestui que "the fact that on account of riots directed against the Chinese on October
trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). 18, 19, and 20, 1924, they were prevented from praying their internal
He did not acquire any beneficial interest in the estate. He took such revenue taxes on time and by mutual agreement closed their homes and
legal estate only as the proper execution of the trust required (65 C. J., stores and remained therein, does not authorize the Collector of Internal
25
Revenue to extend the time prescribed for the payment of the taxes or these two sums an additional two hundred per centum, or P965.16, we
to accept them without the additional penalty of twenty five per cent." have as primary tax, correctly computed by the defendant, the sum of
(Syllabus, No. 3.) P1,434.24.
". . . It is of the utmost importance," said the Supreme Court of the To the primary tax thus computed should be added the sums collectible
United States, ". . . that the modes adopted to enforce the taxes levied under section 1544 of the Revised Administrative Code. First should be
should be interfered with as little as possible. Any delay in the added P1,465.31 which stands for interest at the rate of twelve per
proceedings of the officers, upon whom the duty is developed of centum per annum from March 10, 1924, the date of delinquency, to
collecting the taxes, may derange the operations of government, and September 15, 1932, the date of payment under protest, a period
thereby, cause serious detriment to the public." (Dows vs. Chicago, 11 covering 8 years, 6 months and 5 days. To the tax and interest thus
Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., computed should be added the sum of P724.88, representing a
580.) surhcarge of 25 per cent on both the tax and interest, and also P10, the
It results that the estate which plaintiff represents has been delinquent compromise sum fixed by the defendant (Exh. 29), giving a grand total
in the payment of inheritance tax and, therefore, liable for the payment of P3,634.43.
of interest and surcharge provided by law in such cases. As the plaintiff has already paid the sum of P2,052.74, only the sums of
The delinquency in payment occurred on March 10, 1924, the date when P1,581.69 is legally due from the estate. This last sum is P390.42 more
Moore became trustee. The interest due should be computed from that than the amount demanded by the defendant in his counterclaim. But,
date and it is error on the part of the defendant to compute it one month as we cannot give the defendant more than what he claims, we must
later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. hold that the plaintiff is liable only in the sum of P1,191.27 the amount
Posadas, supra), and neither the Collector of Internal Revenuen or this stated in the counterclaim.
court may remit or decrease such interest, no matter how heavily it may The judgment of the lower court is accordingly modified, with costs
burden the taxpayer. against the plaintiff in both instances. So ordered.
To the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the Collector of Internal Revenue, a
surcharge of twenty-five per centum should be added (sec. 1544,
subsec. (b), par. 2, Revised Administrative Code). Demand was made
by the Deputy Collector of Internal Revenue upon Moore in a
communiction dated October 16, 1931 (Exhibit 29). The date fixed for
the payment of the tax and interest was November 30, 1931. November
30 being an official holiday, the tenth day fell on December 1, 1931. As
the tax and interest due were not paid on that date, the estate became
liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the
fifth error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge
due from the estate of Thomas Hanley inaccordance with the
conclusions we have reached.
At the time of his death, the deceased left real properties valued at
P27,920 and personal properties worth P1,465, or a total of P29,385.
Deducting from this amount the sum of P480.81, representing allowable
deductions under secftion 1539 of the Revised Administrative Code, we
have P28,904.19 as the net value of the estate subject to inheritance
tax.
The primary tax, according to section 1536, subsection (c), of the
Revised Administrative Code, should be imposed at the rate of one per
centum upon the first ten thousand pesos and two per centum upon the
amount by which the share exceed thirty thousand pesos, plus an
additional two hundred per centum. One per centum of ten thousand
pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to
26
In the matter of the testate estate of the late Margarita David. charging should be estimated not only on the basis of the inventoried
GONZALO D. DAVID, petitioner-appellant, estate but including besides the income thereof for two and one-half
vs. years, totalling P1,627,507.24, the 5 per cent thereof would amount to
CARLOS SISON, oppositor-appellant. P81,375.36, more or less.
1.DONATIONS; "MORTIS CAUSA"; OWNERSHIP, ELEMENTS OF.— The oppositor contended that the amount granted by the lower court is
The donation is mortis causa because the combined effects of the exorbitant, but failed to state in his brief what reasonable amount should
circumstances surrounding the execution of the deed of donation and be. At the hearing of this case he manifested he would consider
the clauses thereof could not have taken effect before the death of reasonable the amount of P3,000, although he would not mind any
the donor, M. D. According to the terms of the deed, the most amount that may be fixed, provided the payment of any part of said
essential .elements of ownership—the right to dispose of the donated attorney's fees would not be shouldered by his wife, Priscila F. Sison,
properties and the right to enjoy the products, profits, possession— one of the heiresses of the estate, nor affected any part of the property
remained with the donor during her lifetime, and would accrue to the adjudicated to her.
donees only after the donor's death. From the above, it can be seen that the two contending parties went to
2.ID.; ID.; PROPERTIES INCLUDED.—There being enough properties possible extremes, allowed by their respective feelings and imaginations,
not included in the donation to answer for the obligations of the and that the reasonable amount should be found between the two
estate of the deceased, the donated properties, which were the extremes. It is inconceivable that two reasonable persons, such as we
object of extrajudicial partition between the donees, are not presume the petitioner and the oppositor to be, neither one showing
answerable for the obligations left by said deceased. that he is beyond any standard of normality, both cultured and trained
3.HEIR, LEGATEE, OR DEVISEE, OBLIGATIONS OF.—No heir, in the science of law, disagree from P3,000 to P81,375.36 in appraising
legatee, or devisee may elude the payment of any obligation of the the pecuniary value of the legal services in question. The reason for this
estate in which the estate as a whole is answerable, and no so wide a difference must be found in the fact that both allowed
discrimination can be made in favor of or against any heir or heiress. themselves to give way, not to fair dealing and fair judgment, but to
4.ATTORNEY'S FEES; How FIXED.—In estimating the attorney's fees uncontrollable emotions aroused by intransigent conflict of monetary
that should be awarded to petitioner, consideration must be taken of interest.
the fact that the services appear to be generally of routinary The parties thresh in this appeal three main questions:
character, not needing any special skill and the exercise of unusual (1) Whether the donation executed by the deceased on September 6,
efforts, nor the employment of long hours of legal study and 1940, as appears in Exhibit FFFFF, should be considered as inter
research, nor the waste or expenditure of extraordinary length of vivos or mortis causa, the parties placing great importance on this
time that might deprive him of the opportunity to render legal question under the theory that, in the first place, the donated properties
services in other cases and collect profitable legal fees, and of the must be excluded from the estate proceedings; but in case the donation
fact that petitioner is a near relative of the deceased and would have is mortis causa, that should be included in the inventory of the estate.
received a substantial share in the properties left by the deceased, if (2) Whether heiress Priscila F. Sison should or should not shoulder the
the latter had died intestate and had not decided to adopt as her corresponding burden in the payment of petitioner's fees for the
children two nieces who were in the same rank of relationship with properties adjudicated to her.
the deceased as petitioner. David vs. Sison, 76 Phil. 418, No. 49108 (3) The reasonable amount that must be granted to petitioner as
March 28, 1946 attorney's fees.
The lower court, after considering the facts in the case, arrived at the
conclusion that the donation was inter vivos, on the strength of the
PERFECTO, J.: doctrine that a donation in order to be mortis causa must have for
This is an appeal against a resolution issued by Judge Gervasio Diaz, of consideration the donor's death.
the Court of First Instance of Manila, ordering the administrator of the We do not have before us the full text of the deed of donation, but only
estate of Margarita David to pay petitioner as attorney's fees, for the following paragraphs of the same as quoted in the record on appeal
services rendered to the estate, from March, 1941, to March, 1943, in of petitioner and in the briefs of both parties:
the amount of P18,000. "Na and naturang "donor," Margarita David y Puato, alang-
In the petition filed in the lower court on March 24, 1943, petitioner alang sa malaki niyang pagtiñgin, pagliñgap at pagmamahal
prayed that he be awarded an amount equivalent to 5 per cent of the sa mga nabanguit na "donees" Narcisa de la Fuente at Priscila
original inventoried estate, namely, the sum of P72, 779.10, although in de la Fuente, sa pamamagitan nang kasulatang ito, malayang
his brief, dated April 11, 1944, he claims that the 5 per cent he is ibinigay at ipinagkakaloob sa mga naturang Narcisa de la
27
Fuente at Priscila de la Fuente, at sa kanilang mga (9) That from the execution of the deed of donation up to the donor's
tagapagmana, "albacea" at "Administradores", sa habang death, the donation properties remained in her office entitled:
panahon, ang kanyang mga titulo, interes at participacion sa "Margarita David, Administrator's office."
mag sumusunod na ari-arian na pawang malines sa lahat (10) That Margarita David has reserved to herself the usufruct of all the
nang mga pananagutan: (Rec. on Appeal, pp. 209, 210.) donated properties during her lifetime, and provided that the donated
Datapwa't ang lahat nang mga tubo at pakinabangan nang properties could not be alienated by the donees without the knowledge
nagbibigay o "donor" na si Margarita David y Puato hanggang and consent of the donor, Margarita David.
siya ay hindi binabawian nang buhay nang maykapal; at ang (11) That the donees, being the universal heirs of Margarita David, as
mga pinagbibigyan na si Narcisa de la Fuente at Priscila de la her adopted daughters, without the deed of donation or any will, were
Fuente ay hindi maaaring maipagbili, maisangal, a to inherit the donated properties by operation of law.
maipagpalit o sa ano pa man paraan, kung walang kaalaman Petitioner mentions, furthermore, that by the adoption of the above-
at pahintulot nang naturang Margarita David y Puato. (Rec. mentioned grandnieces, the inheritance tax was reduced to about one-
on Appeal, pp. 212, 213.) third of the amount it would have been paid if the said grandnieces were
The following facts are pointed to us concerning the deed of donation: not adopted as children of Margarita David, the inheritance tax actually
(1) That on December 20, 1938, Margarita David executed her first and paid being P224,000, while, otherwise, the amount would have been
only last will and testament in favor of her grandnieces Narcisa de la P672,000; and, lastly, the tax to be paid could have been further
Fuente de Teodoro and Priscila de la Fuente de Sison as residuary reduced by the execution of the deed of donation, as the rate schedule
heiresses, and other relatives of the same degree as legatees and for gift tax is lower than the rate schedule for inheritance tax.
devisees. In one of the paragraphs of the deed of donation above quoted, it
(2) That on October 21, 1939, Margarita David adopted, in special appears that all rents, proceeds, fruits, of the donated properties shall
proceedings No. 55861 of the Court of First Instance of Manila, said remain for the exclusive benefit and disposal of the donor, Margartia
grandnieces Narcisa de la Fuente de Teodoro and Priscila de la Fuente David, during her lifetime; and that, without the knowledge consent of
de Sison, making them her adopted children. the donor, the donated properties could not be disposed of in any way,
(3) That on September 6, 1940, Margarita David executed the deed of whether by sale, mortgage, barter, or in any other way possible, thus
donation in question in favor of her newly adopted children, the same making the donees just as paper owners of the properties which , for all
testamentary residuary heiresses, donating to them practically the same practical purposes, remained the properties of Margarita David.
properties disposed of in the will. From all the foregoing, we conclude that the donation in question is, in
(4) That on November 18, 1940, the Collector of Internal Revenue fact, a donation mortis causa, because the combined effect of the
rejected the donor's and donee's gift tax returns on the deed of donation circumstances surrounding the execution of the deed of donation and of
in question, on the ground that the donation is a transfer in the above-quoted clauses thereof could not have taken effect before the
contemplation of death and subject to an estate and inheritance taxes, death of Margarita David. According to the terms of the deed, the most
which should be paid upon Margarita David's death in accordance with essential elements of ownership — the right to dispose of the donated
section paid upon Margarita David's death in accordance with section 88 properties and the right to enjoy the products, profits, possession —
(b) of the Internal Revenue Code. remained with Margarita David during her lifetime, and would accrue to
(5) That, in fact, after the death of Margarita David the estate and the donees only after Margarita David's death.
inheritance taxes on the properties were paid. Although we arrived at the conclusion that the donation in question is a
(6) That, acting upon the claim made by the probate clerk and by the donation mortis causa, we are not inclined to support petitioner's
cashier of the Court of First Instance of Manila, said court ordered the contention that, in the present case, the donated properties should be
executor to pay an additional docketing fee of P786 based on the included in the inventory of the estate and should follow the same
inventory of the estate as valued at P1,415,581.99, including the proceedings as if they were not donated at all, it appearing that the
properties disposed of in the deed of donation. donated properties (which, by the way, were the object of an
(7) That when Margarita David signed the deed of donation she was extrajudicial partition between the donees) are not necessary to answer
already irretrievably ill and she knew that the end was near and for the obligation left by the deceased, there being enough properties
inevitable. not included in the donation to answer for said obligations.
(8) That since the donation was executed on September 6, 1940, until The second question, that is, whether heiress Priscila F. Sison should or
Margarita David's death on February 24, 1941, less than six months had should not shoulder the corresponding burden in the payment of
elapsed. petitioner's fees for the properties adjudicated to her, our opinion is that
the question must be answered affirmatively. No heir, legatee, or
28
devisee may elude the payment of any obligation of the estate which
should be answered by the estate as a whole in which no discrimination
can be made in favor of or against any heir or heiress.
The third question is not so easy to dispose of, as no fast rules can be
se up upon which the reasonable attorney's fees of petitioner can be
estimated with mathematical accuracy.
Memorandum of legal services rendered by petitioner from March, 1941,
to March, 1943, appears as part of his petition dated March 24, 1943,
reproduced in his record on appeal, pages 6 to 42. An additional
memorandum of services rendered until August, 1943, is included in the
supplement pleading, pages 121-128 of the same record on appeal.
We have examined both memoranda of legal services and, although
petitioner spent about two years and a half, the services appear to be
generally of routinary character, not needing any special skill nor the
exertion of unusual efforts, nor the employment of long hours of legal
study and research, nor the waste or expenditure of extraordinary length
of time that might deprive him of the opportunity to render legal services
in other cases and collect profitable legal fees.
But, at the same time, while there is nothing in the services to require
of justify a special compensation, in estimating the reasonable fees that
should be awarded to petitioner, we have considered, among other
factors and circumstances, the length of time which ran from the first
service to the last — around two years and a half — the number of
services rendered, and the fact that petitioner, being a near relative of
the deceased, would have received a substantial share in the numerous
properties left by the deceased, if the latter had died intestate and had
not decided to adopt as her children two nieces who were in the same
rank of relationship with the deceased as petitioner. It appears that
petitioner had received only a small legacy valued at less than P1,000.
After considering all the facts and circumstances in this case, in an effort
to fix an amount that could be as reasonable as possible, the court
decided that petitioner is entitled to the sum of P10,000, as attorney's
fees, to be paid by the estate of the deceased Margarita David, and so
modify the appealed resolution, without pronouncement as to costs.

29
Testate Estate of the Late Felix J. de Guzman. VICTORINO G. should be charged against the income of the estate. Librada de
DE GUZMAN, administrator-appellee, Guzman, as an heir, is entitled to share in the net income of the
vs. estate. She occupied the house without paying rent. She should use
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and her income for her living expenses while occupying the family
HONORATA DE GUZMAN-MENDIOLA, oppositors-appellants. residence. The trial court erred in approving those expenses in the
Emiliano Samson & R. Balderama-Samson for appellants. administrator’s accounts. They should be, as they are hereby,
Cezar Paralejo for appellee. disallowed (See 33 C.J.S. 1239-40).
Settlement of Estate; Powers and duties of the administrator of a
decedent’s estate in the matter of expenses for management and Same; Expenses for stenographic notes, representation expenses
settlement thereof.—An executor or administrator is allowed the when unexplained, expenses to celebrate first death anniversary of
necessary expenses in the care, management, and settlement of the the deceased are not chargeable against the estate.—Among these
estate. He is entitled to possess and manage the decedent’s real and expenses is the sum of P100 for stenographic notes which, as
personal estate as long as it is necessary for the payment of the debts admitted by the administrator on page 24 of his brief, should be
and the expenses of administration. He is accountable for the whole disallowed. Another item, “representation expenses” in the sum of
decedent’s estate which has come into his possession, with all the P26.25 (2nd accounting), was not explained. It should likewise be
interest, profit, and income thereof, and with the proceeds of so disallowed. The probate court erred in allowing as expenses of
much of such estate as is sold by him, at the price at which it was administration the sum of P268.65 which was incurred during the
sold (Sec. 3, Rule 84; secs. 1 and 7, Rule 85, Rules of Court). celebration of the first death anniversary of the deceased. Those
expenses are disallowed because they have no connection with the
Same; Expenses of the administrator to preserve the family home care, management and settlement of the decedent’s estate (Nicolas
and maintain family’s social standing may be approved.—It should vs. Nicolas, 63 Phil. 332).
be noted that the family residence was partitioned pro-indiviso
among the decedent’s eight children. Each one of them was given a Same; Lawyer’s fee and cost of a gift to doctor who attended the
one-eight share in conformity with the testator’s will. Five of the eight deceased in his last illness is a valid charge against the estate.—The
co-owners consented to the use of the funds of the estate for repair other expenses, namely, P19.30 for the lawyer’s subsistence and
and improvement of the family home. It is obvious that the expenses P144 as the cost of the fit to the physician who attended to the
in question were incurred to preserve the family home and to testator during his last illness, are allowable expenses.
maintain the family’s social standing in the community. Obviously,
those expenses redounded to the benefit of all the co-owners. They AQUINO, J.:
were necessary for the preservation and use of the family residence. This case is about the propriety of allowing as administration expenses
As a result of those expenses, the co-owners, including the three certain disbursements made by the administrator of the testate estate
oppositors, would be able to use the family home in comfort, of the late Felix J. de Guzman of Gapan, Nueva Ecija.
convenience and security. We hold that the probate court did not err The deceased testator was survived by eight children named Victorino,
in approving the use of the income of the estate to defray those Librada, Severino, Margarita, Josefina, Honorata, Arsenio and Crispina.
expenses. His will was duly probated. Letters of administration were issued to his
son, Doctor Victorino G. de Guzman, pursuant to the order dated
Same; Personal expenses of the occupant heir of the family residence September 17, 1964 of the Court of First Instance of Nueva Ecija in
e.g., salary of household help, light and water bills, cost of gas, oil Special Proceeding No. 1431.
floor wax and switch nail, may not be charged against the estate.— One of the properties left by the dent was a residential house located in
The probate court allowed the income of the estate to be used for the poblacion. In conformity with his last will, that house and the lot on
those expenses on the theory that the occupancy of the house by which it stands were adjudicated to his eight children, each being given
one heir did not deprive the other seven heirs from living in it. Those a one-eighth proindiviso share in the project of partition dated March
expenses consist of the salaries of the house helper, light and water 19, 1966, which was signed by the eight heirs and which was approved
bills, and the cost of gas, oil, floor wax and switch nail. We are of the in the lower court's order of April 14, 1967 but without prejudice to the
opinion that those expenses were personal expenses of Librada de final outcome of the accounting.
Guzman, unuring mainly to her benefit Those expenses, not being The administrator submitted four accounting reports for the period from
reasonable administration expenses incurred by the administrator, June 16, 1964 to September, 1967. Three heirs Crispina de Guzmans-
Carillo Honorata de Guzman-Mendiola and Arsenio de Guzman
30
interposed objections to the administrator's disbursements in the total him, at the price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7,
sum of P13,610.48, broken down as follows: Rule 85, Rules of Court).
I. Expense for the improvement and renovation of the decedent's One of the Conditions of the administrator's bond is that he should
residential house. render a true and just account of his administration to the court. The
1. Construction of fence — P3,082.07 court may examine him upon oath With respect to every matter relating
2. Renovation of bathroom — P1,389.52 to his accounting 't and shall so examine him as to the correctness of
3. Repair of terrace and his account before the same is allowed, except when no objection is
interior of house — P5,928.00 — P10,399.59 made to the allowance of the account and its correctness is satisfactorily
II. Living expenses of Librada de Guzman while occupying the family established by competent proof. The heirs, legatees, distributes, and
home without paying rent: creditors of the estate shall have the same privilege as the executor or
1. For house helper — P1,170.00 administrator of being examined on oath on any matter relating to an
2. Light bills — 227.41 administration account." (Sec. 1[c] Rule 81 and secs. 8 and 9, Rule 85,
3. Water bills — 150.80 Rules of Court).
4. Gas oil, floor wax A hearing is usually held before an administrator's account is approved,
and switch nail — 54.90 — P 1,603.11 especially if an interested Party raises objections to certain items in the
III. Other expenses: accounting report (Sec. 10, Rule 85).
1. Lawyer's subsistence — P 19.30 At that hearing, the practice is for the administrator to take the witness
2. Gratuity pay in lieu stand, testify under oath on his accounts and Identify the receipts,
of medical fee — 144.00 vouchers and documents evidencing his disbursements which are
3. For stenographic notes — 100.00 offered as exhibits. He may be interrogated by the court and crossed by
4. For food served on the oppositors's counsel. The oppositors may present proofs to rebut the
decedent's first ad. administrator's evidence in support of his accounts.
death anniversary — 166.65 I. Expenses for the renovation and improvement of the family residence
5. Cost of publication of — P10,399.59. — As already shown above, these expenses consisted of
death anniversary disbursements for the repair of the terrace and interior of the family
of decedent — 102.00 home, the renovation of the bathroom, and the construction of a fence.
6. Representation The probate court allowed those expenses because an administrator has
expenses — 26.25 — P558.20 the duty to "maintain in tenantable repair the houses and other
IV. Irrigation fee P1.049.58 structures and fences belonging to the estate, and deliver the same in
TOTAL P13,610.48 such repair to the heirs or devises" when directed to do so by the court
It should be noted that the probate court in its order of August 29, 1966 (Sec. 2, Rule 84, Rules of Court).
directed the administrator "to refrain from spending the assets of the On the other hand, the oppositors-appellants contend that the trial court
estate for reconstructing and remodeling the house of the deceased and erred in allowing those expenses because the same did not come within
to stop spending (sic) any asset of the estate without first during the category of necessary expenses of administration which are
authority of the court to do so" (pp. 26-27, Record on Appeal). understood to be the reasonable and necessary expenses of caring for
The lower court in its order of April 29, 1968 allowed the d items as the property and managing it until the debts are paid and the estate is
legitimate expenses of administration. From that order, the three partitioned and distributed among the heirs (Lizarraga Hermanos vs.
oppositors appealed to this Court. Their contention is that the probate Abada, 40 Phil. 124).
court erred in approving the utilization of the income of the estate (from As clarified in the Lizarraga case, administration expenses should be
rice harvests) to defray those expenditures which allegedly are not those which are necessary for the management of the estate, for
allowable under the Rules of Court. protecting it against destruction or deterioration, and, possibly, for the
An executor or administrator is allowed the necessary expenses in the production of fruits. They are expenses entailed for the preservation and
care, management, and settlement of the estate. He is entitled to productivity of the estate and its management for purposes of
possess and manage the decedent's real and personal estate as long as liquidation, payment of debts, and distribution of the residue among the
it is necessary for the payment of the debts and the expenses of persons entitled thereto.
administration. He is accountable for the whole decedent's estate which It should be noted that the family residence was
has come into his possession, with all the interest, profit, and income partitioned proindiviso among the decedent's eight children. Each one
thereof, and with the proceeds of so much of such estate as is sold by of them was given a one-eighth share in conformity with the testator's
31
will. Five of the eight co-owners consented to the use of the funds of treated as "assumed expenses" deducted as farming expenses from the
the estate for repair and improvement of the family home. It is obvious value of the net harvests.
that the expenses in question were incurred to preserve the family home The explanation is not quite clear but it was not disputed by the
and to maintain the family's social standing in the community. appellants. The fact is that the said sum of P1,049.58 was paid by the
Obviously, those expenses redounded to the benefit of an the co- administrator to the Penaranda Irrigation System as shown in Official
owners. They were necessary for the preservation and use of the family Receipt No. 3596378 dated April 28, 1967. It was included in his
residence. As a result of those expenses, the co-owners, including the accounting as part of the farming expenses. The amount was properly
three oppositors, would be able to use the family home in comfort, allowed as a legitimate expense of administration.
convenience and security. WHEREFORE, the lower court's order of April 29, 1968 is affirmed with
We hold that the probate court did not err in approving the use of the the modifications that the sum of (a) P1,603.11 as the living expenses
income of the estate to defray those ex of Librada de Guzman. (b) P100 for stenographic notes, (c) P26.25 as
II. Expenses incurred by Librada de Guzman as occupant of the family representation expenses, and (d) P268.65 as expenses for the
residence without paying rent — P1 603.11 — The probate court allowed celebration of the first anniversary of the decedent's death are
the income of the estate to be used for those expenses on the theory disallowed in the administrator's accounts. No costs.
that the occupancy of the house by one heir did not deprive the other SO ORDERED.
seven heirs from living in it. Those expenses consist of the salaries of
the house helper, light and water bills, and the cost of gas, oil floor wax
and switch nail
We are of the opinion that those expenses were personal expenses of
Librada de Guzman, inuring y to her benefit. Those expenses, not being
reasonable administration expenses incurred by the administrator,
should not be charged against the income of the estate.
Librada de Guzman, as an heir, is entitled to share in the net income of
the estate. She occupied the house without paying rent. She should use
her income for her living expenses while occupying the family residence.
The trial court erred in approving those expenses in the administrator's
accounts. They should be, as they are hereby, disallowed (See 33 C.J.S
1239-40).
III. Other expenses — P558.20. — Among these expenses is the sum of
P100 for stenographic notes which, as admitted by the administrator on
page 24 of his brief, should be disallowed. Another item, "representation
expenses" in the sum of P26.25 (2nd accounting), was not explained. it
should likewise be disallowed.
The probate court erred in allowing as expenses of ad. administration
the sum of P268.65 which was incurred during the celebration of the
first death anniversary of the deceased. Those expenses are disallowed
because they have no connection with the care, management and
settlement of the decedent's estate (Nicolas vs. Nicolas 63 Phil 332).
The other expenses, namely, P19.30 for the lawyer's subsistence and
P144 as the cost of the gift to the physician who attended to the testator
during his last s are allowable expenses.
IV. Irrigation fee — P1,049.58. —The appellants question the
deductibility of that expense on the ground that it seems to be a
duplication of the item of P1,320 as irrigation fee for the same 1966-67
crop-year.
The administrator in his comment filed on February 28, 1978 explained
that the item of P1,320 represented the "allotments" for irrigation fees
to eight tenants who cultivated the Intan crop, which allotments were
32
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. Special Proceedings No. 2399. On July 18, 1988, the trial court appointed
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. Josefina Pajonar as the regular administratrix of Pedro Pajonar's estate.
PAJONAR, as Administratrix of the Estate of Pedro P. On December 19, 1988, pursuant to a second assessment by the BIR
Pajonar, respondents. for deficiency estate tax, the estate of Pedro Pajonar paid estate tax in
RESOLUTION the amount of P1,527,790.98. Josefina Pajonar, in her capacity as
Taxation; Administration expenses construed to include all expenses administratrix and heir of Pedro Pajonar's estate, filed a protest on
essential to the collection of the assets, payment of debts or the January 11, 1989 with the BIR praying that the estate tax payment in
distribution of the property to the persons entitled to it.—Judicial the amount of P1,527,790.98, or at least some portion of it, be returned
expenses are expenses of administration. Administration expenses, to the heirs.[3] Jur-is
as an allowable deduction from the gross estate of the decedent for However, on August 15, 1989, without waiting for her protest to be
purposes of arriving at the value of the net estate, have been resolved by the BIR, Josefina Pajonar filed a petition for review with the
construed by the federal and state courts of the United States to Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or
include all expenses “essential to the collection of the assets, in the alternative, P840,202.06, as erroneously paid estate tax.[4] The
payment of debts or the distribution of the property to the persons case was docketed as CTA Case No. 4381.
entitled to it.” In other words, the expenses must be essential to the On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue
proper settlement of the estate. Expenditures incurred for the to refund Josefina Pajonar the amount of P252,585.59, representing
individual benefit of the heirs, devisees or legatees are not erroneously paid estate tax for the year 1988.[5]
deductible. Among the deductions from the gross estate allowed by the CTA were
the amounts of P60,753 representing the notarial fee for the
Extrajudicial Settlement and the amount of P50,000 as the attorney's
GONZAGA-REYES, J.: Supr-ema fees in Special Proceedings No. 1254 for guardianship.[6]Juri-ssc
Assailed in this petition for review on certiorari is the December 21, 1995 On June 15, 1993, the Commissioner of Internal Revenue filed a motion
Decision[1] of the Court of Appeals[2] in CA-G.R. Sp. No. 34399 affirming for reconsideration[7] of the CTA's May 6, 1993 decision asserting,
the June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case among others, that the notarial fee for the Extrajudicial Settlement and
No. 4381 granting private respondent Josefina P. Pajonar, as the attorney's fees in the guardianship proceedings are not deductible
administratrix of the estate of Pedro P. Pajonar, a tax refund in the expenses.
amount of P76,502.42, representing erroneously paid estate taxes for On June 7, 1994, the CTA issued the assailed Resolution[8] ordering the
the year 1988. Commissioner of Internal Revenue to refund Josefina Pajonar, as
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
during the second World War, was a part of the infamous Death March representing erroneously paid estate tax for the year 1988. Also, the
by reason of which he suffered shock and became insane. His sister CTA upheld the validity of the deduction of the notarial fee for the
Josefina Pajonar became the guardian over his person, while his Extrajudicial Settlement and the attorney's fees in the guardianship
property was placed under the guardianship of the Philippine National proceedings.
Bank (PNB) by the Regional Trial Court of Dumaguete City, Branch 31, On July 5, 1994, the Commissioner of Internal Revenue filed with the
in Special Proceedings No. 1254. He died on January 10, 1988. He was Court of Appeals a petition for review of the CTA's May 6, 1993 Decision
survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his and its June 7, 1994 Resolution, questioning the validity of the
sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog abovementioned deductions. On December 21, 1995, the Court of
and niece Conchita Jandog. Appeals denied the Commissioner's petition.[9]
On May 11, 1988, the PNB filed an accounting of the decedent's property Hence, the present appeal by the Commissioner of Internal Revenue.
under guardianship valued at P3,037,672.09 in Special Proceedings No. The sole issue in this case involves the construction of section 79 [10] of
1254. However, the PNB did not file an estate tax return, instead it the National Internal Revenue Code[11] (Tax Code) which provides for
advised Pedro Pajonar's heirs to execute an extrajudicial settlement and the allowable deductions from the gross estate of the decedent. More
to pay the taxes on his estate. On April 5, 1988, pursuant to the particularly, the question is whether the notarial fee paid for the
assessment by the Bureau of Internal Revenue (BIR), the estate of extrajudicial settlement in the amount of P60,753 and the attorney's
Pedro Pajonar paid taxes in the amount of P2,557. fees in the guardianship proceedings in the amount of P50,000 may be
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial allowed as deductions from the gross estate of decedent in order to
Court of Dumaguete City for the issuance in her favor of letters of arrive at the value of the net estate.
administration of the estate of her brother. The case was docketed as
33
We answer this question in the affirmative, thereby upholding the necessary business expense deductible from the
decisions of the appellate courts. J-jlex gross estate of the decedent.[12]
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus: Upon a motion for reconsideration filed by the Commissioner of Internal
Respondent maintains that only judicial expenses of Revenue, the Court of Tax Appeals modified its previous ruling by
the testamentary or intestate proceedings are reducing the refundable amount to P76,502.43 since it found that a
allowed as a deduction to the gross estate. The deficiency interest should be imposed and the compromise penalty
amount of P60,753.00 is quite extraordinary for a excluded.[13] However, the tax court upheld its previous ruling regarding
mere notarial fee. the legality of the deductions -
This Court adopts the view under American It is significant to note that the inclusion of the
jurisprudence that expenses incurred in the estate tax law in the codification of all our national
extrajudicial settlement of the estate should be internal revenue laws with the enactment of the
allowed as a deduction from the gross estate. National Internal Revenue Code in 1939 were
"There is no requirement of formal administration. copied from the Federal Law of the United States.
It is sufficient that the expense be a necessary [UMALI, Reviewer in Taxation (1985), p. 285 ] The
contribution toward the settlement of the case." [ 1977 Tax Code, promulgated by Presidential Decree
34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in No. 1158, effective June 3, 1977, reenacted
Taxation, 10th Ed. (1990), p. 481 ] substantially all the provisions of the old law on
xxx.....xxx.....xxx estate and gift taxes, except the sections relating to
The attorney's fees of P50,000.00, which were the meaning of gross estate and gift. [ Ibid, p. 286.
already incurred but not yet paid, refers to the ] Nc-mmis
guardianship proceeding filed by PNB, as guardian In the United States, [a]dministrative expenses,
over the ward of Pedro Pajonar, docketed as Special executor's commissions and attorney's fees are
Proceeding No. 1254 in the RTC (Branch XXXI) of considered allowable deductions from the Gross
Dumaguete City. x x x Estate. Administrative expenses are limited to such
xxx.....xxx.....xxx expenses as are actually and necessarily incurred in
The guardianship proceeding had been terminated the administration of a decedent's estate.
upon delivery of the residuary estate to the heirs [PRENTICE-HALL, Federal Taxes Estate and Gift
entitled thereto. Thereafter, PNB was discharged of Taxes (1936), p. 120, 533. ] Necessary expenses of
any further responsibility. administration are such expenses as are entailed for
Attorney's fees in order to be deductible from the the preservation and productivity of the estate and
gross estate must be essential to the collection of for its management for purposes of liquidation,
assets, payment of debts or the distribution of the payment of debts and distribution of the residue
property to the persons entitled to it. The services among the persons entitled thereto. [Lizarraga
for which the fees are charged must relate to the Hermanos vs. Abada, 40 Phil. 124. ] They must be
proper settlement of the estate. [ 34 Am. Jur. 2d incurred for the settlement of the estate as a whole.
767. ] In this case, the guardianship proceeding [34 Am. Jur. 2d, p. 765. ] Thus, where there were
was necessary for the distribution of the property no substantial community debts and it was
of the late Pedro Pajonar to his rightful heirs. Sc- unnecessary to convert community property to
juris cash, the only practical purpose of administration
xxx.....xxx.....xxx being the payment of estate taxes, full deduction
PNB was appointed as guardian over the assets of was allowed for attorney's fees and miscellaneous
the late Pedro Pajonar, who, even at the time of his expenses charged wholly to decedent's estate. [
death, was incompetent by reason of insanity. The Ibid., citing Estate of Helis, 26 T .C. 143 (A). ]
expenses incurred in the guardianship proceeding Petitioner stated in her protest filed with the BIR
was but a necessary expense in the settlement of that "upon the death of the ward, the PNB, which
the decedent's estate. Therefore, the attorney's fee was still the guardian of the estate, (Annex 'Z' ), did
incurred in the guardianship proceedings not file an estate tax return; however, it advised the
amounting to P50,000.00 is a reasonable and heirs to execute an extrajudicial settlement, to pay
34
taxes and to post a bond equal to the value of the administrator's fees, attorney's fees, court fees and
estate, for which the estate paid P59,341.40 for the charges, appraiser's fees, clerk hire, costs of
premiums. (See Annex 'K')." [p. 17, CTA record. ] preserving and distributing the estate and storing
Therefore, it would appear from the records of the or maintaining it, brokerage fees or commissions for
case that the only practical purpose of settling the selling or disposing of the estate, and the like.
estate by means of an extrajudicial settlement Deductible attorney's fees are those incurred by the
pursuant to Section 1 of Rule 74 of the Rules of executor or administrator in the settlement of the
Court was for the payment of taxes and the estate or in defending or prosecuting claims against
distribution of the estate to the heirs. A fortiori, or due the estate. (Estate and Gift Taxation in the
since our estate tax laws are of American origin, the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176 ).
interpretation adopted by American Courts has xxx.....xxx.....xxx
some persuasive effect on the interpretation of our It is clear then that the extrajudicial settlement was
own estate tax laws on the subject. for the purpose of payment of taxes and the
Anent the contention of respondent that the distribution of the estate to the heirs. The execution
attorney's fees of P50,000.00 incurred in the of the extrajudicial settlement necessitated the
guardianship proceeding should not be deducted notarization of the same. Hence the Contract of
from the Gross Estate, We consider the same Legal Services of March 28, 1988 entered into
unmeritorious. Attorneys' and guardians' fees between respondent Josefina Pajonar and counsel
incurred in a trustee's accounting of a taxable inter was presented in evidence for the purpose of
vivos trust attributable to the usual issues involved showing that the amount of P60,753.00 was for the
in such an accounting was held to be proper notarization of the Extrajudicial Settlement. It
deductions because these are expenses incurred in follows then that the notarial fee of P60,753.00 was
terminating an inter vivos trust that was includible incurred primarily to settle the estate of the
in the decedent's estate. (Prentice Hall, Federal deceased Pedro Pajonar. Said amount should then
Taxes on Estate and Gift, p.120, 861] Attorney's be considered an administration expenses actually
fees are allowable deductions if incurred for the and necessarily incurred in the collection of the
settlement of the estate. It is noteworthy to point assets of the estate, payment of debts and
that PNB was appointed the guardian over the distribution of the remainder among those entitled
assets of the deceased. Necessarily the assets of thereto. Thus, the notarial fee of P60,753 incurred
the deceased formed part of his gross estate. for the Extrajudicial Settlement should be allowed
Accordingly, all expenses incurred in relation to the as a deduction from the gross estate.
estate of the deceased will be deductible for estate 3. Attorney's fees, on the other hand, in order to be
tax purposes provided these are necessary and deductible from the gross estate must be essential
ordinary expenses for administration of the to the settlement of the estate. Acctmis
settlement of the estate. [14]
The amount of P50,000.00 was incurred as
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, attorney's fees in the guardianship proceedings in
the Court of Appeals held that: Newmiso Spec. Proc. No. 1254. Petitioner contends that said
2. Although the Tax Code specifies "judicial amount are not expenses of the testamentary or
expenses of the testamentary or intestate intestate proceedings as the guardianship
proceedings," there is no reason why expenses proceeding was instituted during the lifetime of the
incurred in the administration and settlement of an decedent when there was yet no estate to be
estate in extrajudicial proceedings should not be settled.
allowed. However, deduction is limited to such Again , this contention must fail.
administration expenses as are actually and The guardianship proceeding in this case was
necessarily incurred in the collection of the assets necessary for the distribution of the property of the
of the estate, payment of the debts, and deceased Pedro Pajonar. As correctly pointed out
distribution of the remainder among those entitled by respondent CTA, the PNB was appointed
thereto. Such expenses may include executor's or guardian over the assets of the deceased, and that
35
necessarily the assets of the deceased formed part property during his lifetime should also be considered as a deductible
of his gross estate. x x x administration expense. PNB provided a detailed accounting of
xxx.....xxx.....xxx decedent's property and gave advice as to the proper settlement of the
It is clear therefore that the attorney's fees incurred latter's estate, acts which contributed towards the collection of
in the guardianship proceeding in Spec. Proc. No. decedent's assets and the subsequent settlement of the estate.
1254 were essential to the distribution of the We find that the Court of Appeals did not commit reversible error in
property to the persons entitled thereto. Hence, the affirming the questioned resolution of the Court of Tax Appeals.
attorney's fees incurred in the guardianship WHEREFORE, the December 21, 1995 Decision of the Court of Appeals
proceedings in the amount of P50,000.00 should be is AFFIRMED. The notarial fee for the extrajudicial settlement and the
allowed as a deduction from the gross estate of the attorney's fees in the guardianship proceedings are allowable deductions
decedent. [15]
from the gross estate of Pedro Pajonar.
The deductions from the gross estate permitted under section 79 of the SO ORDERED.
Tax Code basically reproduced the deductions allowed under
Commonwealth Act No. 466 (CA 466), otherwise known as the National
Internal Revenue Code of 1939,[16] and which was the first codification
of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also provided for
the deduction of the "judicial expenses of the testamentary or intestate
proceedings" for purposes of determining the value of the net estate.
Philippine tax laws were, in turn, based on the federal tax laws of the
United States.[17] In accord with established rules of statutory
construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax
laws.[18] Scc-alr
Judicial expenses are expenses of administration.[19] Administration
expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have
been construed by the federal and state courts of the United States to
include all expenses "essential to the collection of the assets, payment
of debts or the distribution of the property to the persons entitled to
it."[20] In other words, the expenses must be essential to the proper
settlement of the estate. Expenditures incurred for the individual benefit
of the heirs, devisees or legatees are not deductible.[21] This distinction
has been carried over to our jurisdiction. Thus, in Lorenzo v.
Posadas[22] the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing
the decedent's real estate for the benefit of the testamentary heir. In
another case, the Court disallowed the premiums paid on the bond filed
by the administrator as an expense of administration since the giving of
a bond is in the nature of a qualification for the office, and not necessary
in the settlement of the estate.[23] Neither may attorney's fees incident
to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate.[24]
Coming to the case at bar, the notarial fee paid for the extrajudicial
settlement is clearly a deductible expense since such settlement effected
a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's
36
MARCELO INVESTMENT AND MANAGEMENT CORPORATION, In an Order dated 13 December 1991, the RTC appointed Edward as
and THE HEIRS OF EDWARD T. MARCELO, NAMELY, KATHERINE regular administrator of Jose, Sr.’s estate:
J. MARCELO, ANNA MELINDA J. MARCELO REVILLA, and JOHN WHEREFORE, PREMISES CONSIDERED, this Court resolves as it hereby
STEVEN J. MARCELO, Petitioners, resolves to appoint Edward T. Marcelo as the Regular Administrator of
vs. the estate of the late Jose P. Marcelo, Sr. upon the posting of a bond
JOSE T. MARCELO, JR., Respondent. amounting to THREE HUNDRED THOUSAND PESOS (₱300,000.00). The
DECISION aforementioned appointment shall take effect upon his oath as such and
PEREZ, J.: conditioned by a bond of ₱300,000.00 which shall insure the fidelity of
The vesting of succession rights on the heirs upon the death of the the said regular administrator in the performance of his duties and
decedent gives occasion for the baring of sibling disaccords right at the obligations as such.3
onset of the estate proceedings which is the determination of the Taking issue with the RTC’s Order and questioning Edward’s
administrator of the decedent's estate. In such instances, the liquidation, appointment, Jose, Jr. filed successive oppugnant motions: (1) motion
partition and distribution of the decedent's estate is prolonged and the for reconsideration of the 13 December 1991 Order; and (2) omnibus
issue of administration becomes, contrary to its very objective, itself the motion alleging the RTC Acting Presiding Judge Efren N. Ambrosio’s
hindrance to the ultimate goal of settlement of the decedent's estate. (Judge Ambrocio) unusual interest and unduehaste in issuing letters of
We catch a glimpse of that in this case. administration in favor of Edward.
Before us is a petition for review on certiorari under Rule 45 of the Rules In an Order dated 12 March 1992, the RTC, through Judge Ambrosio,
of Court assailing the 24 May 2013 Decision of the Court of Appeals in denied Jose, Jr.’s motion for reconsideration:
CA-G.R. CV No. 95219 which affirmed the Order of the Regional Trial
1 2
WHEREFORE, prescinding from the foregoing, and fortified by the balm
Court (RTC), Branch 76, Quezon City appointing respondent Jose T. of clear judicial conscience, the herein motion is hereby denied. The
Marcelo, Jr. (Jose, Jr.) as the new regular administrator of the intestate letters of administration under date of March 4, 1992 issued in favor of
estate of decedent Jose T. Marcelo, Sr. Edward T. Marcelo is maintained with full force and effect. The letters
The facts herein occurred in two stages: (1) the first litigation between testamentary issued in favor of Special Administrator, Jose T. Marcelo,
two of Jose Marcelo, Sr.’s (Jose, Sr.) compulsory heirs, his sons, Edward, Jr. under date of October 2, 1989 as well as the bond posted by him are
(ascendant of herein petitioners, heirs of Edward T. Marcelo, Katherine hereby ordered cancelled. Likewise, the Special Administrator, Jose T.
J. Marcelo, Anna Melinda J. Marcelo Revilla, and John Steven J. Marcelo) Marcelo, Jr. is hereby ordered to forthwith deliver to the regular
and respondent Jose, Jr., for the appointment of regular administrator administrator the goods, chattels, money and estate of the deceased in
of Jose, Sr.’s estate; and (2) after Edward was appointed regular his hands.4
administrator of Jose, Sr.’s estate and Edward’s death in 2009, In the same vein of denial, the RTC ruled on the Omnibus Motion, thus:
respondent Jose, Jr.’s revival of his pursuit to administer his father’s, After a re-examination of the evidence adduced by the parties and a
Jose, Sr.’s, estate. These details of these stages follow: consideration of the arguments raised in the aforecited pleadings, this
On 24 August 1987, decedent Jose, Sr. died intestate. He was survived court arrived at a conclusion that no substantial error was committed by
by his four compulsory heirs: (1) Edward, (2) George, (3) Helen and (4) then Acting Presiding Judge Edren N. Ambrosio which would warrant a
respondent Jose, Jr. reversal of the questioned orders, namely, the order dated December
Initially, petitioner Marcelo Investment and Management Corporation 13, 1991 and March 12, 1992.5
(MIMCO) filed a Petition for the issuance of Letters of Administration of Adamant on his competence to better administer his father’s estate,
the estate of Jose, Sr. before the RTC, Branch 76, Quezon City docketed Jose, Jr. appealed Edward’s appointment as regular administrator to the
as S.P. Proc. No. Q-88-1448. At first, Helen, along with her brother, Jose, Court of Appeals in CA-G.R. CV No. 43674. However, the appellate court
Jr. separately opposed MIMCO’s petition; the two prayed for their affirmed in toto6 the Orders dated 1 October 1993, 13 December 1991
respective appointment as administrator. Edward opposed Helen’s and and 12 March 1992 of the intestate court.
Jose, Jr.’s respective petitions for issuance of Letters of Administration The question of who between Edwardand Jose, Jr. should administer
in their favor and Edward himself prayed for his appointment as regular their father’s estate reached us in G.R. No. 123883 (Jose Marcelo, Jr. v.
administrator. Ultimately, MIMCO, George and Edward banded together: Court of Appeals and Edward Marcelo): we did not find reversible error
(1) opposed Helen’s and Jose, Jr.’s petitions, and (2) prayed for in the appellate court’s decision in CA-G.R. CV No. 43674. We disposed
Edward’s appointment as regular administrator of Jose, Sr.’s estate. of the case via a Minute Resolution dated 22 May 1996,7ultimately
On 21 September 1989, pending issuance of letters of administration, affirming the RTC’s and the appellate court’s separate rulings of
the RTC appointed Helen and Jose, Jr. as special administrators. Edward’s competence and better suited ability to actas regular
administrator of Jose, Sr.’s estate.
37
Thereafter, Jose, Jr. persistently opposed Edward’s actions as LIQUIDATION OF THE INVENTORY OF THE
administrator and his inventory of Jose, Sr.’s estate. He filed anew serial ESTATE OF JOSE P. MARCELO, SR.
motions which culminated in the following 23 June 2000 Order of the AS OF JULY 26, 2000
RTC: I. SETTLEMENT OF THE CLAIMS AGAINST THE ESTATE (SCH IV)
After a careful study of the arguments raised by the parties in support Payables
of their respective claims, the Court finds that the motion filed by 1. Marcelo Chemical & Pigment Corp. P 1,556,002.06
oppositor [Jose, Jr.] is not well-taken.
Anent the submission of complete list of stockholders of all the Marcelo 2. Maria Cristina Fertilizer Corp. 797,487.00

group of companies together with the number and current par value of
3. Marcelo Rubber & Latex Products, Inc. 542,932.74
their respective shareholding, suffice it to say that as correctly pointed
out by regular administrator [Edward], the shares of stock of the 4. Marcelo Investment & Mgnt. Corp. 532,066.35

decedent will be equally distributed to the heirs that there is no necessity


5. Marcelo Steel Corporation 1,108,252.19
therefor.
Considering oppositor’s insistence on the submission by regular 6. H. Marcelo & Co., Inc. 2,356,684.99

administrator of a true and updated list as well as current market values


TOTAL P 6,893,425.33
of all real estate and personal properties of the decedent, the [c]ourt
Considering that the Estateas of June 3, 1999 has no sufficient cash to
hereby directs herein oppositor [Jose, Jr.] to inform the regular
pay-off the above claims of ₱6,893,425.33, I can work out an offsetting
administrator of such data to aid the regular administrator in the
arrangement since the Estate has also receivables from these companies
preparation of a complete and accurate inventory of the real and
as shown below:
personal properties comprising the estate of Jose, Sr.
SCH. III-A SCH. III-B
As regards oppositor [Jose, Jr.’s] prayer for the submission by regular
administrator of a true and complete accounting of the subject Shares of Stock Receivables Total

corporations reckoned from the death of[Jose, Sr.] up to the present,


1. MCPC ₱337,018.00 P 0.00 P 337,018.00
the [c]ourt likewise sees no need therefor as said corporations are not
2. MCFCfrom the
parties to the case and have separate and distinct personalities 300,000.00 0.00 300,000.00
stockholders.
4. MIMCO 0.00 0.00 0.00
With respect to the project ofpartition, it appears that regular
administrator had already furnished oppositor [Jose, 5.
Jr.]MSC
with a copy 11,370.00 532,419.04 543,789.04
thereof. Considering however oppositor [Jose, Jr.’s] oral motion for
6. H. Marcelo 881,040.00 802,521.15 1,683,561.15
regular administrator to identify the heirs of the decedent and to secure
TOTAL
their conformity to the project of partition, oppositor [Jose, Jr.] is given ₱2,818,008.00 P 4,930,440.19 ₱7,748,448.1
ten (10) days from receipt of the project of partition bearing the If the above receivables and equity with total value of ₱7,748,448.19
conformity of the heirs within to (sic) to comment thereon. Thereafter, will be offset against the claims of ₱6,893,425.33 the net will show the
the parties are directed to submit their project of partition for approval following:
and consideration of the [c]ourt.8 (Emphasis supplied) SCH. III-A & B SCH. IV
On 15 January 2001, Edward filed a Manifestation and Motion stating
Equity & Net
that: Companies Claims
Receivables (Receiva
1. Oppositor [Jose, Jr.] now conforms to, and has accordingly
signed, the attached "Liquidation of the Inventory
1. MCPC of the ₱337,018.00 ₱1,556,002.06 ₱1,218,9
Estate of Jose P. Marcelo, Sr. as of July 26, 2000" x x x.
2. MCFC 300,000.00 797,487.00 497,487.
2. Regular Administrator [Edward]respectfully prays that the
Liquidation, duly signed by all four (4) compulsory
4. MIMCOheirs, be 532,066.35 532,066.
approved as the project of partition of the Estate of Jose P.
5. MSC 543,789.04 1,108,252.19 564,463.
Marcelo Sr.9 and moved for the approval of the Liquidation of
the Inventory of the Estate of Jose, Sr. as
6. the project of& CO., Inc.
H. MARCELO 1,683,561.15 2,356,684.99 673,123.
partition of the Estate of Jose, Sr.
TOTAL ₱7,748,448.19 ₱6,893,425.33 P (855,02
The project of partition reads:

38
Based on the offsetting except for MRLP, which the Estate has net distribution will be based on actual selling price minus taxes and other
receivables of ₱4,341,147.26 there will benet claims or payables of deduction if any, on the above inventories of estate properties.
₱3,486,124.40 as follows: Sgd.

1. MCPC ₱1,218,984.06 EDWARD T. MARCELO


Regular Administrator
2. MCFC 497,487.00 Conforme:
Sgd.
3. MIMCO 532,066.35
GEORGE T. MARCELO
4. MSC 564,463.15 Sgd.
JOSE T. MARCELO, JR.
5. H. Marcelo & Co. 673,123.84
Sgd.
TOTAL ₱3,486,124.40 HELEN T. MARCELO10
It is recommended that the net from MRLP of ₱4,341,147.26 be On 16 February 2001, the RTC issued an Order approving the partition
deducted to the above claims as shown below: of Jose, Sr.’s estate as proposed by Edward:
Regular administrator [Edward] manifests that oppositor Jose T.
Net Receivables from MRLP ₱4,341,147.26
Marcelo, Jr. had already expressed his conformity to the Liquidation of
Net Claim 3,486,124.40 the Inventory of the Estate of Jose P. Marcelo, Sr., as of July 26, 2000,
as evidenced by his signature therein. He therefore prays that the said
Net Receivables from MRLP P 855,022.86
document which bears the conformity ofall four (4) compulsory heirs of
II. After the claims are settled based on the above recommendation, the
Jose P. Marcelo, Sr. be approved as the project of partition of the estate
Estate will have the following assets for distribution to the four (4) of
of Jose P. Marcelo, Sr.
us:
Finding said liquidation of the Inventory of the Estate of Jose P. Marcelo,
1. PCIB (to be updated) 3,099.81 Sr. to bear the conformity of all the heirs of the decedent and
considering further that the period for filing of money claims against the
2. Shares of Stocks No. Of Shares Amount
subject estate had already lapsed, the Court resolves to approve said
a. MTRC 12,874 ₱1,287,400.00 liquidation of Inventory as the project ofpartition of the estate of Jose
P. Marcelo, Sr. Nonetheless, let the distribution of the estate of Jose P.
b. MRLP 85,502 855,022.86
Marcelo, Sr. among his compulsory heirs in accordance with the
c. Farmer Fertilizer Corp. 5,000 5,000.00 approved Liquidation of the Inventory of the Estate of Jose P. Marcelo,
Sr. be deferred until herein regular administrator Edward T. Marcelo has
d. Republic Broadcasting System 18,054 18,054.00
submitted to the Court proof of payment of estate taxes of the subject
e.Seafront Resources 6,000,000 60,000.00 estate.11
On 14 September 2001, the RTC archived the intestate proceedings, S.P.
f. Industrial Finance 137 1,370.00
Proc. No. Q-88-1448, pending Edward’s submission of proof of payment
g. Astro Mineral 500,000 5,000.00 of estate taxes as directed in the 16 February 2001 Order.12
On 3 July 2009, Edward died,13 ushering in the antecedents to the
h. Sta. Mesa Market 42,105 42,105.00
present controversy. Wasting no time, Jose, Jr. moved to revive the
i. Atlas Consolidated Mining 122 2,562.00 intestate proceedings involving his father’s estate, S.P. Proc. No. Q-88-
1448, and moved for his appointment as new regular administrator
j. Phil. Long Distance Telephone 180 130,050.00
thereof.

k. Jinico (Jabpract Minind) 2,500,000 25,000.00 Petitioners MIMCO and heirs of Edward, joined by George, opposed
Jose, Jr.’s motion and nominated Atty. Henry Reyes as regular
l. Baguio Country Club 1 12,500.00
administrator in Edward’s stead.

4. Receivables – Marcelo Fiberglass 212,729.17 On 6 January 2010, the RTC issued the assailed Order, now appointing
Jose, Jr. as regular administrator of Jose, Sr.’s estate:
* Based at Par Value
Contrary to the assertion of petitioners, there is no showing that the
Above assets will be distributed equally by the four (4) of us depending
[c]ourt has previously declared oppositor-movant [Jose, Jr.] unfit to be
if these will be sold or not. It is very important to note that equal
appointed as an administrator.
39
The estate is left with no one who will administer the estate, i.e., to 123883, did not make a finding on Jose, Jr.’s fitness and
liquidate the estate and distribute the residue among the heirs. As suitableness to serve as regular administrator; and
wellsettled, to liquidate means to determine the assets of the estate and 2. On the whole, Jose, Jr. iscompetent and "not wanting in
to pay all debts and expenses. Records clearly show that the estate taxes understanding and integrity," to act as regular administrator
due to the government have not been paid. It is, in fact, held that of Jose, Sr.’s estate.
approval of the project of partition does not necessarily terminate Hence, this appeal by certiorariascribing grave error in the Court of
administration x x x. There is a necessity to appoint a new regular Appeals’ Decision, to wit:
administrator. Equally noteworthy is that the judicially approved A.
inventory was prepared way back on August 30, 2000. It is but THERE WAS NO NEED TO APPOINT AN ADMINISTRATOR FOR
imperative that the same be updated. THE ESTATE OF JOSE P. MARCELO, SR. AS THERE WAS THEN
In the sound judgment of the [c]ourt, oppositor-movant [Jose, Jr.], a NO PENDING INCIDENTS IN THE ESTATE PROCEEDINGS TO
legitimate child of the decedent, appears to occupy higher interest than WARRANT THE APPOINTMENT OF AN ADMINISTRATOR.
Atty. Henry A. Reyes in administering the subject estate. B.
WHEREFORE, premises considered, oppositor Jose T. Marcelo, Jr. is THE COURT OF APPEALS ERRED IN APPOINTING JOSE, JR.
appointed as the new regular administrator of the estate of Jose T. AS THE ADMINISTRATOR OF JOSE, SR.’S ESTATE
Marcelo, Sr. CONSIDERING THAT JOSE, JR. WAS FOUND, BY A FINAL,
Before he enters upon the execution of his trust, and letters of IMMUTABLE, AND UNALTERABLE JUDGMENT, TO BE UNFIT
administration issue, he shall give a bond in the amount of ₱200,000.00, TO ACT AS SUCH. THUS, THE COURT OF APPEALS WAS
conditioned as follows: CLEARLY MISTAKEN WHEN IT DISREGARDED THE EARLIER
a. To make and return to the [c]ourt, within three (3) months, PRONOUNCEMENT ON THE UNFITNESS OF JOSE, JR. TO ACT
an updated inventory of all goods, chattels, rights, credits, and AS AN ADMINISTRATOR AS IT GOES AGAINST THE
estate of the deceased which shall come to his possession or PRINCIPLE OF CONCLUSIVENESS OF JUDGMENT.
knowledge or to the possession of any other person for him; C.
b. To administer according to the Rules of Court rules, all THE COURT OF APPEALS VIOLATED THE PETITIONERS’
goods, chattels, rights, credits, and estate which shall at any RIGHT TO DUE PROCESS, WHEN IT AFFIRMED THE RTC
time come to his possession or to the possession of any other ORDERS, WITHOUT EVEN BOTHERING TO EXPLAIN WHY
person for him, and from the proceeds to pay and discharge JOSE, JR. AND NOT GEORGE, SHOULD BE APPOINTED AS
all debts, legacies, and charges on the same, or such ADMINISTRATOR OF JOSE, SR.’S ESTATE.15
dividends thereon as shall be decreed by the court, not to The appeal is impressed with merit. While we agree with the lower
mention the taxes due to the government; courts that the appointment of a regular administrator is still necessary,
c. To render a true and just account of his administration to we disagree with the appointment of Jose, Jr. as new regular
the [c]ourt within one (1) year; and at any other time when administrator of Jose, Sr.’s estate.
required by the Court; and We first dispose of the issue of whether the appointment of a regular
d. To perform all orders of the [c]ourt. 14
administrator is still necessary at this liquidation, partition and
Petitioners filed an Omnibus Motion for Reconsideration of the 6 January distribution stage of the intestate proceedings involving Jose, Sr.’s
2010 Order and now moved for the appointment instead of George as estate.
administrator of Jose, Sr.’s estate. After Comment on the Omnibus Petitioners contend that the appointment of a regular administrator is
Motion, the RTC issued another Order dated 23 March 2010, denying unnecessary where there remains no pending matter in the settlement
the Omnibus Motion and affirming the appointment of Jose, Jr. as new of Jose, Sr.’s estate requiring attention and administration. Specifically,
regular administrator. Petitioners appealed the RTC’s twin Orders dated petitioners point out that there is no existing or unliquidated debt against
6 January 2010 and 23 March 2010 before the appellate court. This time the estate of Jose, Sr, the settlement thereof being already at the
around, the Court of Appeals affirmed Jose, Jr.’s appointment as new liquidation, partition and distribution stage. Further on that, the
regular administrator. Ruling that the selection of administrator lies in liquidation and proposed partition had long been approved by the
the sound discretion of the trial court, the Court of Appeals held that: probate court.
1. The prior Order dated 13 December 1991 of the RTC We are not convinced. The settlement of Jose, Sr.’s estate is not yet
appointing Edward as regular administrator instead of Jose, through and complete albeit it is at the liquidation, partition and
Jr., which appointment was affirmed by this Court in G.R. No. distribution stage.

40
Rule 90 of the Rules of Court provides for the Distribution and Partition 4. Offsetting of the receivables from Marcelo Rubber & Latex Products,
of the Estate. The rule provides in pertinent part: Inc. amounting to ₱4,341,147.26 against the net claims against the
SECTION 1. When order for distribution of residue made. – x x x estate amounting to 3,486,124.40 resulting in net receivables of the
No distribution shall be allowed until payment of the obligations above estate in the amount of ₱855,022.86.
mentioned has been made or provided for, unless the distributees, or There has been no showing from either of the parties that the
any of them, give a bond, in a sum tobe fixed by the court, conditioned receivables of, and claims against, Jose, Sr.’s estate has been actually
for the payment of said obligations within such time as the court directs. liquidated, much less, if an offsetting occurred with the companies listed
xxxx in the inventory on one hand, and Jose, Sr.’s estate, on the other.
SEC. 3. By whom expenses of partition paid. – If at the time of the Although the Marcelo family, in particular the compulsory heirs of Jose,
distribution the executor or administrator has retained sufficient effects Sr., hold equity in the corporations mentioned in the inventory,
in his hands which may lawfully be applied for the expenses of partition considering that the corporations are family owned by the Marcelos’,
of the properties distributed, such expenses of partition may be paid by these corporations are different juridical persons with separate and
such executor or administrator when it appears equitable to the court distinct personalities from the Marcelo patriarch, the decedent, Jose,
and not inconsistent with the intention of the testator; otherwise, they Sr.18
shall be paid by the parties in proportion to their respective shares or More importantly, the liquidation scheme appears yet to be effected, the
interest in the premises, and the apportionment shall be settled and actual partition of the estate, where each heir separately holds his share
allowed by the court, and, if any person interested in the partition does in the estate as that which already belongs to him, remains intangible
not pay his proportion or share, the court may issue an execution in the and the ultimate distribution to the heirs still held in abeyance pending
name of the executor or administrator against the party not paying for payment of estate taxes.19
the sum assessed. Significantly, even the Liquidation of the Inventory of Jose, Sr.’s estate
In this case, we observe that the Liquidation of the Inventory of the states that the valuation amount of the shares of stock as listed therein
Estate, approved by the RTC in its Order dated 16 February 2001, is not is based on par value, which may have varied given the passage of time.
yet in effect and complete. We further note that there has been no The same document delivers a very important notation that the equal
manifestation forthcoming from any of the heirs, or the parties in this distribution of the listed assets of the estate will depend on the actual
case, regarding the completion of the proposed liquidation and partition selling price of these assets less taxes and other deductions:
of the estate. In fact, as all parties are definitely aware, the RTC archived Above assets will be distributed equally by the four (4) [compulsory
the intestate proceedings pending the payment of estate taxes. heirs] depending if these will be sold or not. It is very important to note
For clarity, we refer to the Liquidation of the Inventory of the Estate, that equal distribution will be based on actual selling price minus taxes
which was divided into two (2) parts: (1) Settlement of the Claims and other deduction if any, on the above inventories of estate
against the Estate, and (2) After Settlement of the Claims, distribution properties.20 To date, more than a decade has passed since the intestate
of the remaining assets of the estate to the four (4) compulsory heirs. proceedings were archived, thus, affecting the value of the estate’s
The same document listed payables and receivables of the estate assets.
dependent on a number of factors and contingencies: From all of the foregoing, it is apparent that the intestate proceedings
1. Payables to various companies where the Marcelo family had equity involving Jose, Sr.’s estate still requires a regular administrator to finally
amounting to ₱6,893,425.33; settle the estate and distribute remaining assets to the heirs of the
Considering that the Estate as of June 3, 1999 has no sufficient cash to decedent.
pay-off the above claims of ₱6,893,425.33, [Edward] can work out an We now come to the issue of whether Jose, Jr. may be appointed as
offsetting arrangement since the Estate has also receivables or equity regular administrator despite the previous Order of the RTC on 13
from these companies as shown below: 16
December 1991, affirmed by the appellate court and this Court in G.R.
xxxx No. 123883, that as between Jose, Jr. and Edward, the latter was better
2. Receivables from the same companies amounting to ₱7,748,448.19; suited to act as regular administrator of their father’s estate. Stated
If the above receivables and equity with total value of ₱7,748,448.19 differently, whether Jose, Jr.’s previous non-appointment as regular
will be offset against the claims of ₱6,893,425.33 the net will show the administrator of Jose, Sr.’s estate bars his present appointment as such
following:17 even in lieu of Edward who is now dead.
xxxx A close scrutiny of the records reveals that in all of Jose, Jr.’s pleadings
3. An offsetting of the payables and receivables to be arranged by the opposing Edward’s appointment as regular administrator, he
then regular administrator, Edward; and simultaneously prayed for his appointment as regular administrator of
their father’s estate. In short, he proffered his competence and
41
qualification to be appointed as regular administrator as a legal issue for bolstered by the fact that the family corporations and his own personal
resolution of the courts. Essentially, Jose, Jr. was weighed and found corporation are presently of sound financial condition. This success, the
wanting by the RTC, the appellate court, and this Court. [c]ourt believes can be attributed to the management skills and the
In its 13 December 1991 Order, the RTC categorically ruled on who sound management policies Edward has adopted throughout the years.
between Edward and Jose, Jr. was fit to administer the estate of Jose, Likewise, it can be deduced that among the four(4) children of Jose, Sr.,
Sr., framing the issue in this wise: it was Edward whom he trusted the most. The deceased valued the
The [c]ourt’s choice as to who among the [compulsory heirs] will be opinion of Edward on decisions that had to bemade and he would have
appointed regular administrator of the estate of Jose, Sr. is now limited Edward around in his meetings to discuss matter relating to the
to Edward and Jose, Jr. in view of the withdrawal of Helen T. Marcelo. corporations which he managed. Further, as can be gleaned from the
It is this [c]ourt’s observation that the continuous internal wranglings evidence presented by Jose, Jr., it was Edward Marcelo who was
between the heirs would achieve nothing. In the meantime, the estate appointed as trustee to vote the deceased’s share in a Marcelo
of the late Jose, Marcelo, Sr. isdragged further into the quagmire of Corporation, Polaris Marketing Corporation. It was also Edward who was
dissipation and loss. It would not be amiss to state that the animosity made co-signatory when the deceased deposited money in the bank to
among the interested [petitioners therein], Edward and Jose, Jr. have be given to the children of Jose, Jr. It is thus quite evident that Edward
considerably increased since the filing of their respective petitions, but was really the most trusted child of the deceased.
the [c]ourt on the basis of their qualifications will have to decide whom Upon the other hand, this court looks with deep concern the manner by
to appoint as regular administrator. Willingness to act and/or serve as which Jose, Jr. treats the corporate properties of the Marcelo Group of
regular administrator is no longer in issue here as both applicants are Companies. Evidence shows that sometime October 21, 1998, Jose, Jr.
undoubtedly willing to serve as such. However, after subjecting the took evidencing liabilities of the deceased and other pertinent records
evidence, both testimonial and documentary to careful judicial study, and up to the present has not returned them. Jose, Jr. cannot justify the
this [c]ourt now resolves as it hereby resolves to appoint Edward T. taking of the records/or borrowing of the same by asserting that he is
Marcelo as regular administrator of the estate of the late Jose, Sr. now keeping them in his capacity asSpecial Administrator as he was
As aptly cited by petitioner, Edward T. Marcelo, there can be no adverse appointed Special Administrator only on September 21, 1989 whereas
conclusion that may be inferred from the withdrawal of a petition or the records were "borrowed" as early as October 21, 1988. Be that as it
nomination. While it may be true that initially the petition for the may, what belies Jose, Jr.’s assertion is the fact that the records of the
issuance of letters testamentary was filed by Marcelo Investment and corporation which were allegedly "borrowed/taken" do not form part of
Management Corporation (MIMCO for brevity) and by Danilo O. Ibay as the estate of Jose, Sr. but to the corporation from where they were
nominee of Edward and George Marcelo, the same did not constitute a taken.
waiver on the part of Edward T. Marcelo. This can be gleaned from the Likewise, it should be noted that the appointment of Jose, Jr. as one of
withdrawal of the nomination of DaniloO. Ibay and the subsequent filing the Special Administrators does not necessarily make him more qualified
of Edward T. Marcelo of his petition for the appointment as legal to be appointed as regular administrator. The records of the case will
administrator on September 14, 1989. Further, nowhere in the bear out, that the appointmentof a Special Administrator was premised
provisions of the Revised Rules of Court is sucha nomination of a party on the need to have someone, oversee, manage and preserve the estate
other than a compulsory heir prohibited. of Jose, Sr., as there was the danger of the estate being dissipated.
The documents presented by Jose, Jr. purporting to show that the Moreover, the [c]ourt never touched on the issue of the qualifications of
deceased had other assets other than those enumerated in the original the applicants, as there was in fact, no evidence presented on the
petition filed by MIMCO and which should have been included in the matter, other than the bare allegations of the applicants that they were
estate cannot be accorded any weight or credence by this [c]ourt, as all qualified to act as such.21 (Citations omitted)
the individual who supposedly prepared the document was never Notably, the decision of the trial court appointing Edward as the
identified and the sources of information notdisclosed. Upon the other Administrator of the Estate of Jose, Sr., which decision had the
hand, the petition filed by MIMCO was based on the Financial imprimatur of a final resolution by this Court, was not merely a
Statements prepared by an independent auditor, A. F. Pablo and comparison of the qualifications of Edward and Jose, Jr., but a finding
Associates. On the basis of the information provided by MIMCO in the of the competence of Edward compared to the unfitness of Jose, Jr.
original petition, this [c]ourt can determine the probable value and As against this Order of the RTC, its subsequent opposite Order dated 6
nature of the estate of the deceased Jose P. Marcelo, Sr. January 2010 appointing Jose, Jr. as new regular administrator only had
There is no argument that both Edward and Jose, Jr. are willing to serve two (2) sentences to essentially reverse the previous findings.
as regular administrator but undoubtedly, Edward appears to be more
responsible and competent that his younger brother, Jose, Jr. This is
42
Contrary to the assertion of petitioners, there is no showing that the perspective the 13 December 1991 Order of the RTC appointing Edward
[c]ourt has previously declared [Jose,Jr.] unfit to be appointed as an over Jose, Jr. as regular administrator of their father’s estate, which
administrator. Order was upheld by us in G.R. No. 123883.
xxxx Section 1, Rule 78 of the Rules of Court provides for the general
In the sound judgment of the [c]ourt,[Jose, Jr.], a legitimate child of the disqualification of those who wish to serve as administrator:
decedent, appears to occupy a higher interest than Atty. Henry A. Reyes SECTION 1. Who are incompetent to serve as executors or
in administering the subject estate.22 administrators.— No person is competent to serve as executor or
The first sentence contained in the Order of 6 January 2010 is disproven administrator who:
by the definite finding of "deepconcern" in the original Order. The (a) Is a minor;
second sentence does not amount to a finding of a qualification superior (b) Is not a resident of the Philippines; and
to that of the rest of the children of Jose, Sr. (c) Is in the opinion of the court unfit to execute the duties of
In affirming the issuance of letters of administration to Jose, Jr., the the trust by reason of drunkenness, improvidence, or want of
appellate court dwelt largely on the considerable latitude allowed a understanding or integrity, or by reason of conviction of an
probate court in the determination of a person’s suitability for the office offense involving moral turpitude.
of judicial administrator. The Court of Appeals only briefly delved into Section 6 of the same rule, on the other hand, lists an order of
Jose, Jr.’s numerous attempts to be appointed regular administrator of preference in instances when there is a contest of who should be
Jose, Sr.’s estate which were all denied previously by the same probate appointed administrator:
court: SEC. 6. When and to whom letters of administration granted.— If no
The RTC Order dated 13 December 1991, as affirmed by this [c]ourt in executor is named in the will, or the executor or executors are
Decision dated 30 March 1995, and by the Supreme Court in the incompetent, refuse the trust, or fail to give bond, or a person dies
Resolution dated 22 May 1996, did not declare [respondent] Jose, Jr. intestate, administration shall be granted:
unfit to serve as administrator. What was ruled upon by the RTC, and (a) To the surviving spouse, or next of kin, or both, in the
affirmed by this [c]ourt, and by the Supreme Court, was the discretion of the court, or to such person as such surviving
appointment of Edward as the administrator of Jose, Sr.’s estate, and spouse, or next of kin, requests to have appointed, if
the denial of [respondent] Jose, Jr.’s opposition to Edward’s competent and willing to serve;
appointment. Nowhere was there any categorical ruling, or a definite (b) If such surviving spouse, or next of kin, or the person
finding, that [respondent] Jose, Jr. was, unfit to execute the duties of selected by them, be incompetent or unwilling, or ifthe
the trust by reason of drunkenness, improvidence, or want of surviving spouse, or next of kin, neglects for thirty (30) days
understanding or integrity, or by reason of conviction of an offense after the death of the person to apply for the administration
involving moral turpitude. Thus, there is no merit in [petitioners’] or to request that administration be granted to some other
contention that the finding on the unfitness of [respondent] Jose, Jr. person, it may be granted to one ormore of the principal
became binding, and precluded the RTC from appointing [respondent] creditors, if competent and willing to serve;
Jose, Jr., as the new regular administrator of Jose, Sr.’s estate. (c) If there is no such creditor competent and willing to serve,
Jurisprudence has long held that the selection of an administrator lies in it may be granted to such other person as the court may
the sound discretion of the trial court.1âwphi1 The determination of a select.
person’s suitability for the office of judicial administrator rests, to a great Because Edward and Jose, Jr. are both compulsory heirs of Jose, Sr.,
extent, in the sound judgment of the court exercising the power of they were, at the time the issue of administration first cropped, equally
appointment and said judgment is not to be interfered with on appeal preferred to administer Jose, Sr.’s estate. Necessarily, the courts also
unless the said court is clearly in error. The RTC did not err in appointing delved into the question of their suitableness and fitness to serve as
Jose, Jr. as the new administrator, even though his previous prayer for administrator, preferring one over the other, framing it as Edward being
appointment was denied. Notably, by virtue of Edward’s death, the office more fit and suited to be administrator:
of the regular administrator of Jose, Sr.’s estate was vacated, and it was 1. Edward has kept the Marcelo family corporations and his
within the jurisdiction of the RTC, as probate court, to appoint a new own in good financial condition;
administrator.23 2. The trust reposed by the decedent on Edward who voted
Evidently, the Court of Appeals like the RTC in its second order, closed on Jose, Sr.’s behalf in a Marcelo corporation; and
its eyes on the facts detailed by the RTC in the first order. 3. Edward being made a co-signatory for money deposited for
Considering the two (2) sets of conflicting rulings of the RTC and the Jose, Jr.’s own children.
Court of Appeals in the two stages ofthis litigation, we put into proper
43
Plainly, the RTC in its Order dated 13 December 1991, found Edward should there be assets remaining, to be partitioned and distributed. The
competent to serve as regular administrator, more competent than Jose, inheritance tax is an obligation of the estate, indirectly the heirs:
Jr., preferred despite equal status in the Order of Preference, SECTION 1. When order for distribution of residue made. – When the
manifesting none of the disqualifications set by law. Still and all, the debts, xxx, and inheritance tax, if any, chargeable to the estate in
same Order likewise judged Jose, Jr.’s suitableness and fitness,or lack accordance with law, have been paid, xxx.
thereof, for the office of administrator, albeit in comparison withEdward No distribution shall be allowed until payment of the obligations above
and not with the rest of Jose, Sr.’s children. Jose, Jr. was not what mentioned has been made or provided for, unless the distributees, or
Edward was.1âwphi1 The fact however, that Edward was made co- any of them, give a bond, in a sum to be fixed by the court, conditioned
signatory for money deposited for Jose, Jr.’s own children is a telling for the payment of said obligations within such time as the court
commentary against Jose, Jr.’s competence, if not integrity. directs.25
Then too, the RTC in the original order made a specific finding, "[viewing Given the factual considerations that led to the prior findings on the
it] with deep concern," Jose, Jr.’s handling of the records of the Marcelo unfitness of Jose, Jr. to act as regular administrator; the Affidavit of
Group of Companies. It euphemistically called taking of the records Helen26 preferring George as administrator; and the conformity on
evidencing liabilities of the decedent as "borrowed/taken." However, the record of the rest of Jose, Sr.’s heirs to George’s administration as
RTC noted that such cannot be justified as the records and other reflected in petitioners’ Appellants’ Briefbefore the Court of Appeals:
pertinent documents taken "do not form part of the estate of Jose P. More importantly, consistent with Section 6, Rule 78 of the Rules of
Marcelo, Sr. but to the corporation from where they were taken." Court, not only is George the eldestson of Jose, Sr. and, therefore, his
Contrary to the recent rulings of the RTC and the Court of Appeals most immediate kin, he has, moreover, been chosen by the rest of the
appointing Jose, Jr. as administrator, there is a previous and categorical heirs of Jose, Sr. to perform the functions of an administrator. In this
ruling on Jose, Jr.’s fitness to serve as such: regard, in addition to George and the heirs of Edward, Helen executed
It is Jose T. Marcelo’s position that he is more competent, qualified and an Affidavit to manifest her opposition to Jose, Jr. and to support the
suitable for the position of regular administrator.1âwphi1 This, above all appointment of George and herself as joint administrators, a copy of
else is the main thrust of this second motion for reconsideration. which was given to the [Court of Appeals.]27 we thus issue Letters of
However, the court in the exercise of its sound discretion after a Administration to George to facilitate and close the settlement of Jose,
consideration of the evidence adduced by both parties, ruled otherwise Sr.’s estate.28
and instead appointed Edward T. Marcelo as regular administrator. WHEREFORE, the petition is GRANTED. The Decision of the Court of
x x x True, Jose T. Marcelo, Jr. was initially appointed as Special Appeals in CA-G.R. CV No. 95219 and the Order dated 6 January 2010
Administrator of the estate of their deceased father but the same was of the Regional Trial Court, Branch76, Quezon City in S.P. Proc. No. Q-
without the benefit of a hearing on the qualifications of the parties 88-1448 are REVERSED and SET ASIDE. Letters of Administration shall
concerned. x x x This did not however confer on Jose Marcelo, Jr. as issue to George T. Marcelo upon payment of a bond to be set by the
Special Administrator a better right to the office of regular administrator. Regional Trial Court, Branch 76, Quezon City. The Regional Trial Court,
x x x. Branch 76, Quezon City is likewise directed to complete the settlement
xxxx of the decedent's, Jose T. Marcelo, Sr. 's, estate with dispatch starting
The third assigned error raised by [Jose, Jr.] "that both trial judges erred from an Order setting a deadline for the parties to pay the estate taxes
in not appointing Special Administrator Jose T. Marcelo, Jr. as Regular and to inform this Court when such has been paid.
Administrator considering his tested probity and competence as special SO ORDERED.
administrator, his good name and integrity in accordance with the
evidence," is devoid of merit, as already discussed earlier.
The findings of the lower court in this regard deserve full consideration
x x x.24
Undoubtedly, there has been a declaration that Jose, Jr. is unfit and
unsuitable to administer his father’s estate.
To obviate further delay in the settlement of Jose, Sr.’s estate, we
emphasize that such is already at the liquidation and distribution stage
which project of partition had long been conformed to by the parties.
We note that this case has been unnecessarily prolonged and resulted
in added litigation by the non-payment of estate taxes which is the
ultimate responsibility of the heirs having inchoate right in the estate,
44
Philippine American Life and General Insurance Company vs. donor’s tax, pointing out, in its request, the following: that the
Secretary of Finance, 741 SCRA 578, G.R. No. 210987 transaction cannot attract donor’s tax liability since there was no
November 24, 2014 donative intent and,ergo, no taxable donation, citing BIR Ruling [DA-

Taxation; Donor’s Tax; The absence of donative intent, if that be the (DT-065) 715-09] dated November 27, 2009;5 that the shares were sold

case, does not exempt the sales of stock transaction from donor’s tax at their actual fair market value and at arm’s length; that as long as the

since Sec. 100 of the National Internal Revenue Code (NIRC) transaction conducted is at arm’s length––such that a bona fide business

categorically states that the amount by which the fair market value arrangement of the dealings is done inthe ordinary course of business–

of the property exceeded the value of the consideration shall be –a sale for less than an adequate consideration is not subject to donor’s

deemed a gift.—Petitioner’s substantive arguments are unavailing. tax; and that donor’s tax does not apply to saleof shares sold in an open

The absence of donative intent, if that be the case, does not exempt bidding process.

the sales of stock transaction from donor’s tax since Sec. 100 of the On January 4, 2012, however, respondent Commissioner on Internal

NIRC categorically states that the amount by which the fair market Revenue (Commissioner) denied Philamlife’s request through BIR Ruling

value of the property exceeded the value of the consideration shall No. 015-12. As determined by the Commissioner, the selling price of the

be deemed a gift. Thus, even if there is no actual donation, the shares thus sold was lower than their book value based on the financial

difference in price is considered a donation by fiction of law. statements of PhilamCare as of the end of 2008.6 As such, the

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the Commisioner held, donor’s tax became imposable on the price difference

NIRC but merely sets the parameters for determining the “fair market pursuant to Sec. 100 of the National Internal Revenue Code (NIRC), viz:

value” of a sale of stocks. Such issuance was made pursuant to the SEC. 100. Transfer for Less Than Adequate and full Consideration.-

Commissioner’s power to interpret tax laws and to promulgate rules Where property, other than real property referred to in Section 24(D),

and regulations for their implementation. is transferred for less than an adequate and full consideration in money
or money’s worth, then the amount by which the fair market value of
the property exceeded the value of the consideration shall, for the
Nature of the Case
purpose of the tax imposed by this Chapter, be deemed a gift, and shall
Before the Court is a Petition for Review on Certiorari under Rule 45 of
be included in computing the amount of gifts made during the calendar
the Rules of Court assailing and seeking the reversal of the Resolutions
year.
of the Court of Appeals (CA) in CA-G.R. SP No. 127984, dated May 23,
The afore-quoted provision, the Commissioner added, is implemented
20131 and January 21, 2014, which dismissed outright the petitioner's
by Revenue Regulation 6-2008 (RR 6-2008), which provides:
appeal from the Secretary of Finance's review of BIR Ruling No. 015-
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT
122 for lack of jurisdiction.
TRADED THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS.
The Facts
24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX
Petitioner The Philippine American Life and General Insurance Company
CODE, AS AMENDED. —
(Philamlife) used to own 498,590 Class A shares in Philam Care Health
xxxx
Systems, Inc. (PhilamCare), representing 49.89% of the latter's
(c) Determination of Amount and Recognition of Gain or Loss –
outstanding capital stock. In 2009, petitioner, in a bid to divest itself of
(c.1) In the case of cash sale, the selling price shall be the consideration
its interests in the health maintenance organization industry, offered to
per deed of sale.
sell its shareholdings in PhilamCare through competitive bidding. Thus,
xxxx
on September 24, 2009, petitioner's Class A shares were sold for USD
(c.1.4) In case the fair market value of the shares of stock sold, bartered,
2,190,000, or PhP 104,259,330 based on the prevailing exchange rate
or exchanged is greater than the amount of money and/or fair market
at the time of the sale, to STI Investments, Inc., who emerged as the
value of the property received, the excess of the fair market value of the
highest bidder.3
shares of stock sold, bartered or exchanged overthe amount of money
After the sale was completed and the necessary documentary stamp and
and the fair market value of the property, if any, received as
capital gains taxes were paid, Philamlife filed an application for a
consideration shall be deemed a gift subject to the donor’stax under
certificate authorizing registration/tax clearance with the Bureau of
Section 100 of the Tax Code, as amended.
Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the
xxxx
transfer of the shares. Months later, petitioner was informed that it
(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes
needed to secure a BIR ruling in connection with its application due to
of this Section, ‘fair market value’ of the share of stock sold shall be:
potential donor’s tax liability. In compliance, petitioner, on January 4,
xxxx
2012, requested a ruling4 to confirm that the sale was not subject to

45
(c.2.2) In the case of shares of stock not listed and traded in the local SO ORDERED.
stock exchanges, the book value of the shares of stock as shown in the In disposing of the CA petition, the appellate court ratiocinated that it is
financial statements duly certified by an independent certified public the Court of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act
accountant nearest to the date of sale shall be the fair market value. No. 1125 (RA 1125),11 as amended, which has jurisdiction over the
In view of the foregoing, the Commissioner ruled that the difference issues raised. The outright dismissal, so the CA held, is predicated on
between the book value and the selling price in the sales transaction is the postulate that BIR Ruling No. 015-12 was issued in the exercise of
taxable donation subject to a 30% donor’s tax under Section 99(B) of the Commissioner’s power to interpret the NIRC and other tax laws.
the NIRC. Respondent Commissioner likewise held that BIR Ruling [DA-
7
Consequently, requesting for its review can be categorized as "other
(DT-065) 715-09], on which petitioner anchored its claim, has already matters arising under the NIRC or other laws administered by the BIR,"
been revoked by Revenue Memorandum Circular (RMC) No. 25-2011. 8
which is under the jurisdiction of the CTA, not the CA.
Aggrieved, petitioner requested respondent Secretary of Finance Philamlife eventually sought reconsideration but the CA, in its equally
(Secretary) to review BIR Ruling No. 015-12, but to no avail. For on assailed January 21, 2014 Resolution, maintained its earlier position.
November 26, 2012, respondent Secretary affirmed the Commissioner’s Hence, the instant recourse.
assailed ruling in its entirety. 9
Issues
Ruling of the Court of Appeals Stripped to the essentials, the petition raises the following issues in both
Not contented with the adverse results, petitioner elevated the case to procedure and substance:
the CA via a petition for review under Rule 43, assigning the following 1. Whether or not the CA erred in dismissing the CA Petition
errors: 10
for lack of jurisdiction; and
A. 2. Whether or not the price difference in petitioner’s adverted
The Honorable Secretary of Finance gravely erred in not finding that the sale of shares in PhilamCare attracts donor’s tax.
application of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and Procedural Arguments
RMC 25-11 is void insofar as it altersthe meaning and scope of Section a. Petitioner’s contentions
100 of the Tax Code. Insisting on the propriety of the interposed CA petition, Philamlife, while
B. conceding that respondent Commissioner issued BIR Ruling No. 015-12
The Honorable Secretary of Finance gravely erred in finding that Section in accordance with her authority to interpret tax laws, argued
100 of the Tax Code is applicable tothe sale of the Sale of Shares. nonetheless that such ruling is subject to review by the Secretary of
1. Finance under Sec. 4 of the NIRC, to wit:
The Sale of Shares were sold at their fair market value and SECTION 4. Power of the Commissioner to Interpret Tax Laws and to
for fair and full consideration in money or money’s worth. Decide Tax Cases. – The power to interpret the provisions of this Code
2. and other tax laws shall be under the exclusive and original jurisdiction
The sale of the Sale Shares is a bona fide business transaction of the Commissioner, subject to review by the Secretary of Finance.
without any donative intent and is therefore beyond the ambit The power to decide disputed assessments, refunds of internal revenue
of Section 100 of the Tax Code. taxes, fees or other charges, penalties imposed in relation thereto, or
3. other matters arising under this Code orother laws or portions thereof
It is superfluous for the BIR to require an express provision administered by the Bureau of Internal Revenue is vested in the
for the exemption of the sale of the Sale Shares from donor’s Commissioner, subject to the exclusive appellate jurisdiction of the Court
tax since Section 100 of the Tax Code does not explicitly of Tax Appeals. Petitioner postulates that there is a need to differentiate
subject the transaction to donor’s tax. the rulings promulgated by the respondent Commissioner relating to
C. those rendered under the first paragraph of Sec. 4 of the NIRC, which
The Honorable Secretary of Finance gravely erred in failing to find that are appealable to the Secretary of Finance, from those rendered under
in the absence of any of the grounds mentioned in Section 246 of the the second paragraph of Sec. 4 of the NIRC, which are subject to review
Tax Code, rules and regulations, rulings or circulars – such as RMC 25- on appeal with the CTA.
11 – cannot be given retroactive application to the prejudice of This distinction, petitioner argues, is readily made apparent by
Philamlife. Department Order No. 7-02,12 as circularized by RMC No. 40-A-02.
On May 23, 2013, the CA issued the assailed Resolution dismissing the Philamlife further averred that Sec.7 of RA 1125, as amended, does not
CA Petition, thusly: find application in the case at bar since it only governs appeals from the
WHEREFORE, the Petition for Review dated January 9, 2013 is Commissioner’s rulings under the second paragraph and does not
DISMISSED for lack of jurisdiction. encompass rulings from the Secretary of Finance in the exercise of his
46
power of review under the first, as what was elevated to the CA. It added To recapitulate, three different, if not conflicting, positions as indicated
that under RA 1125, as amended, the only decisions of the Secretary below have been advanced by the parties and by the CA as the proper
appealable to the CTA are those rendered in customs cases elevated to remedy open for assailing respondents’ rulings:
him automatically under Section 2315 of the Tariff and Customs Code.13 1. Petitioners: The ruling of the Commissioner is subject to
There is, thus, a gap in the law when the NIRC, as couched, and RA review by the Secretary under Sec. 4 of the NIRC, and that of
1125, as amended, failed to supply where the rulings of the Secretary the Secretary to the CA via Rule 43;
in its exercise of its power of review under Sec. 4 of the NIRC are 2. Respondents: The ruling of the Commissioner is subject to
appealable to. This gap, petitioner submits, was remedied by British review by the Secretary under Sec. 4 of the NIRC, and that of
American Tobacco v. Camacho14 wherein the Court ruled that where the Secretary to the Office of the President before appealing
what is assailed is the validity or constitutionality of a law, or a rule or to the CA via a Rule 43 petition; and
regulation issued by the administrative agency, the regular courts have 3. CA: The ruling of the Commissioner is subject to review by
jurisdiction to pass upon the same. the CTA.
In sum, appeals questioning the decisions of the Secretary of Finance in We now resolve.
the exercise of its power of review under Sec. 4 of the NIRC are not Preliminarily, it bears stressing that there is no dispute that what is
within the CTA’s limited special jurisdiction and, according to petitioner, involved herein is the respondent Commissioner’s exercise of power
are appealable to the CA via a Rule 43 petition for review. under the first paragraph of Sec. 4 of the NIRC––the power to interpret
b. Respondents’ contentions tax laws. This, in fact, was recognized by the appellate court itself, but
Before the CA, respondents countered petitioner’s procedural arguments erroneously held that her action in the exercise of such power is
by claiming that even assuming arguendo that the CTA does not have appealable directly to the CTA. As correctly pointed out by petitioner,
jurisdiction over the case, Philamlife, nevertheless,committed a fatal Sec. 4 of the NIRC readily provides that the Commissioner’s power to
error when it failed to appeal the Secretary of Finance’s ruling to the interpret the provisions of this Code and other tax laws is subject to
Office of the President (OP). As made apparent by the rules, the review by the Secretary of Finance. The issue that now arises is this––
Department of Finance is not among the agencies and quasi-judicial where does one seek immediate recourse from the adverse ruling of the
bodies enumerated under Sec. 1, Rule 43 of the Rules of Court whose Secretary of Finance in its exercise of its power of review under Sec. 4?
decisions and rulings are appealable through a petition for review.15 This Admittedly, there is no provision in law that expressly provides where
is in stark contrast to the OP’s specific mention under the same exactly the ruling of the Secretary of Finance under the adverted NIRC
provision, so respondents pointed out. provision is appealable to. However, We find that Sec. 7(a)(1) of RA
To further reinforce their argument, respondents cite the President’s 1125, as amended, addresses the seeming gap in the law asit vests the
power of review emanating from his power of control as enshrined under CTA, albeit impliedly, with jurisdiction over the CA petition as "other
Sec. 17 of Article VII of the Constitution, which reads: matters" arising under the NIRC or other laws administered by the BIR.
Section 17.The President shall have control of all the executive As stated:
departments, bureaus, and offices. He shall ensure that the laws be Sec. 7. Jurisdiction.- The CTA shall exercise:
faithfully executed. a. Exclusive appellate jurisdiction to review by appeal, as herein
The nature and extent of the President’s constitutionally granted power provided:
of control have beendefined in a plethora of cases, most recently in Elma 1. Decisions of the Commissioner of Internal Revenue in cases involving
v. Jacobi,16 wherein it was held that: disputed assessments, refunds of internal revenue taxes, fees or other
x x x This power of control, which even Congress cannot limit, let alone charges, penalties in relation thereto, or other matters arising under the
withdraw, means the power of the Chief Executive to review, alter, National Internal Revenue or other laws administered by the Bureau of
modify, nullify, or set aside what a subordinate, e.g., members of the Internal Revenue. (emphasis supplied)
Cabinet and heads of line agencies, had done in the performance of their Even though the provision suggests that it only covers rulings of the
duties and to substitute the judgment of the former for that of the latter. Commissioner, We hold that it is, nonetheless, sufficient enough to
In their Comment on the instant petition, however, respondents include appeals from the Secretary’s review under Sec. 4 of the NIRC.
asseverate that the CA did not err in its holding respecting the CTA’s It is axiomatic that laws should be given a reasonable interpretation
jurisdiction over the controversy. which does not defeat the very purpose for which they were
The Court’s Ruling passed.17 Courts should not follow the letter of a statute when to do so
The petition is unmeritorious. would depart from the true intent of the legislature or would otherwise
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are yield conclusions inconsistent with the purpose of the act.18 This Court
appealable to the CTA has, in many cases involving the construction of statutes, cautioned
47
against narrowly interpreting a statute as to defeat the purpose of the resorting to the Court of Tax Appeals whenever the Collector of Internal
legislator, and rejected the literal interpretation of statutes if todo so Revenue modifies, or lower his assessment on the return of a tax
would lead to unjust or absurd results. 19
payer!22
Indeed, to leave undetermined the mode of appeal from the Secretary The appellate power of the CTA includes certiorari
of Finance would be an injustice to taxpayers prejudiced by his adverse Petitioner is quick to point out, however, that the grounds raised in its
rulings. To remedy this situation, Weimply from the purpose of RA 1125 CA petition included the nullity of Section 7(c.2.2) of RR 06-08 and RMC
and its amendatory laws that the CTA is the proper forum with which to 25-11. In an attempt to divest the CTA jurisdiction over the controversy,
institute the appeal. This is not, and should not, in any way, be taken as petitioner then cites British American Tobacco, wherein this Court has
a derogation of the power of the Office of President but merely as expounded on the limited jurisdiction of the CTA in the following wise:
recognition that matters calling for technical knowledge should be While the above statute confers on the CTA jurisdiction to resolve tax
handled by the agency or quasi-judicial body with specialization over the disputes in general, this does not include cases where the
controversy. As the specialized quasi-judicial agency mandated to constitutionality of a law or rule is challenged. Where what is assailed is
adjudicate tax, customs, and assessment cases, there can be no other the validity or constitutionality of a law, or a rule or regulation issued by
court of appellate jurisdiction that can decide the issues raised inthe CA the administrative agency in the performance of its quasi legislative
petition, which involves the tax treatment of the shares of stocks sold. function, the regular courts have jurisdiction to pass upon the same. The
Petitioner, though, nextinvites attention to the ruling in Ursal v. Court of determination of whether a specific rule or set of rules issued by an
Tax Appeals20 to argue against granting the CTA jurisdiction by administrative agency contravenes the law or the constitution is within
implication, viz: the jurisdiction of the regular courts. Indeed, the Constitution vests the
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it power of judicial review or the power to declare a law, treaty,
blanket authority to decide any and all tax disputes. Defining such international or executive agreement, presidential decree, order,
special court’s jurisdiction, the Act necessarily limited its authority to instruction, ordinance, or regulation inthe courts, including the regional
those matters enumerated therein. Inline with this idea we recently trial courts. This is within the scope of judicial power, which includes the
approved said court’s order rejecting an appeal to it by Lopez & Sons authority of the courts to determine inan appropriate action the validity
from the decision of the Collector ofCustoms, because in our opinion its of the acts of the political departments. Judicial power includes the duty
jurisdiction extended only to a review of the decisions of the of the courts of justice to settle actual controversies involving rights
Commissioner of Customs, as provided bythe statute — and not to which are legally demandable and enforceable, and to determine
decisions of the Collector of Customs. (Lopez & Sons vs. The Court of whether or not there has been a grave abuse of discretion amounting
Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065). to lack or excess of jurisdiction on the part of any branch or
xxxx instrumentality of the Government.23
x x x Republic Act No. 1125 is a complete law by itself and expressly Vis-a-vis British American Tobacco, it bears to stress what appears to be
enumerates the matters which the Court of Tax Appeals may consider; a contrasting ruling in Asia International Auctioneers, Inc. v. Parayno,
such enumeration excludes all others by implication. Expressio unius est Jr., to wit:
exclusio alterius. Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree
Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out No. 1158 (The National Internal Revenue Code, as amended) which
of context, but worse as a precedent, it must be noted that the primary states that "[d]ealers in securities shall pay a tax equivalent to six (6%)
reason for the dismissal of the said case was that the petitioner therein per centum of their gross income. Lending investors shall pay a tax
lacked the personality to file the suit with the CTA because he was not equivalent to five (5%) per cent, of their gross income," the CIR issued
adversely affected by a decision or ruling of the Collector of Internal Revenue Memorandum Order (RMO) No. 15-91 imposing 5% lending
Revenue, as was required under Sec. 11 of RA 1125. As held:
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investor’s tax on pawnshops based on their gross income and requiring
We share the view that the assessor had no personality to resort to the all investigating units of the BIR to investigate and assess the lending
Court of Tax Appeals. The rulings of the Board of Assessment Appeals investor’s tax due from them. The issuance of RMO No. 15-91 was an
did not "adversely affect" him. At most it was the City of Cebu that had offshoot of the CIR’s finding that the pawnshop business is akin to that
been adversely affected in the sense that it could not thereafter collect of "lending investors" as defined in Section 157(u) of the Tax Code.
higher realty taxes from the abovementioned property owners. His Subsequently, the CIR issued RMC No. 43-91 subjecting pawn tickets to
opinion, it is true had been overruled; but the overruling inflicted no documentary stamp tax. Respondent therein, Josefina Leal, owner and
material damage upon him or his office. And the Court of Tax Appeals operator of Josefina’s Pawnshop, asked for a reconsideration of both
was not created to decide mere conflicts of opinion between RMO No. 15-91 and RMC No. 43-91, but the same was denied by
administrative officers or agencies. Imagine an income tax examiner petitioner CIR. Leal then filed a petition for prohibition with the RTC of
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San Mateo, Rizal, seeking to prohibit petitioner CIR from implementing Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of
the revenue orders. The CIR, through the OSG, filed a motion to dismiss shares is a taxable donation under Sec. 100 of the NIRC. The validity of
on the ground of lack of jurisdiction. The RTC denied the motion. Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned
Petitioner filed a petition for certiorari and prohibition with the CA which incidentally since it was used by the CIR as bases for its unfavourable
dismissed the petition "for lack of basis." In reversing the CA, dissolving opinion. Clearly, the Petition involves an issue on the taxability of the
the Writ of Preliminary Injunction issued by the trial court and ordering transaction rather than a direct attack on the constitutionality of Sec.
the dismissal of the case before the trial court, the Supreme Court held 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant
that "[t]he questioned RMO No. 15-91 and RMC No. 43-91 are actually Petition properly pertains to the CTA under Sec. 7 of RA 9282.
rulings or opinions of the Commissioner implementing the Tax Code on As a result of the seemingly conflicting pronouncements, petitioner
the taxability of pawnshops." They were issued pursuant to the CIR’s submits that taxpayers are now at a quandary on what mode of appeal
power under Section 245 of the Tax Code "to make rulings or opinions should be taken, to which court or agency it should be filed, and which
in connection with the implementation of the provisions of internal case law should be followed.
revenue laws, including ruling on the classification of articles of sales Petitioner’s above submission is specious.
and similar purposes."The Court held that under R.A. No. 1125 (An Act In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en
Creating the Court of Tax Appeals), as amended, such rulings of the CIR banc has ruled that the CTA now has the power of certiorari in cases
are appealable to the CTA. within its appellate jurisdiction. To elucidate:
In the case at bar, the assailed revenue regulations and revenue The prevailing doctrine is that the authority to issue writs of certiorari
memorandum circulars are actually rulings or opinions of the CIR on the involves the exercise of original jurisdiction which must be expressly
tax treatment of motor vehicles sold at public auction within the SSEZ conferred by the Constitution or by law and cannot be implied from the
to implement Section 12 of R.A. No. 7227 which provides that mere existence of appellate jurisdiction. Thus, x x x this Court has ruled
"exportation or removal of goods from the territory of the [SSEZ] to the against the jurisdiction of courts or tribunals over petitions for certiorari
other parts of the Philippine territory shall be subject to customs duties on the ground that there is no law which expressly gives these tribunals
and taxes under the Customs and Tariff Codeand other relevant tax laws such power. Itmust be observed, however, that x x x these rulings
of the Philippines." They were issued pursuant to the power of the CIR pertain not to regular courts but to tribunals exercising quasijudicial
under Section 4 of the National Internal Revenue Code x x powers. With respect tothe Sandiganbayan, Republic Act No. 8249 now
x. (emphasis added)
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provides that the special criminal court has exclusive original jurisdiction
The respective teachings in British American Tobacco and Asia over petitions for the issuance of the writs of mandamus, prohibition,
International Auctioneers, at first blush, appear to bear no conflict––that certiorari, habeas corpus, injunctions, and other ancillary writs and
when the validity or constitutionality of an administrative rule or processes in aid of its appellate jurisdiction.
regulation is assailed, the regular courts have jurisdiction; and if what is In the same manner, Section 5 (1), Article VIII of the 1987 Constitution
assailed are rulings or opinions of the Commissioner on tax treatments, grants power to the Supreme Court, in the exercise of its original
jurisdiction over the controversy is lodged with the CTA. The problem jurisdiction, to issue writs of certiorari, prohibition and mandamus. With
with the above postulates, however, is that they failed to take into respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg.
consideration one crucial point––a taxpayer can raise both issues 129 (BP 129) gives the appellate court, also in the exercise of its original
simultaneously. jurisdiction, the power to issue, among others, a writ of certiorari,
Petitioner avers that there is now a trend wherein both the CTA and the whether or not in aid of its appellate jurisdiction. As to Regional Trial
CA disclaim jurisdiction over tax cases: on the one hand, mere prayer Courts, the power to issue a writ of certiorari, in the exercise of their
for the declaration of a tax measure’s unconstitutionality or invalidity original jurisdiction, is provided under Section 21 of BP 129.
before the CTA can result in a petition’s outright dismissal, and on the The foregoing notwithstanding, while there is no express grant of such
other hand, the CA will likewise dismiss the same petition should it find power, with respect to the CTA, Section 1, Article VIII of the 1987
that the primary issue is not the tax measure’s validity but the Constitution provides, nonetheless, that judicial power shall be vested in
assessment or taxability of the transaction or subject involved. To one Supreme Court and in such lower courts as may be established by
illustrate this point, petitioner cites the assailed Resolution, thusly: law and that judicial power includes the duty of the courts of justice to
Admittedly, in British American Tobacco vs. Camacho, the Supreme settle actual controversies involving rights which are legally demandable
Court has ruled that the determination of whether a specific rule or set and enforceable, and to determine whether or not there has been a
of rules issued by an administrative agency contravenes the law or the grave abuse of discretion amounting to lack or excess of jurisdiction on
constitution is within the jurisdiction of the regular courts, not the CTA. the part of any branch or instrumentality of the Government.
xxxx
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On the strength of the above constitutional provisions, it can be fairly of Sec. 100, which was already in force the moment the NIRC was
interpreted that the power of the CTA includes that of determining enacted.
whether or not there has been grave abuse of discretion amounting to WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the
lack or excess of jurisdiction on the part of the RTC in issuing an Court of Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and
interlocutory order in cases falling within the exclusive appellate January 21, 2014 are hereby AFFIRMED.
jurisdiction of the tax court. It, thus, follows that the CTA, by SO ORDERED.
constitutional mandate, is vested with jurisdiction to issue writs of
certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its
appellate jurisdiction, it must have the authority to issue, among others,
a writ of certiorari. In transferring exclusive jurisdiction over appealed
tax cases to the CTA, it can reasonably be assumed that the law intended
to transfer also such power as is deemed necessary, if not indispensable,
in aid of such appellate jurisdiction. There is no perceivable reason why
the transfer should only be considered as partial, not total. (emphasis
added)
Evidently, City of Manilacan be considered as a departure from Ursal in
that in spite of there being no express grant in law, the CTA is deemed
granted with powers of certiorari by implication. Moreover, City of Manila
diametrically opposes British American Tobacco to the effect that it is
now within the power of the CTA, through its power of certiorari, to rule
on the validity of a particular administrative ruleor regulation so long as
it is within its appellate jurisdiction. Hence, it can now rule not only on
the propriety of an assessment or tax treatment of a certain transaction,
but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact
that the CA petition not only contested the applicability of Sec. 100 of
the NIRC over the sales transaction but likewise questioned the validity
of Sec. 7 (c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of
its jurisdiction over the controversy, contrary to petitioner's arguments.
The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of
donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a
gift.1âwphi1 Thus, even if there is no actual donation, the difference in
price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC
but merely sets the parameters for determining the "fair market value"
of a sale of stocks. Such issuance was made pursuant to the
Commissioner's power to interpret tax laws and to promulgate rules and
regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been
issued after the sale, was being applied retroactively in contravention to
Sec. 246 of the NIRC.26 Instead, it merely called for the strict application

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