FIRST DIVISION

[G.R. No. 120721. February 23, 2005]

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA,

AVELINO V. CRUZ, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS, respondents.

DECISION

AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the decision of the Court of Appeals in CA G.R. SP No.
27134, entitled Comissioner of Internal Revenue v. Manuel G. Abello, Jose C.
Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals,
which reversed and set aside the decision of the Court of Tax Appeals (CTA),
ordering the Commissioner of Internal Revenue (Commissioner) to withdraw
his letters dated April 21, 1988 and August 4, 1988 assessing donors taxes
and to desist from collecting donors taxes from petitioners.

During the 1987 national elections, petitioners, who are partners in the
Angara, Abello, Concepcion, Regala and Cruz (ACCRA) law firm,
contributed P882,661.31 each to the campaign funds of Senator Edgardo
Angara, then running for the Senate. In letters dated April 21, 1988, the
Bureau of Internal Revenue (BIR) assessed each of the
petitioners P263,032.66 for their contributions. On August 2, 1988, petitioners
questioned the assessment through a letter to the BIR. They claimed that
political or electoral contributions are not considered gifts under the National
Internal Revenue Code (NIRC), and that, therefore, they are not liable for
donors tax. The claim for exemption was denied by the Commissioner. [1]

On September 12, 1988, petitioners filed a petition for review with the
CTA, which was decided on October 7, 1991 in favor of the petitioners. As
aforestated, the CTA ordered the Commissioner to desist from collecting
donors taxes from the petitioners. [2]

On appeal, the Court of Appeals reversed and set aside the CTA decision
on April 20, 1994. The appellate Court ordered the petitioners to pay donors
[3]

tax amounting to P263,032.66 each, reasoning as follows:

The National Internal Revenue Code, as amended, provides:

Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and paid
upon the transfer by any person, resident, or non-resident, of the property by gift, a
tax, computed as provided in Section 92. (b) The tax shall apply whether the transfer
is in trust or otherwise, whether the gift is direct or indirect, and whether the property
is real or personal, tangible or intangible.

Pursuant to the above-quoted provisions of law, the transfer of property by gift,

whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible, is subject to donors or
gift tax.

A gift is generally defined as a voluntary transfer of property by one to another

without any consideration or compensation therefor (28 C.J. 620; Santos vs. Robledo,
28 Phil. 250).

In the instant case, the contributions are voluntary transfers of property in the form of
money from private respondents to Sen. Angara, without considerations therefor.
Hence, they squarely fall under the definition of donation or gift.

As correctly pointed out by the Solicitor General:

The fact that the contributions were given to be used as campaign funds of Sen.
Angara does not affect the character of the fund transfers as donation or gift. There
was thereby no retention of control over the disposition of the contributions. There
was simply an indication of the purpose for which they were to be used. For as long as
the contributions were used for the purpose for which they were intended, Sen.
Angara had complete and absolute power to dispose of the contributions. He was fully
entitled to the economic benefits of the contributions.

Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on the
transfer of property by gift.

The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:

Political Contributions. For internal revenue purposes, political contributions in the

Philippines are considered taxable gift rather than taxable income. This is so, because
a political contribution is indubitably not intended by the giver or contributor as a
return of value or made because of any intent to repay another what is his due, but
bestowed only because of motives of philanthropy or charity. His purpose is to give
and to bolster the morals, the winning chance of the candidate and/or his party, and
not to employ or buy. On the other hand, the recipient-donee does not regard himself
as exchanging his services or his product for the money contributed. But more
importantly he receives financial advantages gratuitously.

When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the
taxability of political contributions was, admittedly, an unsettled issue; hence, it
cannot be presumed that the Philippine Congress then had intended to consider or
treat political contributions as non-taxable gifts when it adopted the said gift tax law.
Moreover, well-settled is the rule that the Philippines need not necessarily adopt the
present rule or construction in the United States on the matter. Generally, statutes of
different states relating to the same class of persons or things or having the same
purposes are not considered to be in pari materia because it cannot be justifiably
presumed that the legislature had them in mind when enacting the provision being
construed. (5206, Sutherland, Statutory Construction, p. 546.) Accordingly, in the
absence of an express exempting provision of law, political contributions in the
Philippines are subject to the donors gift tax. (cited in National Internal Revenue Code
Annotated by Hector S. de Leon, 1991 ed., p. 290).

In the light of the above BIR Ruling, it is clear that the political contributions of the
private respondents to Sen. Edgardo Angara are taxable gifts. The vagueness of the
law as to what comprise the gift subject to tax was made concrete by the above-quoted
BIR ruling. Hence, there is no doubt that political contributions are taxable gifts.
[4]

Petitioners filed a motion for reconsideration, which the Court of Appeals

denied in its resolution of June 16, 1995. [5]

Petitioners thereupon filed the instant petition on July 26, 1995. Raised are
the following issues:

1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO

CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF
OUR GIFT TAX LAW?

2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE

INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE
PETITIONERS POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?

3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO

CONSIDER THE DEFINITION OF AN ELECTORAL CONTRIBUTION UNDER
THE OMNIBUS ELECTION CODE IN DETERMINING WHETHER OR NOT
POLITICAL CONTRIBUTIONS ARE TAXABLE?

4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE

ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT
SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?

5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE

AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX
APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?

6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN

JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT KNOWN AT THE
TIME THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?

7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE

MAINLY ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY
AFTER THE ASSESSMENTS HAD ALREADY BEEN MADE?
 8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT
CONSTRUE THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER
AND STRICLTY AGAINST THE GOVERNMENT IN ACCORDANCE WITH
APPLICABLE PRINCIPLES OF STATUTORY CONSTRUCTION?[6]

First, Fifth and Sixth Issues

Section 91 of the National Internal Revenue Code (NIRC) reads:

(A) There shall be levied, assessed, collected and paid upon the transfer by
any person, resident or nonresident, of the property by gift, a tax,
computed as provided in Section 92

(B) The tax shall apply whether the transfer is in trust or otherwise, whether
the gift is direct or indirect, and whether the property is real or personal,
tangible or intangible.

The NIRC does not define transfer of property by gift. However, Article 18
of the Civil Code, states:

In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by the provisions of this Code.

Thus, reference may be made to the definition of a donation in the Civil Code.
Article 725 of said Code defines donation as:

. . . an act of liberality whereby a person disposes gratuitously of a thing or right in

favor of another, who accepts it.

Donation has the following elements: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do
an act of liberality or animus donandi. [7]

The present case falls squarely within the definition of a donation.

Petitioners, the late Manuel G. Abello , Jose C. Concepcion, Teodoro D.
[8]

Regala and Avelino V. Cruz, each gave P882,661.31 to the campaign funds of
Senator Edgardo Angara, without any material consideration. All three
elements of a donation are present. The patrimony of the four petitioners were
reduced by P882,661.31 each. Senator Edgardo Angaras patrimony
correspondingly increased by P3,530,645.24 . There was intent to do an act
[9]

of liberality or animus donandi was present since each of the petitioners gave
their contributions without any consideration.

Taken together with the Civil Code definition of donation, Section 91 of the
NIRC is clear and unambiguous, thereby leaving no room for construction.
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court the [10]

Court enunciated:
It bears stressing that the first and fundamental duty of the Court is to apply the law.
When the law is clear and free from any doubt or ambiguity, there is no room for
construction or interpretation. As has been our consistent ruling, where the law speaks
in clear and categorical language, there is no occasion for interpretation; there is only
room for application (Cebu Portland Cement Co. v. Municipality of Naga, 24 SCRA
708 [1968])

Where the law is clear and unambiguous, it must be taken to mean exactly what it
says and the court has no choice but to see to it that its mandate is obeyed (Chartered
Bank Employees Association v. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. v.
De Garcia, 30 SCRA 111 [1969]; Quijano v. Development Bank of the Philippines, 35
SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court interpret or
construe its true intent. Ambiguity is a condition of admitting two or more meanings,
of being understood in more than one way, or of referring to two or more things at the
same time. A statute is ambiguous if it is admissible of two or more possible
meanings, in which case, the Court is called upon to exercise one of its judicial
functions, which is to interpret the law according to its true intent.

Second Issue

Since animus donandi or the intention to do an act of liberality is an

essential element of a donation, petitioners argue that it is important to look
into the intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature of
the mind. It cannot be perceived except by the material and tangible acts
which manifest its presence. This being the case, donative intent is presumed
present when one gives a part of ones patrimony to another without
consideration. Second, donative intent is not negated when the person
donating has other intentions, motives or purposes which do not contradict
donative intent. This Court is not convinced that since the purpose of the
contribution was to help elect a candidate, there was no donative intent.
Petitioners contribution of money without any material consideration
evinces animus donandi. The fact that their purpose for donating was to aid in
the election of the donee does not negate the presence of donative intent.

Third Issue

Petitioners maintain that the definition of an electoral contribution under

the Omnibus Election Code is essential to appreciate how a political
contribution differs from a taxable gift. Section 94(a) of the said Code defines
[11]

electoral contribution as follows:

The term "contribution" includes a gift, donation, subscription, loan, advance or

deposit of money or anything of value, or a contract, promise or agreement to
contribute, whether or not legally enforceable, made for the purpose of influencing the
results of the elections but shall not include services rendered without compensation
by individuals volunteering a portion or all of their time in behalf of a candidate or
political party. It shall also include the use of facilities voluntarily donated by other
persons, the money value of which can be assessed based on the rates prevailing in the
area.

Since the purpose of an electoral contribution is to influence the results of

the election, petitioners again claim that donative intent is not present.
Petitioners attempt to place the barrier of mutual exclusivity between donative
intent and the purpose of political contributions. This Court reiterates that
donative intent is not negated by the presence of other intentions, motives or
purposes which do not contradict donative intent.

Petitioners would distinguish a gift from a political donation by saying that

the consideration for a gift is the liberality of the donor, while the consideration
for a political contribution is the desire of the giver to influence the result of an
election by supporting candidates who, in the perception of the giver, would
influence the shaping of government policies that would promote the general
welfare and economic well-being of the electorate, including the giver himself.

Petitioners attempt is strained. The fact that petitioners will somehow in

the future benefit from the election of the candidate to whom they contribute,
in no way amounts to a valuable material consideration so as to remove
political contributions from the purview of a donation. Senator Angara was
under no obligation to benefit the petitioners. The proper performance of his
duties as a legislator is his obligation as an elected public servant of the
Filipino people and not a consideration for the political contributions he
received. In fact, as a public servant, he may even be called to enact laws that
are contrary to the interests of his benefactors, for the benefit of the greater
good.

In fine, the purpose for which the sums of money were given, which was to
fund the campaign of Senator Angara in his bid for a senatorial seat, cannot
be considered as a material consideration so as to negate a donation.

Fourth Issue

Petitioners raise the fact that since 1939 when the first Tax Code was
enacted, up to 1988 the BIR never attempted to subject political contributions
to donors tax. They argue that:

. . . It is a familiar principle of law that prolonged practice by the government agency

charged with the execution of a statute, acquiesced in and relied upon by all concerned
over an appreciable period of time, is an authoritative interpretation thereof, entitled to
great weight and the highest respect. . . .
[12]
 This Court holds that the BIR is not precluded from making a new
interpretation of the law, especially when the old interpretation was flawed. It
is a well-entrenched rule that

. . . erroneous application and enforcement of the law by public officers do not block
subsequent correct application of the statute (PLDT v. Collector of Internal Revenue,
90 Phil. 676), and that the Government is never estopped by mistake or error on the
part of its agents (Pineda v. Court of First Instance of Tayabas, 52 Phil. 803, 807;
Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724). [13]

Seventh Issue

Petitioners question the fact that the Court of Appeals decision is based on
a BIR ruling, namely BIR Ruling No. 88-344, which was issued after the
petitioners were assessed for donors tax. This Court does not need to delve
into this issue. It is immaterial whether or not the Court of Appeals based its
decision on the BIR ruling because it is not pivotal in deciding this case. As
discussed above, Section 91 (now Section 98) of the NIRC as supplemented
by the definition of a donation found in Article 725 of the Civil Code, is clear
and unambiguous, and needs no further elucidation.

Eighth Issue

Petitioners next contend that tax laws are construed liberally in favor of the
taxpayer and strictly against the government. This rule of construction,
however, does not benefit petitioners because, as stated, there is here no
room for construction since the law is clear and unambiguous.

Finally, this Court takes note of the fact that subsequent to the donations
involved in this case, Congress approved Republic Act No. 7166 on
November 25, 1991, providing in Section 13 thereof that political/electoral
contributions, duly reported to the Commission on Elections, are not subject to
the payment of any gift tax. This all the more shows that the political
contributions herein made are subject to the payment of gift taxes, since the
same were made prior to the exempting legislation, and Republic Act No.
7166 provides no retroactive effect on this point.

WHEREFORE, the petition is DENIED and the assailed Decision and

Resolution of the Court of Appeals are AFFIRMED.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Quisumbing, and Carpio, JJ., concur.

 Ynares-Santiago, J., no part.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 210987 November 24, 2014

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
and seeking the reversal of the Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 127984,
dated May 23, 2013 and January 21, 2014, which dismissed outright the petitioner's appeal from the
1

Secretary of Finance's review of BIR Ruling No. 015-12 for lack of jurisdiction.
2

The Facts

Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to own
498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing 49.89% of
the latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the
health maintenance organization industry, offered to sell its shareholdings in PhilamCare through
competitive bidding. Thus, on September 24, 2009, petitioner's Class A shares were sold for USD
2,190,000, or PhP 104,259,330 based on the prevailing exchange rate at the time of the sale, to STI
Investments, Inc., who emerged as the highest bidder. 3

After the sale was completed and the necessary documentary stamp and capital gains taxes were
paid, Philamlife filed an application for a certificate authorizing registration/tax clearance with the
Bureau of Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the
shares. Months later, petitioner was informed that it needed to secure a BIR ruling in connection with
its application due to potential donors tax liability. In compliance, petitioner, on January 4, 2012,
requested a ruling to confirm that the sale was not subject to donors tax, pointing out, in its request,
4

the following: that the transaction cannot attract donors tax liability since there was no donative
intent and,ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27,
2009; that the shares were sold at their actual fair market value and at arms length; that as long as
5

the transaction conducted is at arms lengthsuch that a bona fide business arrangement of the
dealings is done inthe ordinary course of businessa sale for less than an adequate consideration
is not subject to donors tax; and that donors tax does not apply to saleof shares sold in an open
bidding process.

On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner)

denied Philamlifes request through BIR Ruling No. 015-12. As determined by the Commissioner, the
selling price of the shares thus sold was lower than their book value based on the financial
statements of PhilamCare as of the end of 2008. As such, the Commisioner held, donors tax
6

became imposable on the price difference pursuant to Sec. 100 of the National Internal Revenue
Code (NIRC), viz:

SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property, other than real
property referred to in Section 24(D), is transferred for less than an adequate and full consideration
in money or moneys worth, then the amount by which the fair market value of the property
exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.

The afore-quoted provision, the Commissioner added, is implemented by Revenue Regulation 6-

2008 (RR 6-2008), which provides:

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH A

LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c),
28(B)(5)(c) OF THE TAX CODE, AS AMENDED.

xxxx

(c) Determination of Amount and Recognition of Gain or Loss

(c.1) In the case of cash sale, the selling price shall be the consideration per deed of sale.

xxxx

(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater
than the amount of money and/or fair market value of the property received, the excess of the fair
market value of the shares of stock sold, bartered or exchanged overthe amount of money and the
fair market value of the property, if any, received as consideration shall be deemed a gift subject to
the donorstax under Section 100 of the Tax Code, as amended.
 xxxx

(c.2) Definition of fair market valueof Shares of Stock. For purposes of this Section, fair market
value of the share of stock sold shall be:

xxxx

(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book
value of the shares of stock as shown in the financial statements duly certified by an independent
certified public accountant nearest to the date of sale shall be the fair market value.

In view of the foregoing, the Commissioner ruled that the difference between the book value and the
selling price in the sales transaction is taxable donation subject to a 30% donors tax under Section
99(B) of the NIRC. Respondent Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-09],
7

on which petitioner anchored its claim, has already been revoked by Revenue Memorandum Circular
(RMC) No. 25-2011. 8

Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR Ruling
No. 015-12, but to no avail. For on November 26, 2012, respondent Secretary affirmed the
Commissioners assailed ruling in its entirety.9

Ruling of the Court of Appeals

Not contented with the adverse results, petitioner elevated the case to the CA via a petition for
review under Rule 43, assigning the following errors: 10

A.

The Honorable Secretary of Finance gravely erred in not finding that the application of Section
7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC 25-11 is void insofar as it altersthe meaning
and scope of Section 100 of the Tax Code.

B.

The Honorable Secretary of Finance gravely erred in finding that Section 100 of the Tax Code is
applicable tothe sale of the Sale of Shares.

1.

The Sale of Shares were sold at their fair market value and for fair and full
consideration in money or moneys worth.

2.

The sale of the Sale Shares is a bona fide business transaction without any donative
intent and is therefore beyond the ambit of Section 100 of the Tax Code.

3.

It is superfluous for the BIR to require an express provision for the exemption of the
sale of the Sale Shares from donors tax since Section 100 of the Tax Code does not
explicitly subject the transaction to donors tax.

C.

The Honorable Secretary of Finance gravely erred in failing to find that in the absence of any of the
grounds mentioned in Section 246 of the Tax Code, rules and regulations, rulings or circulars such
as RMC 25-11 cannot be given retroactive application to the prejudice of Philamlife.

On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition, thusly:

WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of jurisdiction.
SO ORDERED.

In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax Appeals
(CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125), as amended, which has
11

jurisdiction over the issues raised. The outright dismissal, so the CA held, is predicated on the
postulate that BIR Ruling No. 015-12 was issued in the exercise of the Commissioners power to
interpret the NIRC and other tax laws. Consequently, requesting for its review can be categorized as
"other matters arising under the NIRC or other laws administered by the BIR," which is under the
jurisdiction of the CTA, not the CA.

Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21, 2014
Resolution, maintained its earlier position. Hence, the instant recourse.

Issues

Stripped to the essentials, the petition raises the following issues in both procedure and substance:

1. Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction; and

2. Whether or not the price difference in petitioners adverted sale of shares in PhilamCare
attracts donors tax.

Procedural Arguments

a. Petitioners contentions

Insisting on the propriety of the interposed CA petition, Philamlife, while conceding that respondent
Commissioner issued BIR Ruling No. 015-12 in accordance with her authority to interpret tax laws,
argued nonetheless that such ruling is subject to review by the Secretary of Finance under Sec. 4 of
the NIRC, to wit:

SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The
power to interpret the provisions of this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code orother laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. Petitioner postulates that
there is a need to differentiate the rulings promulgated by the respondent Commissioner relating to
those rendered under the first paragraph of Sec. 4 of the NIRC, which are appealable to the
Secretary of Finance, from those rendered under the second paragraph of Sec. 4 of the NIRC, which
are subject to review on appeal with the CTA.

This distinction, petitioner argues, is readily made apparent by Department Order No. 7-02, as 12

circularized by RMC No. 40-A-02.

Philamlife further averred that Sec.7 of RA 1125, as amended, does not find application in the case
at bar since it only governs appeals from the Commissioners rulings under the second paragraph
and does not encompass rulings from the Secretary of Finance in the exercise of his power of review
under the first, as what was elevated to the CA. It added that under RA 1125, as amended, the only
decisions of the Secretary appealable to the CTA are those rendered in customs cases elevated to
him automatically under Section 2315 of the Tariff and Customs Code. 13

There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as amended, failed to
supply where the rulings of the Secretary in its exercise of its power of review under Sec. 4 of the
NIRC are appealable to. This gap, petitioner submits, was remedied by British American Tobacco v.
Camacho wherein the Court ruled that where what is assailed is the validity or constitutionality of a
14

law, or a rule or regulation issued by the administrative agency, the regular courts have jurisdiction to
pass upon the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise of its power of
review under Sec. 4 of the NIRC are not within the CTAs limited special jurisdiction and, according
to petitioner, are appealable to the CA via a Rule 43 petition for review.

b. Respondents contentions

Before the CA, respondents countered petitioners procedural arguments by claiming that even
assuming arguendo that the CTA does not have jurisdiction over the case, Philamlife,
nevertheless,committed a fatal error when it failed to appeal the Secretary of Finances ruling to the
Office of the President (OP). As made apparent by the rules, the Department of Finance is not
among the agencies and quasi-judicial bodies enumerated under Sec. 1, Rule 43 of the Rules of
Court whose decisions and rulings are appealable through a petition for review. This is in stark
15

contrast to the OPs specific mention under the same provision, so respondents pointed out.

To further reinforce their argument, respondents cite the Presidents power of review emanating from
his power of control as enshrined under Sec. 17 of Article VII of the Constitution, which reads:

Section 17.The President shall have control of all the executive departments, bureaus, and offices.
He shall ensure that the laws be faithfully executed.

The nature and extent of the Presidents constitutionally granted power of control have beendefined
in a plethora of cases, most recently in Elma v. Jacobi, wherein it was held that:
16

x x x This power of control, which even Congress cannot limit, let alone withdraw, means the power
of the Chief Executive to review, alter, modify, nullify, or set aside what a subordinate, e.g., members
of the Cabinet and heads of line agencies, had done in the performance of their duties and to
substitute the judgment of the former for that of the latter.

In their Comment on the instant petition, however, respondents asseverate that the CA did not err in
its holding respecting the CTAs jurisdiction over the controversy.

The Courts Ruling

The petition is unmeritorious.

Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA

To recapitulate, three different, if not conflicting, positions as indicated below have been advanced
by the parties and by the CA as the proper remedy open for assailing respondents rulings:

1. Petitioners: The ruling of the Commissioner is subject to review by the Secretary under
Sec. 4 of the NIRC, and that of the Secretary to the CA via Rule 43;

2. Respondents: The ruling of the Commissioner is subject to review by the Secretary under
Sec. 4 of the NIRC, and that of the Secretary to the Office of the President before appealing
to the CA via a Rule 43 petition; and

3. CA: The ruling of the Commissioner is subject to review by the CTA.

We now resolve.

Preliminarily, it bears stressing that there is no dispute that what is involved herein is the respondent
Commissioners exercise of power under the first paragraph of Sec. 4 of the NIRCthe power to
interpret tax laws. This, in fact, was recognized by the appellate court itself, but erroneously held that
her action in the exercise of such power is appealable directly to the CTA. As correctly pointed out by
petitioner, Sec. 4 of the NIRC readily provides that the Commissioners power to interpret the
provisions of this Code and other tax laws is subject to review by the Secretary of Finance. The
issue that now arises is thiswhere does one seek immediate recourse from the adverse ruling of
the Secretary of Finance in its exercise of its power of review under Sec. 4?

Admittedly, there is no provision in law that expressly provides where exactly the ruling of the
Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that
Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law asit vests the CTA,
albeit impliedly, with jurisdiction over the CA petition as "other matters" arising under the NIRC or
other laws administered by the BIR. As stated:

Sec. 7. Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,

refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of
Internal Revenue. (emphasis supplied)

Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it
is, nonetheless, sufficient enough to include appeals from the Secretarys review under Sec. 4 of the
NIRC.

It is axiomatic that laws should be given a reasonable interpretation which does not defeat the very
purpose for which they were passed. Courts should not follow the letter of a statute when to do so
17

would depart from the true intent of the legislature or would otherwise yield conclusions inconsistent
with the purpose of the act. This Court has, in many cases involving the construction of statutes,
18

cautioned against narrowly interpreting a statute as to defeat the purpose of the legislator, and
rejected the literal interpretation of statutes if todo so would lead to unjust or absurd results.
19

Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an
injustice to taxpayers prejudiced by his adverse rulings. To remedy this situation, Weimply from the
purpose of RA 1125 and its amendatory laws that the CTA is the proper forum with which to institute
the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the
Office of President but merely as recognition that matters calling for technical knowledge should be
handled by the agency or quasi-judicial body with specialization over the controversy. As the
specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment cases,
there can be no other court of appellate jurisdiction that can decide the issues raised inthe CA
petition, which involves the tax treatment of the shares of stocks sold. Petitioner, though, nextinvites
attention to the ruling in Ursal v. Court of Tax Appeals to argue against granting the CTA jurisdiction
20

by implication, viz:

Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide
any and all tax disputes. Defining such special courts jurisdiction, the Act necessarily limited its
authority to those matters enumerated therein. Inline with this idea we recently approved said courts
order rejecting an appeal to it by Lopez & Sons from the decision of the Collector ofCustoms,
because in our opinion its jurisdiction extended only to a review of the decisions of the
Commissioner of Customs, as provided bythe statute and not to decisions of the Collector of
Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).

xxxx

x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which
the Court of Tax Appeals may consider; such enumeration excludes all others by implication.
Expressio unius est exclusio alterius.

Petitioners contention is untenable. Lest the ruling in Ursalbe taken out of context, but worse as a
precedent, it must be noted that the primary reason for the dismissal of the said case was that the
petitioner therein lacked the personality to file the suit with the CTA because he was not adversely
affected by a decision or ruling of the Collector of Internal Revenue, as was required under Sec. 11
of RA 1125. As held:
21

We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The
rulings of the Board of Assessment Appeals did not "adversely affect" him. At most it was the City of
Cebu that had been adversely affected in the sense that it could not thereafter collect higher realty
taxes from the abovementioned property owners. His opinion, it is true had been overruled; but the
overruling inflicted no material damage upon him or his office. And the Court of Tax Appeals was not
created to decide mere conflicts of opinion between administrative officers or agencies. Imagine an
income tax examiner resorting to the Court of Tax Appeals whenever the Collector of Internal
Revenue modifies, or lower his assessment on the return of a tax payer! 22

The appellate power of the CTA includes certiorari

Petitioner is quick to point out, however, that the grounds raised in its CA petition included the nullity
of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to divest the CTA jurisdiction over the
controversy, petitioner then cites British American Tobacco, wherein this Court has expounded on
the limited jurisdiction of the CTA in the following wise:

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does
not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is
the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in
the performance of its quasi legislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed,
the Constitution vests the power of judicial review or the power to declare a law, treaty, international
or executive agreement, presidential decree, order, instruction, ordinance, or regulation inthe courts,
including the regional trial courts. This is within the scope of judicial power, which includes the
authority of the courts to determine inan appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government. 23

Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting ruling in Asia
International Auctioneers, Inc. v. Parayno, Jr., to wit:

Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158 (The National
Internal Revenue Code, as amended) which states that "[d]ealers in securities shall pay a tax
equivalent to six (6%) per centum of their gross income. Lending investors shall pay a tax equivalent
to five (5%) per cent, of their gross income," the CIR issued Revenue Memorandum Order (RMO)
No. 15-91 imposing 5% lending investors tax on pawnshops based on their gross income and
requiring all investigating units of the BIR to investigate and assess the lending investors tax due
from them. The issuance of RMO No. 15-91 was an offshoot of the CIRs finding that the pawnshop
business is akin to that of "lending investors" as defined in Section 157(u) of the Tax Code.
Subsequently, the CIR issued RMC No. 43-91 subjecting pawn tickets to documentary stamp tax.
Respondent therein, Josefina Leal, owner and operator of Josefinas Pawnshop, asked for a
reconsideration of both RMO No. 15-91 and RMC No. 43-91, but the same was denied by petitioner
CIR. Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal, seeking to prohibit
petitioner CIR from implementing the revenue orders. The CIR, through the OSG, filed a motion to
dismiss on the ground of lack of jurisdiction. The RTC denied the motion. Petitioner filed a petition for
certiorari and prohibition with the CA which dismissed the petition "for lack of basis." In reversing the
CA, dissolving the Writ of Preliminary Injunction issued by the trial court and ordering the dismissal
of the case before the trial court, the Supreme Court held that "[t]he questioned RMO No. 15-91 and
RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the Tax Code on
the taxability of pawnshops." They were issued pursuant to the CIRs power under Section 245 of
the Tax Code "to make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws, including ruling on the classification of articles of sales and similar
purposes."The Court held that under R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as
amended, such rulings of the CIR are appealable to the CTA.

In the case at bar, the assailed revenue regulations and revenue memorandum circulars are actually
rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public auction within the
SSEZ to implement Section 12 of R.A. No. 7227 which provides that "exportation or removal of
goods from the territory of the [SSEZ] to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Codeand other relevant tax laws of the
Philippines." They were issued pursuant to the power of the CIR under Section 4 of the National
Internal Revenue Code x x x. (emphasis added)
24

The respective teachings in British American Tobacco and Asia International Auctioneers, at first
blush, appear to bear no conflictthat when the validity or constitutionality of an administrative rule
or regulation is assailed, the regular courts have jurisdiction; and if what is assailed are rulings or
opinions of the Commissioner on tax treatments, jurisdiction over the controversy is lodged with the
CTA. The problem with the above postulates, however, is that they failed to take into consideration
one crucial pointa taxpayer can raise both issues simultaneously.

Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim jurisdiction over
tax cases: on the one hand, mere prayer for the declaration of a tax measures unconstitutionality or
invalidity before the CTA can result in a petitions outright dismissal, and on the other hand, the CA
will likewise dismiss the same petition should it find that the primary issue is not the tax measures
validity but the assessment or taxability of the transaction or subject involved. To illustrate this point,
petitioner cites the assailed Resolution, thusly: Admittedly, in British American Tobacco vs. Camacho,
the Supreme Court has ruled that the determination of whether a specific rule or set of rules issued
by an administrative agency contravenes the law or the constitution is within the jurisdiction of the
regular courts, not the CTA.

xxxx

Petitioner essentially questions the CIRs ruling that Petitioners sale of shares is a taxable donation
under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is
merely questioned incidentally since it was used by the CIR as bases for its unfavourable opinion.
Clearly, the Petition involves an issue on the taxability of the transaction rather than a direct attack
on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant
Petition properly pertains to the CTA under Sec. 7 of RA 9282.

As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now
at a quandary on what mode of appeal should be taken, to which court or agency it should be filed,
and which case law should be followed.

Petitioners above submission is specious.

In the recent case of City of Manila v. Grecia-Cuerdo, the Court en banc has ruled that the CTA now
25

has the power of certiorari in cases within its appellate jurisdiction. To elucidate:

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original
jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied
from the mere existence of appellate jurisdiction. Thus, x x x this Court has ruled against the
jurisdiction of courts or tribunals over petitions for certiorari on the ground that there is no law which
expressly gives these tribunals such power. Itmust be observed, however, that x x x these rulings
pertain not to regular courts but to tribunals exercising quasijudicial powers. With respect tothe
Sandiganbayan, Republic Act No. 8249 now provides that the special criminal court has exclusive
original jurisdiction over petitions for the issuance of the writs of mandamus, prohibition, certiorari,
habeas corpus, injunctions, and other ancillary writs and processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme
Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and
mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP
129) gives the appellate court, also in the exercise of its original jurisdiction, the power to issue,
among others, a writ of certiorari, whether or not in aid of its appellate jurisdiction. As to Regional
Trial Courts, the power to issue a writ of certiorari, in the exercise of their original jurisdiction, is
provided under Section 21 of BP 129.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the
CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall
be vested in one Supreme Court and in such lower courts as may be established by law and that
judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of
the CTA includes that of determining whether or not there has been grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in
cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA,
by 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. Thus, even if there is no actual donation, the
1wphi1

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. Instead, it merely called for the strict
26

application of Sec. 100, which was already in force the moment the NIRC was enacted.

WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in CA-
G.R. SP No. 127984 dated May 23, 2013 and January 21, 2014 are hereby AFFIRMED.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA
Associate Justice

MARTIN S. VILLARAMA, JR. JOSE CATRAL MENDOZA*

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN**

Associate Justice

ATT E S TATI O N

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson

C E R TI F I C ATI O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

* Acting member per Special Order No. 1878 dated November 21, 2014.

** Additional member per raffle dated September 24, 2014.

1
Penned by Associate Justice Noel G. Tijam and concurred in by Associate Justices Romeo
F. Barza and Ramon A. Cruz.

2
Rollo, pp. 189-193.

3
Id. at 6-7.

4
Id. at 94-99.

5
"The legislative intendment of the deemed gift provision under Section 100 of the Tax Code
is to discourage the parties to a sale from manipulating their selling price in order to save on
income taxes. This is because under the Tax Code, the measurement of gain from a
disposition of property merely considers the amount realized from the sale, which is the
selling price minus the basis of the property sold. Hence, if the parties would declare a lower
selling price per document of sale than the actual amount of money which changed hands,
there is foregone revenue and the government is placed at a very disadvantageous position."

6
Rollo, p. 190.

7
NIRC, Sec. 99(B): Tax Payable by Donor if Donee is a Stranger. - When the donee or
beneficiary is stranger, the tax payable by the donor shall be thirty percent (30%) of the net
gifts. For the purpose of this tax, a "stranger", is a person who is not a:

(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant; or

(2) Relative by consanguinity in the collateral line within the fourth degree of
relationship.

8
"It is noteworthy to state that the above provision (Section 100 of the Tax Code) does not
mention of any exempt transaction. The above provision is clear and free from any doubt
and/or ambiguity. Hence, there is no room for interpretation. There is only room for
application."

9
Rollo, pp. 91-93.

10
Id. at 71-72.

11
An Act Creating the Court of Tax Appeals.
12
Providing for the Implementing Rules of the First Paragraph of Section 4 of the National

Internal Revenue Code of 1997, Repealing for this Purpose Department Order No.
005-99 and Revenue Administrative Order No. 1-99.

WHEREAS, Section 4 of Republic Act No. 8424 (the National Internal Revenue Code
of 1997, the NIRC for brevity) vests with the Commissioner of Internal Revenue
exclusive and original jurisdiction to interpret its provisions and other tax laws,
subject to review by the Secretary of Finance;

xxxx

WHEREAS, there is a need to further provide for the implementing rules of the first
paragraph of

Section 4 of the NIRC.

xxxx

Section 1. Scope of this Order. This Department Order shall apply to all rulings of
the Bureau of Internal Revenue (BIR) that implement the provisions of the NIRC and
other tax laws.

Section 2. Validity of Rulings. A ruling by the Commissioner of Internal Revenue

shall be presumed valid until overturned or modified by the Secretary of Finance.

Section 3. Rulings adverse to the taxpayer. A taxpayer who receives an adverse

ruling from the Commissioner of Internal Revenue may, within thirty (30) days from
the date of receipt of such ruling, seek its review by the Secretary of Finance. x x x

13
Sec. 7(a)(6), RA 1125, as amended:

Sec. 7. Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

x x x x 6. Decisions of the Secretary of Finance on customs cases elevated to him

automatically for review from decisions of the Commissioner of Customs which are
adverse to the Government under Section 2315 of the Tariff and Customs Code.

14
G.R. No. 163583, August 20, 2008, 562 SCRA 511.

Section 1. Scope. This Rule shall apply to appeals from judgments or final orders of the
15

Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized
by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among these
agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Invention Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry Arbitration Commission, and
voluntary arbitrators authorized by law.

16
G.R. No. 155996, June 27, 2012, 675 SCRA 20.

Municipality of Nueva Era, Ilocos Norte v. Municipality of Marcos, Ilocos Norte, G.R. No.
17

169435, February 27, 2008, 547 SCRA 71.

Torres v. Limjap, 56 Phil. 141 (1931); citing Vol. II Sutherland, Statutory Construction, pp.
18

693-695.
 19
The Secretary of Justice v. Koruga, G.R. No. 166199, April 24, 2009, 582 SCRA 513.

20
101 Phil. 209 (1957).

21
SEC. 11. Who may appeal; effect of appeal. Any person, association or corporation
adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector
of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the
Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

22
Ursal v. Court of Tax Appeals, supra note 20.

23
Supra note 14, at 534.

24
G.R. No. 163445, December 18, 2007, 540 SCRA 536, 549-551.

25
G.R. No. 175723, February 4, 2014.

26
EC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of
the rules and regulations promulgated in accordance with the preceding Sections or any of
the rulings or circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to the taxpayers,
except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return
or any document required of him by the Bureau of Jnternal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-57455 January 18, 1990

EVELYN DE LUNA, ROSALINA DE LUNA, PRUDENCIO DE LUNA, JR., WILLARD DE LUNA,

ANTONIO DE LUNA, and JOSELITO DE LUNA, petitioners,
vs.
HON. SOFRONIO F. ABRIGO, Presiding Judge of the Court of First Instance of Quezon,
Branch IX, and LUZONIAN UNIVERSITY FOUNDATION, INC., respondents.
Milberto B. Zurbano for petitioners.

Joselito E. Talabong for private respondent.

MEDIALDEA, J.:

This is a petition for review on certiorari of the Order dated July 7, 1981 of respondent judge
Sofronio F. Abrigo of the Court of First Instance of Quezon, Branch IX in Civil Case No. 8624
dismissing the complaint of petitioners on the ground of prescription of action.

The antecedent facts are as follows:

On January 24, 1965, Prudencio de Luna donated a portion of 7,500 square meters of Lot No. 3707
of the Cadastral Survey of Lucena covered by Transfer Certificate of Title No. 1-5775 to the
Luzonian Colleges, Inc., (now Luzonian University Foundation, Inc., herein referred to as the
foundation). The donation, embodied in a Deed of Donation Intervivos (Annex "A" of Petition) was
subject to certain terms and conditions and provided for the automatic reversion to the donor of the
donated property in case of violation or non-compliance (pars. 7 and 10 of Annex "A", p. 20, Rollo).
The foundation failed to comply with the conditions of the donation. On April 9, 1971, Prudencio de
Luna "revived" the said donation in favor of the foundation, in a document entitled "Revival of
Donation Intervivos" (Annex "B" of Petition) subject to terms and conditions which among others,
required:

xxx xxx xxx

3. That the DONEE shall construct at its own expense a Chapel, a Nursery and
Kindergarten School, to be named after St. Veronica, and other constructions and
Accessories shall be constructed on the land herein being donated strictly in
accordance with the plans and specifications prepared by the O.R. Quinto &
Associates and made part of this donation; provided that the flooring of the Altar and
parts of the Chapel shall be of granoletic marble.

4. That the construction of the Chapel, Nursery and Kindergarten School shall start
immediately and must be at least SEVENTY (70) PER CENTUM finished by the end
of THREE (3) YEARS from the date hereof, however, the whole project as drawn in
the plans and specifications made parts of this donation must be completed within
FIVE (5) YEARS from the date hereon, unless extensions are granted by the
DONOR in writing;

. . . . (p. 23, Rollo)

As in the original deed of donation, the "Revival of Donation Intenrivos" also provided for the
automatic reversion to the donor of the donated area in case of violation of the conditions thereof,
couched in the following terms:

xxx xxx xxx.

11. That violation of any of the conditions herein provided shall cause the automatic
reversion of the donated area to the donor, his heirs, assigns and representatives,
without the need of executing any other document for that purpose and without
obligation whatever on the part of the DONOR. (p. 24, Rollo).

The foundation, through its president, accepted the donation in the same document, subject to all
the terms and conditions stated in the donation (p. 24, Rollo). The donation was registered and
annotated on April 15, 1971 in the memorandum of encumbrances as Entry No. 17939 of Transfer
Certificate of Title No. T-5775 (p. 15, Rollo).

On August 3, 1971, Prudencio de Luna and the foundation executed a 'Deed of Segregation" (Annex
"C" of Petition) whereby the area donated which is now known as Lot No. 3707-B of Subdivision
Plan Psd-40392 was adjudicated to the foundation. As a result, transfer certificate of title No. T-
16152 was issued in the name of the foundation. The remaining portion known as Lot No. 3707-A
was retained by the donor. (p. 16, Rollo).

On September 23, 1980, herein petitioners, Evelyn, Rosalina, Prudencio, Jr., Willard, Antonio and
Joselito, all surnamed de Luna, who claim to be the children and only heirs of the late Prudencio de
Luna who died on August 18, 1980, filed a complaint (pp. 14-17, Rollo) with the Regional Trial Court
of Quezon alleging that the terms and conditions of the donation were not complied with by the
foundation. Among others, it prayed for the cancellation of the donation and the reversion of the
donated land to the heirs. The complaint was docketed as Civil Case No. 8624.

In its answer (pp. 29-36, Rollo), respondent foundation claimed that it had partially and substantially
complied with the conditions of the donation and that the donor has granted the foundation an
indefinite extension of time to complete the construction of the chapel. It also invoked the affirmative
defense of prescription of action and prayed for the dismissal of the complaint.

During the pre-trial of the case, the foundation moved for a preliminary hearing of its affirmative
defense of prescription of action which was opposed by the plaintiffs. After the parties have filed their
respective written motions, oppositions and memoranda, an Order (pp., 40-43, Rollo) dated July 7,
1981 was issued dismissing the complaint. The dispositive portion of the Order states:

In view of the foregoing considerations, this Court finds the motion to dismiss
deemed filed by the defendant on the ground of prescription to be well-taken and the
same is hereby GRANTED.

WHEREFORE, the instant complaint is hereby ordered DISMISSED.

No pronouncement as to costs.

SO ORDERED. (pp. 42-43, Rollo)

No motion for reconsideration was filed by petitioners.

On July 22, 1981, petitioners brought the instant petition for review with the following assignments of
error:

I. THE LOWER COURT ERRED IN HOLDING THAT THE DONEE'S CONSENT TO

THE REVOCATION OF A DONATION TO BE VALID MUST BE GIVEN
SUBSEQUENT TO THE EFFECTIVITY OF THE DONATION OR VIOLATION OF
(THE) ANY OF THE CONDITIONS IMPOSED THEREIN.

II. THE LOWER COURT ERRED IN TREATING THE COMPLAINT AS ONE FOR
JUDICIAL DECREE OF REVOCATION OF THE DONATION IN QUESTION AS
CONTEMPLATED IN ARTICLE 764 OF THE CIVIL CODE OF THE PHILIPPINES
AND WHICH PRESCRIBES IN FOUR (4) YEARS AND IN NOT CONSIDERING IT
AS AN ACTION TO ENFORCE A WRITTEN CONTRACT WHICH PRESCRIBES IN
TEN (10) YEARS AS PROVIDED IN ARTICLE 1144, HENCE, THE LOWER COURT
ERRED IN DISMISSING THE COMPLAINT.

III. THE LOWER COURT ERRED IN NOT RENDERING JUDGMENT ON THE

MERITS BY WAY OF JUDGMENT ON THE PLEADINGS. (pp. 1-2, Petitioner's Brief)
We gave due course to the petition on August 3, 1981 (p. 45, Rollo). After the parties' submission of
their respective briefs, the Court resolved to consider the petition submitted for decision on January
27, 1982 (p. 62, Rollo).

The assailed order of the trial court stated that revocation (of a donation) will be effective only either
upon court judgment or upon consent of the donee as held in the case of Parks v. Province of Tarlac,
No. 24190, July 13, 1926, 49 Phil. 143. The trial court dismissed the claim of petitioners that the
stipulation in the donation providing for revocation in case of non-compliance of conditions in the
donation is tantamount to the consent of the donee, opining that the consent contemplated by law
should be such consent given by the donee subsequent to the effectivity of the donation or violation
of the conditions imposed therein. The trial court further held that, far from consenting to the
revocation, the donee claimed that it had already substantially complied with the conditions of the
donation by introducing improvements in the property donated valued at more than the amount of
the donated land. In view thereof, a judicial decree revoking the subject donation is necessary.
Accordingly, under Article 764 of the New Civil Code, actions to revoke a donation on the ground of
non-compliance with any of the conditions of the donation shall prescribe in four years counted from
such non-compliance. In the instant case, the four-year period for filing the complaint for revocation
commenced on April 9, 1976 and expired on April 9, 1980. Since the complaint was brought on
September 23, 1980 or more than five (5) months beyond the prescriptive period, it was already
barred by prescription.

On the other hand, petitioners argue that Article 764 of the New Civil Code was adopted to provide a
judicial remedy in case of non-fulfillment of conditions when revocation of the donation has not been
agreed upon by the parties. By way of contrast, when there is a stipulation agreed upon by the
parties providing for revocation in case of non-compliance, no judicial action is necessary. It is then
petitioners' claim that the action filed before the Court of First Instance of Quezon is not one for
revocation of the donation under Article 764 of the New Civil Code which prescribes in four (4) years,
but one to enforce a written contract which prescribes in ten (10) years.

The petition is impressed with merit.

From the viewpoint of motive, purpose or cause, donations may be 1) simple, 2) remuneratory or 3)
onerous. A simple donation is one the cause of which is pure liberality (no strings attached). A
remuneratory donation is one where the donee gives something to reward past or future services or
because of future charges or burdens, when the value of said services, burdens or charges is less
than the value of the donation. An onerous donation is one which is subject to burdens, charges or
future services equal (or more) in value than that of the thing donated (Edgardo L. Paras, Civil Code
of the Philippines Annotated, 11 ed., Vol. 11, p. 726).

It is the finding of the trial court, which is not disputed by the parties, that the donation subject of this
case is one with an onerous cause. It was made subject to the burden requiring the donee to
construct a chapel, a nursery and a kindergarten school in the donated property within five years
from execution of the deed of donation.

Under the old Civil Code, it is a settled rule that donations with an onerous cause are governed not
by the law on donations but by the rules on contracts, as held in the cases of Carlos v. Ramil, L-
6736, September 5, 1911, 20 Phil. 183, Manalo vs. de Mesa, L-9449, February 12, 1915, 29 Phil.
495. On the matter of prescription of actions for the revocation of onerous donation, it was held that
the general rules on prescription applies. (Parks v. Province of Tarlac, supra.). The same rules apply
under the New Civil Code as provided in Article 733 thereof which provides:

Art. 733. Donations with an onerous cause shall be governed by the rules on
contracts, and remuneratory donations by the provisions of the present Title as
regards that portion which exceeds the value of the burden imposed.

It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must
be brought within four (4) years from the non-compliance of the conditions of the donation. However,
it is Our opinion that said article does not apply to onerous donations in view of the specific provision
of Article 733 providing that onerous donations are governed by the rules on contracts.

In the light of the above, the rules on contracts and the general rules on prescription and not the
rules on donations are applicable in the case at bar.

Under Article 1306 of the New Civil Code, the parties to a contract have the right "to establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy." Paragraph 11 of the "Revival of
Donation Intervivos, has provided that "violation of any of the conditions (herein) shall cause
the automatic reversion of the donated area to the donor, his heirs, . . ., without the need of
executing any other document for that purpose and without obligation on the part of the DONOR".
Said stipulation not being contrary to law, morals, good customs, public order or public policy, is valid
and binding upon the foundation who voluntarily consented thereto.

The validity of the stipulation in the contract providing for the automatic reversion of the donated
property to the donor upon non-compliance cannot be doubted. It is in the nature of an agreement
granting a party the right to rescind a contract unilaterally in case of breach, without need of going to
court. Upon the happening of the resolutory condition of non-compliance with the conditions of the
contract, the donation is automatically revoked without need of a judicial declaration to that effect. In
the case of University of the Philippines v. de los Angeles, L-28602, September 29, 1970, 35 SCRA
102-107, it was held:

. . . There is nothing in the law that prohibits the parties from entering into agreement
that violation of the terms of the contract would cause cancellation thereof. even
without court intervention. In other words, it is not always necessary for the injured
party to resort to court for rescission of the contract (Froilan v. Pan Oriental Shipping
Co., et al.,
L-11897, 31 October 1964, 12 SCRA 276).

This was reiterated in the case of Angeles v. Calasanz, L-42283, March 18, 1985:

Well settled is, however, the rule that a judicial action for the rescission of a contract
is not necessary where the contract provides that it may be revoked and cancelled
for violation of any of its terms and conditions (Lopez v. Commissioner of Customs,
37 SCRA 327, 334, and cases cited therein).

Resort to judicial action for rescission is obviously not contemplated. The validity of
the stipulation can not be seriously disputed. It is in the nature of a facultative
resolutory condition which in many cases has been upheld, by this court. (Ponce
Enrile v. Court of Appeals, 29 SCRA 504)

However, in the University of the Philippines v. Angeles case, (supra), it was held that in cases
where one of the parties contests or denies the rescission, "only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution is proper or not." It was held,
thus:

. . . since in every case, where the extrajudicial resolution is contested, only the final
award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be necessary
as without it, the extrajudicial resolution will remain contestable and subject to judicial
invalidation, unless attack thereon should become barred by acquiescence, estoppel
or prescription.

It is clear, however, that judicial intervention is necessary not for purposes of obtaining a judicial
declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for
rescission even without judicial intervention, but in order to determine whether or not the recession
was proper.

The case of Parks v. Province of Tarlac, supra, relied upon by the trial court, is not applicable in the
case at bar. While the donation involved therein was also onerous, there was no agreement in the
donation providing for automatic rescission, thus, the need for a judicial declaration revoking said
donation.

The trial court was therefore not correct in holding that the complaint in the case at bar is barred by
prescription under Article 764 of the New Civil Code because Article 764 does not apply to onerous
donations.

As provided in the donation executed on April 9, 1971, complaince with the terms and conditions of
the contract of donation, shall be made within five (5) years from its execution. The complaint which
was filed on September 23, 1980 was then well within the ten (10) year prescriptive period to enforce
a written contract (Article 1144[1], New Civil Code), counted from April 9, 1976.

Finally, considering that the allegations in the complaint on the matter of the donee's non-compliance
with the conditions of the donation have been contested by private respondents who claimed that
improvements more valuable than the donated property had been introduced, a judgment on the
pleadings is not proper. Moreover, in the absence of a motion for judgment on the pleadings, the
court cannot motu proprio render such judgment. Section 1 of Rule 19 provides: "Where an answer
fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading,
the court may, on motion of that party, direct judgment on such pleading." (Emphasis supplied)

ACCORDINGLY, the petition is GRANTED. Civil Case No. 8624 is hereby ordered reinstated.
Respondent judge is ordered to conduct a trial on the merits to determine the propriety of the
revocation of the subject donation.

SO ORDERED.
 SECOND DIVISION

[G.R. No. 111904. October 5, 2000]

SPS. AGRIPINO GESTOPA and ISABEL SILARIO

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

DECISION

QUISUMBING, J.:

This petition for review,[1] under Rule 45 of the Rules of Court, assails the
decision[2]of the Court of Appeals dated August 31, 1993, in CA-G.R. CV No.
38266, which reversed the judgment[3] of the Regional Trial Court of Cebu City,
Branch 5.

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

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

On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina
Danlag, executed a deed of donation inter vivos[5] covering the aforementioned
parcels of land plus two other parcels with TD Nos. 11351 and 11343,
respectively, again in favor of private respondent Mercedes. This contained
two conditions, that (1) the Danlag spouses shall continue to enjoy the fruits of
the land during their lifetime, and that (2) the donee can not sell or dispose of
the land during the lifetime of the said spouses, without their prior consent and
approval. Mercedes caused the transfer of the parcels' tax declaration to her
name and paid the taxes on them.
 On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold
parcels 3 and 4 to herein petitioners, Mr. and Mrs. Agripino Gestopa. On
September 29, 1979, the Danlags executed a deed of revocation [6]recovering
the six parcels of land subject of the aforecited deed of donation inter vivos.

On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with

the RTC a petition against the Gestopas and the Danlags, for quieting of
title[7] over the above parcels of land. She alleged that she was an illegitimate
daughter of Diego Danlag; that she lived and rendered incalculable beneficial
services to Diego and his mother, Maura Danlag, when the latter was still
alive. In recognition of the services she rendered, Diego executed a Deed of
Donation on March 20, 1973, conveying to her the six (6) parcels of land. She
accepted the donation in the same instrument, openly and publicly exercised
rights of ownership over the donated properties, and caused the transfer of
the tax declarations to her name. Through machination, intimidation and
undue influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil,
to buy two of the six parcels covered by the deed of donation. Said
donation inter vivos was coupled with conditions and, according to Mercedes,
since its perfection, she had complied with all of them; that she had not been
guilty of any act of ingratitude; and that respondent Diego had no legal basis
in revoking the subject donation and then in selling the two parcels of land to
the Gestopas.

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

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

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

favor of the defendants and against the plaintiff:

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

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

3. Declaring the Deeds of Sale executed by Diego Danlag in favor of spouses Agripino
Gestopa and Isabel Gestopa dated June 28, 1979 (Exh. S-plaintiff; Exh. 18-
defendant); Deed of Sale dated December 18, 1979 (Exh. T plaintiff; Exh. 9-
defendant); Deed of Sale dated September 14, 1979 (Exh. 8); Deed of Sale dated
June 30, 1975 (Exh. U); Deed of Sale dated March 13, 1978 (Exh. X) as valid and
enforceable duly executed in accordance with the formalities required by law.
 4. Ordering all tax declaration issued in the name of Mercedes Danlag Y Pilapil
covering the parcel of land donated cancelled and further restoring all the tax
declarations previously cancelled, except parcels nos. 1 and 5 described, in the
Deed of Donation Inter Vivos (Exh. "1") and Deed of Sale (Exh. "2") executed by
defendant in favor of plaintiff and her husband.

[5.] With respect to the contract of sale of abovestated parcels of land, vendor Diego
Danlag and spouse or their estate have the alternative remedies of demanding the
balance of the agreed price with legal interest, or rescission of the contract of sale.

SO ORDERED."[8]

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

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

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

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

judgment is hereby rendered as follows:

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

2. Declaring the Revocation of Donation dated June 4, 1979 to be null and void and
therefore of no force and effect;

3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner of the six
(6) parcels of land specified in the above-cited deed of donation inter vivos;

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

5. Declaring the above-mentioned deeds of sale to be null and void and therefore of no
force and effect;

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

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

SO ORDERED."[9]

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

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

"THE HONORABLE COURT OF APPEALS, TWELFTH DIVISION, HAS

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

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

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

In ascertaining the intention of the donor, all of the deed's provisions must
be read together.[12] The deed of donation dated January 16, 1973, in favor of
Mercedes contained the following:
"That for and in consideration of the love and affection which the Donor inspires in
the Donee and as an act of liberality and generosity, the Donor hereby gives, donates,
transfer and conveys by way of donation unto the herein Donee, her heirs, assigns and
successors, the above-described parcels of land;

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

xxx

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

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

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

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

The attending circumstances in the execution of the subject donation also

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

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

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

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

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

Was the revocation valid? A valid donation, once accepted, becomes

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

"WHEREAS, while the said donation was a donation Inter Vivos, our intention
thereof is that of Mortis Causa so as we could be sure that in case of our death, the
above-described properties will be inherited and/or succeeded by Mercedes Danlag de
Pilapil; and that said intention is clearly shown in paragraph 3 of said donation to the
effect that the Donee cannot dispose and/or sell the properties donated during our life-
time, and that we are the one enjoying all the fruits thereof." [20]
 Petitioners cited Mercedes' vehemence in prohibiting the donor to gather
coconut trees and her filing of instant petition for quieting of title. There is
nothing on record, however, showing that private respondent prohibited the
donors from gathering coconuts. Even assuming that Mercedes prevented the
donor from gathering coconuts, this could hardly be considered an act
covered by Article 765 of the Civil Code. [21] Nor does this Article cover
respondent's filing of the petition for quieting of title, where she merely
asserted what she believed was her right under the law.

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

WHEREFORE, the instant petition for review is DENIED. The assailed

decision of the Court of Appeals dated August 31, 1993, is AFFIRMED.

Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
 SECOND DIVISION

G.R. No. 82027 March 29, 1990

ROMARICO G. VITUG, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA, respondents.

Rufino B. Javier Law Office for petitioner.

Quisumbing, Torres & Evangelista for private respondent.

SARMIENTO, J.:

This case is a chapter in an earlier suit decided by this Court 1 involving the probate of the two wills of
the late Dolores Luchangco Vitug, who died in New York, U. S.A., on November 10, 1980, naming private
respondent Rowena Faustino-Corona executrix. In our said decision, we upheld the appointment of
Nenita Alonte as co-special administrator of Mrs. Vitug's estate with her (Mrs. Vitug's) widower, petitioner
Romarico G. Vitug, pending probate.

On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from the probate court to
sell certain shares of stock and real properties belonging to the estate to cover allegedly his
advances to the estate in the sum of P667,731.66, plus interests, which he claimed were personal
funds. As found by the Court of Appeals, 2 the alleged advances consisted of P58,147.40 spent for the
payment of estate tax, P518,834.27 as deficiency estate tax, and P90,749.99 as "increment
thereto." 3 According to Mr. Vitug, he withdrew the sums of P518,834.27 and P90,749.99 from savings
account No. 35342-038 of the Bank of America, Makati, Metro Manila.

On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that the same funds
withdrawn from savings account No. 35342-038 were conjugal partnership properties and part of the
estate, and hence, there was allegedly no ground for reimbursement. She also sought his ouster for
failure to include the sums in question for inventory and for "concealment of funds belonging to the
estate." 4

Vitug insists that the said funds are his exclusive property having acquired the same through a
survivorship agreement executed with his late wife and the bank on June 19, 1970. The agreement
provides:

We hereby agree with each other and with the BANK OF AMERICAN NATIONAL
TRUST AND SAVINGS ASSOCIATION (hereinafter referred to as the BANK), that all
money now or hereafter deposited by us or any or either of us with the BANK in our
joint savings current account shall be the property of all or both of us and shall be
payable to and collectible or withdrawable by either or any of us during our lifetime,
and after the death of either or any of us shall belong to and be the sole property of
the survivor or survivors, and shall be payable to and collectible or withdrawable by
such survivor or survivors.

We further agree with each other and the BANK that the receipt or check of either,
any or all of us during our lifetime, or the receipt or check of the survivor or survivors,
for any payment or withdrawal made for our above-mentioned account shall be valid
and sufficient release and discharge of the BANK for such payment or withdrawal. 5

The trial courts 6 upheld the validity of this agreement and granted "the motion to sell some of the estate
of Dolores L. Vitug, the proceeds of which shall be used to pay the personal funds of Romarico Vitug in
the total sum of P667,731.66 ... ." 7
On the other hand, the Court of Appeals, in the petition for certiorari filed by the herein private
respondent, held that the above-quoted survivorship agreement constitutes a conveyance mortis
causa which "did not comply with the formalities of a valid will as prescribed by Article 805 of the
Civil Code," 8 and secondly, assuming that it is a mere donation inter vivos, it is a prohibited donation
under the provisions of Article 133 of the Civil Code. 9

The dispositive portion of the decision of the Court of Appeals states:

WHEREFORE, the order of respondent Judge dated November 26, 1985 (Annex II,
petition) is hereby set aside insofar as it granted private respondent's motion to sell
certain properties of the estate of Dolores L. Vitug for reimbursement of his alleged
advances to the estate, but the same order is sustained in all other respects. In
addition, respondent Judge is directed to include provisionally the deposits in
Savings Account No. 35342-038 with the Bank of America, Makati, in the inventory of
actual properties possessed by the spouses at the time of the decedent's death. With
costs against private respondent. 10

In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on the strength of our
decisions in Rivera v. People's Bank and Trust Co. 11 and Macam v. Gatmaitan 12 in which we sustained
the validity of "survivorship agreements" and considering them as aleatory contracts. 13

The petition is meritorious.

The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a
will. A will has been defined as "a personal, solemn, revocable and free act by which a capacitated
person disposes of his property and rights and declares or complies with duties to take effect after
his death." 14 In other words, the bequest or device must pertain to the testator. 15 In this case, the monies
subject of savings account No. 35342-038 were in the nature of conjugal funds In the case relied
on, Rivera v. People's Bank and Trust Co., 16 we rejected claims that a survivorship agreement purports to
deliver one party's separate properties in favor of the other, but simply, their joint holdings:

xxx xxx xxx

... Such conclusion is evidently predicated on the assumption that Stephenson was
the exclusive owner of the funds-deposited in the bank, which assumption was in
turn based on the facts (1) that the account was originally opened in the name of
Stephenson alone and (2) that Ana Rivera "served only as housemaid of the
deceased." But it not infrequently happens that a person deposits money in the bank
in the name of another; and in the instant case it also appears that Ana Rivera
served her master for about nineteen years without actually receiving her salary from
him. The fact that subsequently Stephenson transferred the account to the name of
himself and/or Ana Rivera and executed with the latter the survivorship agreement in
question although there was no relation of kinship between them but only that of
master and servant, nullifies the assumption that Stephenson was the exclusive
owner of the bank account. In the absence, then, of clear proof to the contrary, we
must give full faith and credit to the certificate of deposit which recites in effect that
the funds in question belonged to Edgar Stephenson and Ana Rivera; that they were
joint (and several) owners thereof; and that either of them could withdraw any part or
the whole of said account during the lifetime of both, and the balance, if any, upon
the death of either, belonged to the survivor. 17

xxx xxx xxx

In Macam v. Gatmaitan, 18 it was held:

xxx xxx xxx

 This Court is of the opinion that Exhibit C is an aleatory contract whereby, according
to article 1790 of the Civil Code, one of the parties or both reciprocally bind
themselves to give or do something as an equivalent for that which the other party is
to give or do in case of the occurrence of an event which is uncertain or will happen
at an indeterminate time. As already stated, Leonarda was the owner of the house
and Juana of the Buick automobile and most of the furniture. By virtue of Exhibit C,
Juana would become the owner of the house in case Leonarda died first, and
Leonarda would become the owner of the automobile and the furniture if Juana were
to die first. In this manner Leonarda and Juana reciprocally assigned their respective
property to one another conditioned upon who might die first, the time of death
determining the event upon which the acquisition of such right by the one or the other
depended. This contract, as any other contract, is binding upon the parties thereto.
Inasmuch as Leonarda had died before Juana, the latter thereupon acquired the
ownership of the house, in the same manner as Leonarda would have acquired the
ownership of the automobile and of the furniture if Juana had died first. 19

xxx xxx xxx

There is no showing that the funds exclusively belonged to one party, and hence it must be
presumed to be conjugal, having been acquired during the existence of the marita. relations. 20

Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to
take effect after the death of one party. Secondly, it is not a donation between the spouses because
it involved no conveyance of a spouse's own properties to the other.

It is also our opinion that the agreement involves no modification petition of the conjugal partnership,
as held by the Court of Appeals, 21 by "mere stipulation" 22 and that it is no "cloak" 23 to circumvent the
law on conjugal property relations. Certainly, the spouses are not prohibited by law to invest conjugal
property, say, by way of a joint and several bank account, more commonly denominated in banking
parlance as an "and/or" account. In the case at bar, when the spouses Vitug opened savings account No.
35342-038, they merely put what rightfully belonged to them in a money-making venture. They did not
dispose of it in favor of the other, which would have arguably been sanctionable as a prohibited donation.
And since the funds were conjugal, it can not be said that one spouse could have pressured the other in
placing his or her deposits in the money pool.

The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in reality,
that contract imposed a mere obligation with a term, the term being death. Such agreements are
permitted by the Civil Code. 24

Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally bind
themselves to give or to do something in consideration of what the other shall give or
do upon the happening of an event which is uncertain, or which is to occur at an
indeterminate time.

Under the aforequoted provision, the fulfillment of an aleatory contract depends on either the
happening of an event which is (1) "uncertain," (2) "which is to occur at an indeterminate time." A
survivorship agreement, the sale of a sweepstake ticket, a transaction stipulating on the value of
currency, and insurance have been held to fall under the first category, while a contract for life
annuity or pension under Article 2021, et sequentia, has been categorized under the second. 25 In
either case, the element of risk is present. In the case at bar, the risk was the death of one party and
survivorship of the other.

However, as we have warned:

xxx xxx xxx

 But although the survivorship agreement is per se not contrary to law its operation or
effect may be violative of the law. For instance, if it be shown in a given case that
such agreement is a mere cloak to hide an inofficious donation, to transfer property
in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and
annulled upon such grounds. No such vice has been imputed and established
against the agreement involved in this case. 26

xxx xxx xxx

There is no demonstration here that the survivorship agreement had been executed for such
unlawful purposes, or, as held by the respondent court, in order to frustrate our laws on wills,
donations, and conjugal partnership.

The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her husband, the
latter has acquired upon her death a vested right over the amounts under savings account No.
35342-038 of the Bank of America. Insofar as the respondent court ordered their inclusion in the
inventory of assets left by Mrs. Vitug, we hold that the court was in error. Being the separate property
of petitioner, it forms no more part of the estate of the deceased.

WHEREFORE, the decision of the respondent appellate court, dated June 29, 1987, and its
resolution, dated February 9, 1988, are SET ASIDE.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

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

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

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

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

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

BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left by the deceased
Walter G. Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines
on August 9, 1874 of British parents and married in the City of Manila on January 23, 1909 to
Beatrice Mauricia Stevenson another British subject) died on February 22, 1951 in San Francisco,
California, U.S.A. whereto he and his wife moved and established their permanent residence since
May 10, 1945. In his will executed in San Francisco on May 22, 1947, and which was duly probated
in the Superior Court of California on April 11, 1951, Stevenson instituted his wife Beatrice as his
sole heiress to the following real and personal properties acquired by the spouses while residing in
the Philippines, described and preliminary assessed as follows:

Gross Estate

Real Property 2 parcels of land in

Baguio, covered by T.C.T. Nos. 378 and
379 P43,500.00

Personal Property
 (1) 177 shares of stock of Canacao Estate
at P10.00 each 1,770.00

(2) 210,000 shares of stock of Mindanao

Mother Lode Mines, Inc. at P0.38 per
share 79,800.00

(3) Cash credit with Canacao Estate Inc. 4,870.88

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

Australia & China 851.97

Total Gross Assets P130,792.85

On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance
of Manila for the settlement of the estate in the Philippines. In due time Stevenson's will was duly
admitted to probate by our court and Ian Murray Statt was appointed ancillary administrator of the
estate, who on July 11, 1951, filed a preliminary estate and inheritance tax return with the
reservation of having the properties declared therein finally appraised at their values six months after
the death of Stevenson. Preliminary return was made by the ancillary administrator in order to
secure the waiver of the Collector of Internal Revenue on the inheritance tax due on the 210,000
shares of stock in the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in
the United States. Acting upon said return, the Collector of Internal Revenue accepted the valuation
of the personal properties declared therein, but increased the appraisal of the two parcels of land
located in Baguio City by fixing their fair market value in the amount of P52.200.00, instead of
P43,500.00. After allowing the deductions claimed by the ancillary administrator for funeral expenses
in the amount of P2,000.00 and for judicial and administration expenses in the sum of P5,500.00, the
Collector assessed the state the amount of P5,147.98 for estate tax and P10,875,26 or inheritance
tax, or a total of P16,023.23. Both of these assessments were paid by the estate on June 6, 1952.

On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax
return in pursuance f his reservation made at the time of filing of the preliminary return and for the
purpose of availing of the right granted by section 91 of the National Internal Revenue Code.

In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode
Mines, Inc. was reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a
total valuation of P79,800.00 to P42,000.00. This change in price per share of stock was based by
the ancillary administrator on the market notation of the stock obtaining at the San Francisco
California) Stock Exchange six months from the death of Stevenson, that is, As of August 22, 1931.
In addition, the ancillary administrator made claim for the following deductions:

Funeral expenses ($1,04326) P2,086.52

Judicial Expenses:

(a) Administrator's Fee P1,204.34

(b) Attorney's Fee 6.000.00

 (c) Judicial and Administration
expenses as of August 9, 1952 1,400.05

8,604.39

Real Estate Tax for 1951 on Baguio

real properties (O.R. No. B-1
686836) 652.50

Claims against the estate:

($5,000.00) P10,000.00 P10,000.00

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

1951 22.47 10,022.47

Sub-Total P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and
interests in the estate to the spouses, Douglas and Bettina Fisher, respondents herein.

On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance
tax return (Exh. "M-N"). This return declared the same assets of the estate stated in the amended
return of September 22, 1952, except that it contained new claims for additional exemption and
deduction to wit: (1) deduction in the amount of P4,000.00 from the gross estate of the decedent as
provided for in Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary
administrator averred was allowable by way of the reciprocity granted by Section 122 of the National
Internal Revenue Code, as then held by the Board of Tax Appeals in case No. 71 entitled "Housman
vs. Collector," August 14, 1952; and (2) exemption from the imposition of estate and inheritance
taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the
reciprocity proviso of Section 122 of the National Internal Revenue Code. In this last return, the
estate claimed that it was liable only for the amount of P525.34 for estate tax and P238.06 for
inheritance tax and that, as a consequence, it had overpaid the government. The refund of the
amount of P15,259.83, allegedly overpaid, was accordingly requested by the estate. The Collector
denied the claim. For this reason, action was commenced in the Court of First Instance of Manila by
respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said amount.
Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals which court,
after hearing, rendered decision the dispositive portion of which reads as follows:

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

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

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

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

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

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

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

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

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

In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took
place in 1909, the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New
Civil Code which became effective only in 1950. It is true that both articles adhere to the so-called
nationality theory of determining the property relation of spouses where one of them is a foreigner
and they have made no prior agreement as to the administration disposition, and ownership of their
conjugal properties. In such a case, the national law of the husband becomes the dominant law in
determining the property relation of the spouses. There is, however, a difference between the two
articles in that Article 1241 of the new Civil Code expressly provides that it shall be applicable
regardless of whether the marriage was celebrated in the Philippines or abroad while Article 1325 2 of
the old Civil Code is limited to marriages contracted in a foreign land.

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

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

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

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

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

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

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

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

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

We now take up the question of reciprocity in exemption from transfer or death taxes, between the
State of California and the Philippines.F

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

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

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

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

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

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

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

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

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

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

With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S.
Federal Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our
ruling in the Lara case (supra) that the amount of $2,000.00 allowed under the Federal Estate Tax
Law is in the nature of a deduction and not of an exemption regarding which reciprocity cannot be
claimed under the provision of Section 122 of our National Internal Revenue Code. Nor is reciprocity
authorized under the Federal Law. .

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

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

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

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

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

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

Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the
sum of P8,604.39 for the following expenses:.

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00

 3) Judicial and Administrative expenses 2,052.55

Total Deductions P8,604.39

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

In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on
the decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the
Tax Court, we find that this claim has in fact been allowed. What happened here, which a careful
review of the record will reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00

3) Judicial and Administration expenses as of August

9, 1952 2,052.55

Total P9,256.89

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

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

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

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

Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions
of Section 89, letter (d), number (1), of the National Internal Revenue Code which reads:

(d) Miscellaneous provisions (1) No deductions shall be allowed in the case of a non-
resident not a citizen of the Philippines unless the executor, administrator or anyone of the
heirs, as the case may be, includes in the return required to be filed under section ninety-
three the value at the time of his death of that part of the gross estate of the non-resident not
situated in the Philippines."

In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated
in the Philippines appears in the three returns submitted to the court or to the office of the petitioner
Collector of Internal Revenue. The purpose of this requirement is to enable the revenue officer to
determine how much of the indebtedness may be allowed to be deducted, pursuant to (b), number
(1) of the same section 89 of the Internal Revenue Code which provides:

(b) Deductions allowed to non-resident estates. In the case of a non-resident not a citizen
of the Philippines, by deducting from the value of that part of his gross estate which at the
time of his death is situated in the Philippines

(1) Expenses, losses, indebtedness, and taxes. That proportion of the deductions
specified in paragraph (1) of subjection (a) of this section11 which the value of such part bears
the value of his entire gross estate wherever situated;"

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

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

In recapitulation, we hold and declare that:

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

(b) the intangible personal property is not exempt from inheritance tax, there existing no
complete total reciprocity as required in section 122 of the National Internal Revenue Code,
nor is the decedent's estate entitled to an exemption of P4,000.00 in the computation of the
estate tax;

(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net
asset of the deceased Stevenson.

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

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

WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is
hereby affirmed in all other respects not inconsistent herewith. No costs. So ordered.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Gutierrez David,
Paredes and Dizon, JJ., concur.
 THIRD DIVISION

RAFAEL ARSENIO S. DIZON, in his G.R. No. 140944

capacity as the Judicial Administrator of
the Estate of the deceased JOSE P. Present:
FERNANDEZ,
Petitioner, YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COURT OF TAX APPEALS
and COMMISSIONER OF INTERNAL Promulgated:
REVENUE,
Respondents. April 30, 2008
x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision[2] dated April 30, 1999 which affirmed the Decision[3] of the Court of Tax
Appeals (CTA) dated June 17, 1997.[4]

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the
probate of his will[5] was filed with Branch 51 of the Regional Trial Court (RTC)
of Manila (probate court).[6] The probate court then appointed retired Supreme
Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio
P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively,
of the Estate of Jose (Estate). In a letter [7] dated October 13, 1988, Justice
Dizon informed respondent Commissioner of the Bureau of Internal Revenue
(BIR) of the special proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the
required estate tax return were granted by the BIR since the assets of the estate, as
well as the claims against it, had yet to be collated, determined and identified.
Thus, in a letter[8] dated March 14, 1990, Justice Dizon authorized Atty. Jesus M.
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required
estate tax return and to represent the same in securing a Certificate of Tax
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a letter [9] addressed
to the BIR Regional Director for San Pablo City and filed the estate tax
return[10] with the same BIR Regional Office, showing therein a NIL estate tax
liability, computed as follows:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1) P10,855,020.00

Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL .
Estate Tax Due NIL .[11]

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

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

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

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

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

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48

25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00

Total amount due & collectible P66,973,985.40[18]

In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency
estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2,
1994, petitioner filed a petition for review [21] before respondent CTA. Trial on the
merits ensued.

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

In the hearings conducted, petitioner did not present testimonial evidence

but merely documentary evidence consisting of the following:

Nature of Document (sic) Exhibits

1. Letter dated October 13, 1988

from Arsenio P. Dizon addressed
to the Commissioner of Internal
Revenue informing the latter of
the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"

2. Petition for the probate of the

will and issuance of letter of
administration filed with the
Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc.
No. 87-42980 (pp. 107-108, BIR
records); "B" & "B-1

3. Pleading entitled "Compliance"

filed with the probate Court
submitting the final inventory
of all the properties of the
deceased (p. 106, BIR records); "C"

4. Attachment to Exh. "C" which

is the detailed and complete
listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"

5. Claims against the estate filed

by Equitable Banking Corp. with
the probate Court in the amount
of P19,756,428.31 as of March 31,
1988, together with the Annexes
to the claim (pp. 64-88, BIR records); "D" to "D-24"

6. Claim filed by Banque de L'

Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January 31,
1988 (pp. 262-265, BIR records); "E" to "E-3"

7. Claim of the Manila Banking

Corporation (MBC) which as of
November 7, 1987 amounts to
P65,158,023.54, but recomputed
as of February 28, 1989 at a
total amount of P84,199,160.46;
together with the demand letter
from MBC's lawyer (pp. 194-197,
BIR records); "F" to "F-3"

8. Demand letter of Manila Banking

Corporation prepared by Asedillo,
Ramos and Associates Law Offices
addressed to Fernandez Hermanos,
Inc., represented by Jose P.
Fernandez, as mortgagors, in the
total amount of P240,479,693.17
as of February 28, 1989
(pp. 186-187, BIR records); "G" & "G-1"

9. Claim of State Investment

House, Inc. filed with the
RTC, Branch VII of Manila,
docketed as Civil Case No.
86-38599 entitled "State
Investment House, Inc.,
Plaintiff, versus Maritime
Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants,"
(pp. 200-215, BIR records); "H" to "H-16"

10. Letter dated March 14, 1990

of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"

11. Letter dated April 17, 1990

from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"

12. Estate Tax Return filed by

the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"

13. Certified true copy of the

Letter of Administration
issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S.
Dizon as Judicial Administrator
of the estate of Jose P.
Fernandez; (p. 102, CTA records)
and "L"

14. Certification of Payment of

estate taxes Nos. 2052 and
2053, both dated April 27, 1990,
issued by the Office of the
Regional Director, Revenue
Region No. 4-C, San Pablo
City, with attachments
(pp. 103-104, CTA records.). "M" to "M-5"

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

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

Documents/
Signatures BIR Record

1. Estate Tax Return prepared by

the BIR; p. 138

2. Signatures of Ma. Anabella

Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do-

3. Memorandum for the Commissioner,

dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144

4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do-

5. Signature of Ma. Anabella A.

Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-

6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-

7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-

8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139

9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do-
 10. Signature of Ma. Anabella A.
Abuloc at the lower
portion of Exh. "3"; -do-

11. Signature of Raymond S.

Gallardo at the lower
portion of Exh. "3"; -do-

12. Signature of Maximino

V. Tagle at the lower
portion of Exh. "3"; -do-

13. Demand letter (FAS-E-87-91-00),

signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169

14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22]

The CTA's Ruling

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 that the
aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as
evidence for respondent, considering that respondent has been declared
to have waived the presentation thereof during the hearing on March 20,
1996, still they could be considered as evidence for respondent since
they were properly identified during the presentation of respondent's
witness, whose testimony was duly recorded as part of the records of this
case. Besides, the documents marked as respondent's exhibits formed
part of the BIR records of the case.[24]

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

Conjugal Real Property P 5,062,016.00

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

Estate Tax Due P 29,935,342.97

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

exclusive of 20% interest from due date of its payment until full payment
thereof
[Sec. 283 (b), Tax Code of 1987].[25]

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

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

SO ORDERED.[26]

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.
[27]

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with the
BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the
BIR Commissioner of her authority to re-examine or re-assess the said return filed
on behalf of the Estate.[28]
On May 31, 1999, petitioner filed a Motion for Reconsideration [29] which the CA
denied in its Resolution[30] dated November 3, 1999.

Hence, the instant Petition raising the following issues:

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

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

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

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

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

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

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

The Issues

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

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

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

The Courts Ruling

The Petition is impressed with merit.

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

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

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

The CTA and the CA rely solely on the case of Vda. de Oate, which
reiterated this Court's previous rulings in People v. Napat-a[35] and People v.
Mate[36] on the admission and consideration of exhibits which were not formally
offered during the trial. Although in a long line of cases many of which were
decided after Vda. de Oate, we held that courts cannot consider evidence which has
not been formally offered,[37] nevertheless, petitioner cannot validly assume that the
doctrine laid down in Vda. de Oate has already been abandoned. Recently,
in Ramos v. Dizon,[38] this Court, applying the said doctrine, ruled that the trial
court judge therein committed no error when he admitted and considered the
respondents' exhibits in the resolution of the case, notwithstanding the fact that the
same
were not formally offered. Likewise, in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,[39] the Court made reference to said doctrine in
resolving the issues therein. Indubitably, the doctrine laid down in Vda. De
Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:

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

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

However, in People v. Napat-a [179 SCRA 403] citing People v.

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

From the foregoing declaration, however, it is clear that Vda. de Oate is

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

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

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

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

xxxx

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

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

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

Per the records of this case, the BIR was directed to present its evidence [48] in the
hearing of February 21, 1996, but BIR's counsel failed to appear.[49] The CTA
denied petitioner's motion to consider BIR's presentation of evidence as waived,
with a warning to BIR that such presentation would be considered waived if BIR's
evidence would not be presented at the next hearing. Again, in the hearing of
March 20, 1996, BIR's counsel failed to appear.[50] Thus, in its Resolution[51] dated
March 21, 1996, the CTA considered the BIR to have waived presentation of its
evidence. In the same Resolution, the parties were directed to file their respective
memorandum. Petitioner complied but BIR failed to do so. [52] In all of these
proceedings, BIR was duly notified. Hence, in this case, we are constrained to
apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]
A formal offer is necessary because judges are mandated to rest
their findings of facts and their judgment only and strictly upon the
evidence offered by the parties at the trial. Its function is to enable the
trial judge to know the purpose or purposes for which the proponent is
presenting the evidence. On the other hand, this allows opposing parties
to examine the evidence and object to its admissibility. Moreover, it
facilitates review as the appellate court will not be required to review
documents not previously scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court
in Constantino v. Court of Appeals ruled that the formal offer of one's
evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit
an offer of evidence made after a lapse of three (3) months because
to do so would "condone an inexcusable laxity if not non-compliance
with a court order which, in effect, would encourage needless delays
and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial
court had reasonable ground to consider that petitioners had waived their
right to make a formal offer of documentary or object evidence. Despite
several extensions of time to make their formal offer, petitioners failed to
comply with their commitment and allowed almost five months to lapse
before finally submitting it. Petitioners' failure to comply with the
rule on admissibility of evidence is anathema to the efficient,
effective, and expeditious dispensation of justice.

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

merits of the case.

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

It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. As a mode of extinguishing an obligation,[55] condonation or remission
of debt[56] is defined as:

an act of liberality, by virtue of which, without receiving any equivalent,

the creditor renounces the enforcement of the obligation, which is
extinguished in its entirety or in that part or aspect of the same to which
the remission refers. It is an essential characteristic of remission that it
be gratuitous, that there is no equivalent received for the benefit given;
 once such equivalent exists, the nature of the act changes. It may become
dation in payment when the creditor receives a thing different from that
stipulated; or novation, when the object or principal conditions of the
obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession
which the creditor receives.[57]

Verily, the second issue in this case involves the construction of Section 79 [58] of
the National Internal Revenue Code[59] (Tax Code) which provides for the
allowable deductions from the gross estate of the decedent. The specific question is
whether the actual claims of the aforementioned creditors may be fully allowed as
deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate
with its creditors.

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

It is noteworthy that even in the United States, there is some dispute as to whether
the deductible amount for a claim against the estate is fixed as of the decedent's
death which is the general rule, or the same should be adjusted to reflect post-death
developments, such as where a settlement between the parties results in the
reduction of the amount actually paid.[61] On one hand, the U.S. court ruled that the
appropriate deduction is the value that the claim had at the date of the decedent's
death.[62] Also, as held in Propstra v. U.S., [63] where a lien claimed against the
estate was certain and enforceable on the date of the decedent's death, the fact that
the claimant subsequently settled for lesser amount did not preclude the estate from
deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-
death settlement should be taken into consideration and the claim should be
allowed as a deduction only to the extent of the amount actually paid.
[64]
Recognizing the dispute, the Service released Proposed Regulations in 2007
mandating that the deduction would be limited to the actual amount paid.[65]
 In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of
Appeals held:

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

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

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

WHEREFORE, the instant Petition is GRANTED. Accordingly, the

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

SO ORDERED.
 THIRD DIVISION

[G.R. No. 123206. March 22, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF

APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.

RESOLUTION

GONZAGA-REYES, J.: Supr-ema

Assailed in this petition for review on certiorari is the December 21, 1995
Decision of the Court of Appeals in CA-G.R. Sp. No. 34399 affirming the
[1] [2]

June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate
of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing
erroneously paid estate taxes for the year 1988.

Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during

the second World War, was a part of the infamous Death March by reason of
which he suffered shock and became insane. His sister Josefina Pajonar
became the guardian over his person, while his property was placed under the
guardianship of the Philippine National Bank (PNB) by the Regional Trial
Court of Dumaguete City, Branch 31, in Special Proceedings No. 1254. He
died on January 10, 1988. He was survived by his two brothers Isidro P.
Pajonar and Gregorio Pajonar, his sister Josefina Pajonar, nephews
Concordio Jandog and Mario Jandog and niece Conchita Jandog.

On May 11, 1988, the PNB filed an accounting of the decedent's property
under guardianship valued at P3,037,672.09 in Special Proceedings No.
1254. However, the PNB did not file an estate tax return, instead it advised
Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the
taxes on his estate. On April 5, 1988, pursuant to the assessment by the
Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes in
the amount of P2,557.

On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial
Court of Dumaguete City for the issuance in her favor of letters of
administration of the estate of her brother. The case was docketed as Special
Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina
Pajonar as the regular administratrix of Pedro Pajonar's estate.

On December 19, 1988, pursuant to a second assessment by the BIR for

deficiency estate tax, the estate of Pedro Pajonar paid estate tax in the
amount of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix
and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with
the BIR praying that the estate tax payment in the amount of P1,527,790.98,
or at least some portion of it, be returned to the heirs. Jur-is
[3]

However, on August 15, 1989, without waiting for her protest to be resolved by
the BIR, Josefina Pajonar filed a petition for review with the Court of Tax
Appeals (CTA), praying for the refund of P1,527,790.98, or in the alternative,
P840,202.06, as erroneously paid estate tax. The case was docketed as CTA
[4]

Case No. 4381.

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to

refund Josefina Pajonar the amount of P252,585.59, representing erroneously
paid estate tax for the year 1988. [5]

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 fees in Special
Proceedings No. 1254 for guardianship. Juri-ssc
[6]

On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration of the CTA's May 6, 1993 decision asserting, among others,
[7]

that the notarial fee for the Extrajudicial Settlement and the attorney's fees in
the guardianship proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution ordering the
[8]

Commissioner of Internal Revenue to refund Josefina Pajonar, as

administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
representing erroneously paid estate tax for the year 1988. Also, the CTA
upheld the validity of the deduction of the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings.

On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTA's May 6, 1993 Decision and its June
7, 1994 Resolution, questioning the validity of the abovementioned
deductions. On December 21, 1995, the Court of Appeals denied the
Commissioner's petition. [9]

Hence, the present appeal by the Commissioner of Internal Revenue.

The sole issue in this case involves the construction of section 79 of the
[10]

National Internal Revenue Code (Tax Code) which provides for the allowable
[11]

deductions from the gross estate of the decedent. More particularly, the
question is whether the notarial fee paid for the extrajudicial settlement in the
amount of P60,753 and the attorney's fees in the guardianship proceedings in
the amount of P50,000 may be allowed as deductions from the gross estate of
decedent in order to arrive at the value of the net estate.

We answer this question in the affirmative, thereby upholding the decisions of

the appellate courts. J-jlex

In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:

Respondent maintains that only judicial expenses of the

testamentary or intestate proceedings are allowed as a deduction
to the gross estate. The amount of P60,753.00 is quite
extraordinary for a mere notarial fee.

This Court adopts the view under American jurisprudence that

expenses incurred in the extrajudicial settlement of the estate
should be allowed as a deduction from the gross estate. "There is
no requirement of formal administration. It is sufficient that the
expense be a necessary contribution toward the settlement of the
case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in
Taxation, 10th Ed. (1990), p. 481 ]

xxx.....xxx.....xxx

The attorney's fees of P50,000.00, which were already incurred

but not yet paid, refers to the guardianship proceeding filed by
PNB, as guardian over the ward of Pedro Pajonar, docketed as
Special Proceeding No. 1254 in the RTC (Branch XXXI) of
Dumaguete City. x x x

xxx.....xxx.....xxx

The guardianship proceeding had been terminated upon delivery

of the residuary estate to the heirs entitled thereto. Thereafter,
PNB was discharged of any further responsibility.
 Attorney's fees in order to be deductible from the gross estate
must be essential to the collection of assets, payment of debts
or the distribution of the property to the persons entitled to it. The
services for which the fees are charged must relate to the proper
settlement of the estate. [ 34 Am. Jur. 2d 767. ] In this case, the
guardianship proceeding was necessary for the distribution of the
property of the late Pedro Pajonar to his rightful heirs. Sc-juris

xxx.....xxx.....xxx

PNB was appointed as guardian over the assets of the late Pedro
Pajonar, who, even at the time of his death, was incompetent by
reason of insanity. The expenses incurred in the guardianship
proceeding was but a necessary expense in the settlement of the
decedent's estate. Therefore, the attorney's fee incurred in the
guardianship proceedings amounting to P50,000.00 is a
reasonable and necessary business expense deductible from the
gross estate of the decedent. [12]

Upon a motion for reconsideration filed by the Commissioner of Internal

Revenue, the Court of Tax Appeals modified its previous ruling by reducing
the refundable amount to P76,502.43 since it found that a deficiency interest
should be imposed and the compromise penalty excluded. However, the tax
[13]

court upheld its previous ruling regarding the legality of the deductions -

It is significant to note that the inclusion of the estate tax law in the
codification of all our national internal revenue laws with the
enactment of the National Internal Revenue Code in 1939 were
copied from the Federal Law of the United States. [UMALI,
Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code,
promulgated by Presidential Decree No. 1158, effective June 3,
1977, reenacted substantially all the provisions of the old law on
estate and gift taxes, except the sections relating to the meaning
of gross estate and gift. [ Ibid, p. 286. ] Nc-mmis

In the United States, [a]dministrative expenses, executor's

commissions and attorney's fees are considered allowable
deductions from the Gross Estate. Administrative expenses are
limited to such expenses as are actually and necessarily incurred
in the administration of a decedent's estate. [PRENTICE-HALL,
Federal Taxes Estate and Gift Taxes (1936), p. 120, 533. ]
Necessary expenses of administration are such expenses as are
entailed for the preservation and productivity of the estate and for
its management for purposes of liquidation, payment of debts and
distribution of the residue among the persons entitled
 thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124. ] They must
be incurred for the settlement of the estate as a whole. [34 Am.
Jur. 2d, p. 765. ] Thus, where there were no substantial
community debts and it was unnecessary to convert community
property to cash, the only practical purpose of administration
being the payment of estate taxes, full deduction was allowed for
attorney's fees and miscellaneous expenses charged wholly to
decedent's estate. [ Ibid., citing Estate of Helis, 26 T .C. 143 (A). ]

Petitioner stated in her protest filed with the BIR that "upon the
death of the ward, the PNB, which was still the guardian of the
estate, (Annex 'Z' ), did not file an estate tax return; however, it
advised the heirs to execute an extrajudicial settlement, to pay
taxes and to post a bond equal to the value of the estate, for
which the estate paid P59,341.40 for the premiums. (See Annex
'K')." [p. 17, CTA record. ] Therefore, it would appear from the
records of the case that the only practical purpose of settling the
estate by means of an extrajudicial settlement pursuant to Section
1 of Rule 74 of the Rules of Court was for the payment of taxes
and the distribution of the estate to the heirs. A fortiori, since our
estate tax laws are of American origin, the interpretation adopted
by American Courts has some persuasive effect on the
interpretation of our own estate tax laws on the subject.

Anent the contention of respondent that the attorney's fees of

P50,000.00 incurred in the guardianship proceeding should not be
deducted from the Gross Estate, We consider the same
unmeritorious. Attorneys' and guardians' fees incurred in a
trustee's accounting of a taxable inter vivos trust attributable to the
usual issues involved in such an accounting was held to be proper
deductions because these are expenses incurred in terminating
an inter vivos trust that was includible in the decedent's estate.
(Prentice Hall, Federal Taxes on Estate and Gift, p.120, 861]
Attorney's fees are allowable deductions if incurred for the
settlement of the estate. It is noteworthy to point that PNB was
appointed the guardian over the assets of the deceased.
Necessarily the assets of the deceased formed part of his gross
estate. Accordingly, all expenses incurred in relation to the estate
of the deceased will be deductible for estate tax purposes
provided these are necessary and ordinary expenses for
administration of the settlement of the estate. [14]

In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the
Court of Appeals held that: Newmiso
2. Although the Tax Code specifies "judicial expenses of the
testamentary or intestate proceedings," there is no reason why
expenses incurred in the administration and settlement of an
estate in extrajudicial proceedings should not be allowed.
However, deduction is limited to such administration expenses as
are actually and necessarily incurred in the collection of the
assets of the estate, payment of the debts, and distribution of the
remainder among those entitled thereto. Such expenses may
include executor's or administrator's fees, attorney's fees, court
fees and charges, appraiser's fees, clerk hire, costs of preserving
and distributing the estate and storing or maintaining it, brokerage
fees or commissions for selling or disposing of the estate, and the
like. Deductible attorney's fees are those incurred by the executor
or administrator in the settlement of the estate or in defending or
prosecuting claims against or due the estate. (Estate and Gift
Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176 ).

xxx.....xxx.....xxx

It is clear then that the extrajudicial settlement was for the

purpose of payment of taxes and the distribution of the estate to
the heirs. The execution of the extrajudicial settlement
necessitated the notarization of the same. Hence the Contract of
Legal Services of March 28, 1988 entered into between
respondent Josefina Pajonar and counsel was presented in
evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial
Settlement. It follows then that the notarial fee of P60,753.00 was
incurred primarily to settle the estate of the deceased Pedro
Pajonar. Said amount should then be considered an
administration expenses actually and necessarily incurred in the
collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto. Thus,
the notarial fee of P60,753 incurred for the Extrajudicial
Settlement should be allowed as a deduction from the gross
estate.

3. Attorney's fees, on the other hand, in order to be deductible

from the gross estate must be essential to the settlement of the
estate. Acctmis

The amount of P50,000.00 was incurred as attorney's fees in the

guardianship proceedings in Spec. Proc. No. 1254. Petitioner
contends that said amount are not expenses of the testamentary
or intestate proceedings as the guardianship proceeding was
 instituted during the lifetime of the decedent when there was yet
no estate to be settled.

Again , this contention must fail.

The guardianship proceeding in this case was necessary for the

distribution of the property of the deceased Pedro Pajonar. As
correctly pointed out by respondent CTA, the PNB was appointed
guardian over the assets of the deceased, and that necessarily
the assets of the deceased formed part of his gross estate. x x x

xxx.....xxx.....xxx

It is clear therefore that the attorney's fees incurred in the

guardianship proceeding in Spec. Proc. No. 1254 were essential
to the distribution of the property to the persons entitled thereto.
Hence, the attorney's fees incurred in the guardianship
proceedings in the amount of P50,000.00 should be allowed as a
deduction from the gross estate of the decedent. [15]

The deductions from the gross estate permitted under section 79 of the Tax
Code basically reproduced the deductions allowed under Commonwealth Act
No. 466 (CA 466), otherwise known as the National Internal Revenue Code of
1939, and which was the first codification of Philippine tax laws. Section 89
[16]

(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. In accord with established rules of statutory
[17]

construction, the decisions of American courts construing the federal tax code
are entitled to great weight in the interpretation of our own tax laws. Scc-alr
[18]

Judicial expenses are expenses of administration. Administration expenses,

[19]

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." In other words, the expenses must be essential to
[20]

the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible. This distinction
[21]

has been carried over to our jurisdiction. Thus, in Lorenzo v. Posadas the [22]

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. Neither may attorney's fees
[23]

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 property during his lifetime
should also be considered as a deductible administration expense. PNB
provided a detailed accounting of decedent's property and gave advice as to
the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.

We find that the Court of Appeals did not commit reversible error in affirming
the questioned resolution of the Court of Tax Appeals.

WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is

AFFIRMED. The notarial fee for the extrajudicial settlement and the attorney's
fees in the guardianship proceedings are allowable deductions from the gross
estate of Pedro Pajonar.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur. Calrs-pped

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172804 January 24, 2011

GONZALO VILLANUEVA, represented by his heirs, Petitioner,

vs.
SPOUSES FROILAN and LEONILA BRANOCO, Respondents.

DECISION

CARPIO, J.:

The Case

This resolves the petition for review1 of the ruling2 of the Court of Appeals dismissing a suit to recover
a realty.

The Facts

Petitioner Gonzalo Villanueva (petitioner), here represented by his heirs, 3 sued respondents,
spouses Froilan and Leonila Branoco (respondents), in the Regional Trial Court of Naval, Biliran
(trial court) to recover a 3,492 square-meter parcel of land in Amambajag, Culaba, Leyte (Property)
and collect damages. Petitioner claimed ownership over the Property through purchase in July 1971
from Casimiro Vere (Vere), who, in turn, bought the Property from Alvegia Rodrigo (Rodrigo) in
August 1970. Petitioner declared the Property in his name for tax purposes soon after acquiring it.

In their Answer, respondents similarly claimed ownership over the Property through purchase in July
1983 from Eufracia Rodriguez (Rodriguez) to whom Rodrigo donated the Property in May 1965. The
two-page deed of donation (Deed), signed at the bottom by the parties and two witnesses, reads in
full:

KNOW ALL MEN BY THESE PRESENTS:

That I, ALVEGIA RODRIGO, Filipino, of legal age, widow of the late Juan Arcillas, a resident of
Barrio Bool, municipality of Culaba, subprovince of Biliran, Leyte del Norte, Philippines, hereby
depose and say:

That as we live[d] together as husband and wife with Juan Arcillas, we begot children, namely:
LUCIO, VICENTA, SEGUNDINA, and ADELAIDA, all surnamed ARCILLAS, and by reason of
poverty which I suffered while our children were still young; and because my husband Juan Arcillas
aware as he was with our destitution separated us [sic] and left for Cebu; and from then on never
cared what happened to his family; and because of that one EUFRACIA RODRIGUEZ, one of my
nieces who also suffered with our poverty, obedient as she was to all the works in our house, and
because of the love and affection which I feel [for] her, I have one parcel of land located at Sitio
Amambajag, Culaba, Leyte bearing Tax Decl. No. 1878 declared in the name of Alvegia Rodrigo, I
give (devise) said land in favor of EUFRACIA RODRIGUEZ, her heirs, successors, and assigns
together with all the improvements existing thereon, which parcel of land is more or less described
and bounded as follows:

1. Bounded North by Amambajag River; East, Benito Picao; South, Teofilo Uyvico; and West, by
Public land; 2. It has an area of 3,492 square meters more or less; 3. It is planted to coconuts now
bearing fruits; 4. Having an assessed value of P240.00; 5. It is now in the possession of EUFRACIA
RODRIGUEZ since May 21, 1962 in the concept of an owner, but the Deed of Donation or that
ownership be vested on her upon my demise.

That I FURTHER DECLARE, and I reiterate that the land above described, I already devise in favor
of EUFRACIA RODRIGUEZ since May 21, 1962, her heirs, assigns, and that if the herein Donee
predeceases me, the same land will not be reverted to the Donor, but will be inherited by the heirs of
EUFRACIA RODRIGUEZ;

That I EUFRACIA RODRIGUEZ, hereby accept the land above described from Inay Alvegia Rodrigo
and I am much grateful to her and praying further for a longer life; however, I will give one half (1/2)
of the produce of the land to Apoy Alve during her lifetime. 4

Respondents entered the Property in 1983 and paid taxes afterwards.

The Ruling of the Trial Court

The trial court ruled for petitioner, declared him owner of the Property, and ordered respondents to
surrender possession to petitioner, and to pay damages, the value of the Propertys produce since
1982 until petitioners repossession and the costs.5 The trial court rejected respondents claim of
ownership after treating the Deed as a donation mortis causa which Rodrigo effectively cancelled by
selling the Property to Vere in 1970.6 Thus, by the time Rodriguez sold the Property to respondents
in 1983, she had no title to transfer.

Respondents appealed to the Court of Appeals (CA), imputing error in the trial courts interpretation
of the Deed as a testamentary disposition instead of an inter vivos donation, passing title to
Rodriguez upon its execution.

Ruling of the Court of Appeals

The CA granted respondents appeal and set aside the trial courts ruling. While conceding that the
"language of the [Deed is] x x x confusing and which could admit of possible different
interpretations,"7 the CA found the following factors pivotal to its reading of the Deed as
donation inter vivos: (1) Rodriguez had been in possession of the Property as owner since 21 May
1962, subject to the delivery of part of the produce to Apoy Alve; (2) the Deeds consideration was
not Rodrigos death but her "love and affection" for Rodriguez, considering the services the latter
rendered; (3) Rodrigo waived dominion over the Property in case Rodriguez predeceases her,
implying its inclusion in Rodriguezs estate; and (4) Rodriguez accepted the donation in the Deed
itself, an act necessary to effectuate donations inter vivos, not devises.8 Accordingly, the CA upheld
the sale between Rodriguez and respondents, and, conversely found the sale between Rodrigo and
petitioners predecessor-in-interest, Vere, void for Rodrigos lack of title.

In this petition, petitioner seeks the reinstatement of the trial courts ruling. Alternatively, petitioner
claims ownership over the Property through acquisitive prescription, having allegedly occupied it for
more than 10 years.9

Respondents see no reversible error in the CAs ruling and pray for its affirmance.

The Issue

The threshold question is whether petitioners title over the Property is superior to respondents. The
resolution of this issue rests, in turn, on whether the contract between the parties predecessors-in-
interest, Rodrigo and Rodriguez, was a donation or a devise. If the former, respondents hold
superior title, having bought the Property from Rodriguez. If the latter, petitioner prevails, having
obtained title from Rodrigo under a deed of sale the execution of which impliedly revoked the earlier
devise to Rodriguez.

The Ruling of the Court

We find respondents title superior, and thus, affirm the CA.

Naked Title Passed from Rodrigo to Rodriguez Under a Perfected Donation

We examine the juridical nature of the Deed whether it passed title to Rodriguez upon its execution
or is effective only upon Rodrigos death using principles distilled from relevant jurisprudence.
Post-mortem dispositions typically

(1) Convey no title or ownership to the transferee before the death of the transferor; or, what
amounts to the same thing, that the transferor should retain the ownership (full or naked) and
control of the property while alive;

(2) That before the [donors] death, the transfer should be revocable by the transferor at
will, ad nutum; but revocability may be provided for indirectly by means of a reserved power
in the donor to dispose of the properties conveyed;

(3) That the transfer should be void if the transferor should survive the transferee. 10

Further

[4] [T]he specification in a deed of the causes whereby the act may be revoked by the donor
indicates that the donation is inter vivos, rather than a disposition mortis causa[;]

[5] That the designation of the donation as mortis causa, or a provision in the deed to the
effect that the donation is "to take effect at the death of the donor" are not controlling criteria;
such statements are to be construed together with the rest of the instrument, in order to give
effect to the real intent of the transferor[;] [and]

(6) That in case of doubt, the conveyance should be deemed donation inter vivos rather
than mortis causa, in order to avoid uncertainty as to the ownership of the property subject of
the deed.11

It is immediately apparent that Rodrigo passed naked title to Rodriguez under a perfected
donation inter vivos. First. Rodrigo stipulated that "if the herein Donee predeceases me, the
[Property] will not be reverted to the Donor, but will be inherited by the heirs of x x x Rodriguez,"
signaling the irrevocability of the passage of title to Rodriguezs estate, waiving Rodrigos right to
reclaim title. This transfer of title was perfected the moment Rodrigo learned of Rodriguezs
acceptance of the disposition12 which, being reflected in the Deed, took place on the day of its
execution on 3 May 1965. Rodrigos acceptance of the transfer underscores its essence as a gift in
presenti, not in futuro, as only donations inter vivos need acceptance by the recipient.13 Indeed, had
Rodrigo wished to retain full title over the Property, she could have easily stipulated, as the testator
did in another case, that "the donor, may transfer, sell, or encumber to any person or entity the
properties here donated x x x"14 or used words to that effect. Instead, Rodrigo expressly waived title
over the Property in case Rodriguez predeceases her.

In a bid to diffuse the non-reversion stipulations damning effect on his case, petitioner tries to profit
from it, contending it is a fideicommissary substitution clause.15 Petitioner assumes the fact he is
laboring to prove. The question of the Deeds juridical nature, whether it is a will or a donation, is the
crux of the present controversy. By treating the clause in question as mandating fideicommissary
substitution, a mode of testamentary disposition by which the first heir instituted is entrusted with the
obligation to preserve and to transmit to a second heir the whole or part of the
inheritance,16 petitioner assumes that the Deed is a will. Neither the Deeds text nor the import of the
contested clause supports petitioners theory.

Second. What Rodrigo reserved for herself was only the beneficial title to the Property, evident from
Rodriguezs undertaking to "give one [half] x x x of the produce of the land to Apoy Alve during her
lifetime."17 Thus, the Deeds stipulation that "the ownership shall be vested on [Rodriguez] upon my
demise," taking into account the non-reversion clause, could only refer to Rodrigos beneficial title.
We arrived at the same conclusion in Balaqui v. Dongso18 where, as here, the donor, while "b[inding]
herself to answer to the [donor] and her heirs x x x that none shall question or disturb [the donees]
right," also stipulated that the donation "does not pass title to [the donee] during my lifetime; but
when I die, [the donee] shall be the true owner" of the donated parcels of land. In finding the
disposition as a gift inter vivos, the Court reasoned:

Taking the deed x x x as a whole, x x x x it is noted that in the same deed [the donor] guaranteed to
[the donee] and her heirs and successors, the right to said property thus conferred. From the
moment [the donor] guaranteed the right granted by her to [the donee] to the two parcels of land by
virtue of the deed of gift, she surrendered such right; otherwise there would be no need to guarantee
said right. Therefore, when [the donor] used the words upon which the appellants base their
contention that the gift in question is a donation mortis causa [that the gift "does not pass title during
my lifetime; but when I die, she shall be the true owner of the two aforementioned parcels"] the
donor meant nothing else than that she reserved of herself the possession and usufruct of
said two parcels of land until her death, at which time the donee would be able to dispose of
them freely.19 (Emphasis supplied)

Indeed, if Rodrigo still retained full ownership over the Property, it was unnecessary for her to
reserve partial usufructuary right over it.20

Third. The existence of consideration other than the donors death, such as the donors love and
affection to the donee and the services the latter rendered, while also true of devises, nevertheless
"corroborates the express irrevocability of x x x [inter vivos] transfers."21 Thus, the CA committed no
error in giving weight to Rodrigos statement of "love and affection" for Rodriguez, her niece, as
consideration for the gift, to underscore its finding.

It will not do, therefore, for petitioner to cherry-pick stipulations from the Deed tending to serve his
cause (e.g. "the ownership shall be vested on [Rodriguez] upon my demise" and "devise").
Dispositions bearing contradictory stipulations are interpreted wholistically, to give effect to the
donors intent. In no less than seven cases featuring deeds of donations styled as "mortis causa"
dispositions, the Court, after going over the deeds, eventually considered the transfers inter
vivos,22 consistent with the principle that "the designation of the donation as mortis causa, or a
provision in the deed to the effect that the donation is to take effect at the death of the donor are not
controlling criteria [but] x x x are to be construed together with the rest of the instrument, in order to
give effect to the real intent of the transferor."23 Indeed, doubts on the nature of dispositions are
resolved to favor inter vivos transfers "to avoid uncertainty as to the ownership of the property
subject of the deed."24

Nor can petitioner capitalize on Rodrigos post-donation transfer of the Property to Vere as proof of
her retention of ownership. If such were the barometer in interpreting deeds of donation, not only will
great legal uncertainty be visited on gratuitous dispositions, this will give license to rogue property
owners to set at naught perfected transfers of titles, which, while founded on liberality, is a valid
mode of passing ownership. The interest of settled property dispositions counsels against licensing
such practice.25

Accordingly, having irrevocably transferred naked title over the Property to Rodriguez in 1965,
Rodrigo "cannot afterwards revoke the donation nor dispose of the said property in favor of
another."26 Thus, Rodrigos post-donation sale of the Property vested no title to Vere. As Veres
successor-in-interest, petitioner acquired no better right than him. On the other hand, respondents
bought the Property from Rodriguez, thus acquiring the latters title which they may invoke against all
adverse claimants, including petitioner.

Petitioner Acquired No Title Over the Property

Alternatively, petitioner grounds his claim of ownership over the Property through his and Veres
combined possession of the Property for more than ten years, counted from Veres purchase of the
Property from Rodrigo in 1970 until petitioner initiated his suit in the trial court in February
1986.27 Petitioner anchors his contention on an unfounded legal assumption. The ten year ordinary
prescriptive period to acquire title through possession of real property in the concept of an owner
requires uninterrupted possession coupled with just title and good faith.28There is just title when the
adverse claimant came into possession of the property through one of the modes recognized by law
for the acquisition of ownership or other real rights, but the grantor was not the owner or could not
transmit any right.29 Good faith, on the other hand, consists in the reasonable belief that the person
from whom the possessor received the thing was the owner thereof, and could transmit his
ownership.30

Although Vere and petitioner arguably had just title having successively acquired the Property
through sale, neither was a good faith possessor. As Rodrigo herself disclosed in the Deed,
Rodriguez already occupied and possessed the Property "in the concept of an owner" ("como tag-
iya"31) since 21 May 1962, nearly three years before Rodrigos donation in 3 May 1965 and seven
years before Vere bought the Property from Rodrigo. This admission against interest binds Rodrigo
and all those tracing title to the Property through her, including Vere and petitioner. Indeed,
petitioners insistent claim that Rodriguez occupied the Property only in 1982, when she started
paying taxes, finds no basis in the records. In short, when Vere bought the Property from Rodrigo in
1970, Rodriguez was in possession of the Property, a fact that prevented Vere from being a buyer in
good faith.

Lacking good faith possession, petitioners only other recourse to maintain his claim of ownership by
prescription is to show open, continuous and adverse possession of the Property for 30
years.32 Undeniably, petitioner is unable to meet this requirement.1avvphil

Ancillary Matters Petitioner Raises Irrelevant

Petitioner brings to the Courts attention facts which, according to him, support his theory that
Rodrigo never passed ownership over the Property to Rodriguez, namely, that Rodriguez registered
the Deed and paid taxes on the Property only in 1982 and Rodriguez obtained from Vere in 1981 a
waiver of the latters "right of ownership" over the Property. None of these facts detract from our
conclusion that under the text of the Deed and based on the contemporaneous acts of Rodrigo and
Rodriguez, the latter, already in possession of the Property since 1962 as Rodrigo admitted,
obtained naked title over it upon the Deeds execution in 1965. Neither registration nor tax payment
is required to perfect donations. On the relevance of the waiver agreement, suffice it to say that Vere
had nothing to waive to Rodriguez, having obtained no title from Rodrigo. Irrespective of Rodriguezs
motivation in obtaining the waiver, that document, legally a scrap of paper, added nothing to the title
Rodriguez obtained from Rodrigo under the Deed.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 6 June 2005 and the
Resolution dated 5 May 2006 of the Court of Appeals.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

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

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

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

LAUREL, J.:

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

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

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

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

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

xxx xxx xxx

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

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

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

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

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir,
Matthew Hanley, from the moment of the death of the former, and that from the time, the
latter became the owner thereof.

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

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate
subject to said tax, the amounts allowed by the court as compensation to the "trustees" and
paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

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

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

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

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

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

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not
be taxed:

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

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.

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

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

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

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

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

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

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

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

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation
from the Spanish to the English version.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.

THIRD DIVISION

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

URSULINA GANUELAS, METODIO GANUELAS and ANTONIO

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

DECISION

CARPIO-MORALES, J.:

The present petition for review under Rule 45 of the Rules of Court
assails, on a question of law, the February 22, 1996 decision of the Regional [1]

Trial Court of San Fernando, La Union, Branch 29, in Civil Case No. 3947, an
action for declaration of nullity of a deed of donation.

The facts, as culled from the records of the case, are as follows:
 On April 11, 1958, Celestina Ganuelas Vda. de Valin (Celestina) executed
a Deed of Donation of Real Property covering seven parcels of land in favor
[2]

of her niece Ursulina Ganuelas (Ursulina), one of herein petitioners.

The pertinent provision of the deed of donation reads, quoted verbatim:

xxx

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

x x x. [3]

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

Revocation of Donation purporting to set aside the deed of donation. More
[4]

than a month later or on August 18, 1967, Celestina died without issue and
any surviving ascendants and siblings.

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

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

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

Private respondents were thus prompted to file on May 26, 1986 with the
RTC of San Fernando, La Union a complaint against Ursulina, along with
[5]

Metodio Ganuelas and Antonio Ganuelas who were alleged to be unwilling

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

The defendants-herein petitioners alleged in their Answer that the [6]

donation in favor of Ursulina was inter vivos as contemplated under Article

729 of the Civil Code, hence, the deed did not have to comply with the
[7]

requirements for the execution of a valid will; the Revocation of Donation is

null and void as the ground mentioned therein is not among those provided by
law to be the basis thereof; and at any rate, the revocation could only be
legally enforced upon filing of the appropriate complaint in court within the
prescriptive period provided by law, which period had, at the time the
complaint was filed, already lapsed.

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

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

SO ORDERED. [9]

The trial court also held that the absence of a reservation clause in the
deed implied that Celestina retained complete dominion over her properties,
thus supporting the conclusion that the donation is mortis causa, and that[10]

while the deed contained an attestation clause and an acknowledgment

showing the intent of the donor to effect a postmortem disposition, the
acknowledgment was defective as only the donor and donee appear to have
acknowledged the deed before the notary public, thereby rendering the entire
document void. [11]

Lastly, the trial court held that the subsequent execution by Celestina of
the Revocation of Donation showed that the donor intended the revocability of
the donation ad nutum, thus sustaining its finding that the conveyance
was mortis causa. [12]

On herein petitioners argument that the Revocation of Donation was void

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

Hence, the instant petition for review, petitioners contending that the trial
court erred:

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

EXECUTED BY CELESTINA GANUELAS;

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

III. . . . IN RENDERING ITS DECISION ADVERSE TO PETITIONER

URSULINA GANUELAS. [14]

Petitioners argue that the donation contained in the deed is inter vivos as
the main consideration for its execution was the donors affection for the donee
rather than the donors death; that the provision on the effectivity of the
[15]

donationafter the donors deathsimply meant that absolute ownership would

pertain to the donee on the donors death; and that since the donation is inter
[16]

vivos, it may be revoked only for the reasons provided in Articles 760,
764 and 765 of the Civil Code.
[17] [18] [19]

In a letter of March 16, 1998, private respondent Corazon Sipalay,

[20]

reacting to this Courts January 28, 1998 Resolution requiring private

respondents to SHOW CAUSE why they should not be disciplinarily dealt with
or held in contempt for failure to submit the name and address of their new
counsel, explains that they are no longer interested in pursuing the case and
are willing and ready to waive whatever rights they have over the properties
subject of the donation. Petitioners, who were required to comment on the
letter, by Comment of October 28, 1998, welcome private respondents
[21]

gesture but pray that for the sake of enriching jurisprudence, their [p]etition be
given due course and resolved.

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

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

donor intended to transfer the ownership over the properties upon the
execution of the deed. [22]

Donation inter vivos differs from donation mortis causa in that in the
former, the act is immediately operative even if the actual execution may be
deferred until the death of the donor, while in the latter, nothing is conveyed to
or acquired by the donee until the death of the donor-testator. The following [23]

ruling of this Court in Alejandro v. Geraldez is illuminating: [24]

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

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

The distinction between a transfer inter vivos and mortis causa is

important as the validity or revocation of the donation depends upon its
nature. If the donation is inter vivos, it must be executed and accepted with
the formalities prescribed by Articles 748 and 749 of the Civil Code, except
[25] [26]

when it is onerous in which case the rules on contracts will apply. If it is mortis
causa, the donation must be in the form of a will, with all the formalities for the
validity of wills, otherwise it is void and cannot transfer ownership. [27]

The distinguishing characteristics of a donation mortis causa are the

following:

1. It conveys no title or ownership to the transferee before the death of the transferor;
or, what amounts to the same thing, that the transferor should retain the ownership
(full or naked) and control of the property while alive;

2. That before his death, the transfer should be revocable by the transferor at will, ad
nutum; but revocability may be provided for indirectly by means of a reserved power
in the donor to dispose of the properties conveyed;

3. That the transfer should be void if the transferor should survive the transferee. [28]

In the donation subject of the present case, there is nothing therein which
indicates that any right, title or interest in the donated properties was to be
transferred to Ursulina prior to the death of Celestina.

The phrase to become effective upon the death of the DONOR admits of
no other interpretation but that Celestina intended to transfer the ownership of
the properties to Ursulina on her death, not during her lifetime. [29]

More importantly, the provision in the deed stating that if the donee should
die before the donor, the donation shall be deemed rescinded and of no
further force and effect shows that the donation is a postmortem disposition.

As stated in a long line of cases, one of the decisive characteristics of a

donation mortis causa is that the transfer should be considered void if the
donor should survive the donee. [30]
 More. The deed contains an attestation clause expressly confirming the
donation as mortis causa:

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

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

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

transfers mortis causa. [33]

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

[34]

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

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

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

As the subject deed then is in the nature of a mortis causa disposition, the
formalities of a will under Article 728 of the Civil Code should have been
complied with, failing which the donation is void and produces no effect. [35]

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

the deed before the notary public, thus violating Article 806 of the Civil Code
which provides:
Art. 806. Every will must be acknowledged before a notary public by the testator and
the witnesses. The notary public shall not be required to retain a copy of the will, or
file another with the office of the Clerk of Court. (Emphasis supplied)

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

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

SO ORDERED.

Panganiban, Sandoval-Gutierrez, and Corona, JJ., concur.

Puno, J., (Chairman), No part. Knows one of the parties.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. Nos. L-9456 and L-9481 January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased),
and the COURT OF TAX APPEALS, respondents.

Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara.

Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal
Revenue.

MONTEMAYOR, J.:

These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the
Collector, and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H.
Miller, from the decision of the Court of Tax Appeals of June 25, 1955, with the following dispositive
part:

WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of
the decedent Hugo H. Miller is hereby modified in accordance with the computation attached
as Annex "A" of this decision. Petitioner is hereby ordered to pay the amount of P2,047.22
representing estate taxes due, together with the interests and other increments. In case of
failure to pay the amount of P2,047.22 within thirty (30) days from the time this decision has
become final, the 5 per cent surcharge and the corresponding interest due thereon shall be
paid as a part of the tax.

The facts in the case gathered from the record and as found by the Court of Tax Appeals may be
briefly stated as follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California,
U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the
public school system, first as a teacher and later as a division superintendent of schools, later
retiring under the Osmeiia Retirement Act. After his retirement, Miller accepted an executive position
in the local branch of Ginn & Co., book publishers with principal offices in New York and Boston,
U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed
in the Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also
China and Japan. His principal work was selling books specially written for Philippine schools. In or
about the year 1922, Miller lived at the Manila Hotel. His wife remained at their home in Ben-
Lomond, Santa Cruz, California, but she used to come to the Philippines for brief visits with Miller,
staying three or four months. Miller also used to visit his wife in California. He never lived in any
residential house in the Philippines. After the death of his wife in 1931, he transferred from the
Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War.
On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which
he declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific
War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United States
Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944,
he was transferred to Catbalogan, Samar, where he was reported to have been executed by said
forces on March 11, 1944, and since then, nothing has been heard from him. At the time of his death
in 1944, Miller owned the following properties:

Real Property situated in Ben-Lomond, Santa Cruz,

California valued P
at ...................................................................... 5,000.00

Real property situated in Burlingame, San Mateo,

California valued
at ..............................................................................
.......... 16,200.00

Tangible Personal property,

worth............................................. 2,140.00

Cash in the banks in the United

States.................................... 21,178.20

Accounts Receivable from various persons in the

United States including
notes ............................................................... 36,062.74

Stocks in U.S. Corporations and U.S. Savings

Bonds, valued
at .............................................................................. 123,637.1
.......... 6

Shares of stock in Philippine Corporations, valued

at .......... 51,906.45

Testate proceedings were instituted before the Court of California in Santa Cruz County, in the
course of which Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said
court subsequently issued an order and decree of settlement of final account and final distribution,
wherein it found that Miller was a "resident of the County of Santa Cruz, State of California" at the
time of his death in 1944. Thereafter ancilliary proceedings were filed by the executors of the will
before the Court of First Instance of Manila, which court by order of November 21, 1946, admitted to
probate the will of Miller was probated in the California court, also found that Miller was a resident of
Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National
Trust and Savings Association of San Francisco California, co-executor named in Miller's will, filed
an estate and inheritance tax return with the Collector, covering only the shares of stock issued by
Philippines corporations, reporting a liability of P269.43 for taxes and P230.27 for inheritance taxes.
After due investigation, the Collector assessed estate and inheritance taxes, which was received by
the said executor on April 3, 1950. The estate of Miller protested the assessment of the liability for
estate and inheritance taxes, including penalties and other increments at P77,300.92, as of January
16, 1954. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of
Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals.

In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our
Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of
the Philippines at the time of his death. The Collector maintains that under the tax laws, residence
and domicile have different meanings; that tax laws on estate and inheritance taxes only mention
resident and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d)
of the Tax Code; that Miller during his long stay in the Philippines had required a "residence" in this
country, and was a resident thereof at the time of his death, and consequently, his intangible
personal properties situated here as well as in the United States were subject to said taxes. The
Ancilliary Administrator, however, equally maintains that for estate and inheritance tax purposes, the
term "residence" is synonymous with the term domicile.

We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code
was promulgated in 1939, the prevailing construction given by the courts to the "residence" was
synonymous with domicile. and that the two were used intercnangeabiy. Cases were cited in support
of this view, paricularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms
"residence" and "domicile" interchangeably and without distinction, the case involving the application
of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of the
Revised Administrative Code), and that consequently, it will be presumed that in using the term
residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is
reason to believe that the Legislature adopted the American (Federal and State) estate and
inheritance tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122-
124, cited in I Dalupan, National Internal Revenue Code Annotated, p. 469-470). In the United
States, for estate tax purposes, a resident is considered one who at the time of his death had his
domicile in the United States, and in American jurisprudence, for purposes of estate and taxation,
"residence" is interpreted as synonymous with domicile, and that

The incidence of estate and succession has historically been determined by domicile and
situs and not by the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at
921, 6 AFTR 7498, cert. den (1928) 272 U.S.608).

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or
domicile in Santa Cruz, California. During his country, Miller never acquired a house for residential
purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife
never stayed in the Philippines. The bulk of his savings and properties were in the United States. To
his home in California, he had been sending souvenirs, such as carvings, curios and other similar
collections from the Philippines and the Far East. In November, 1940, Miller took out a property
insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact
that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he
was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the
Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares
of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax
Court, that while it may be the general rule that personal property, like shares of stock in the
Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur
persona, nevertheless, when he during his life time,

. . . extended his activities with respect to his intangibles, so as to avail himself of the
protection and benefits of the laws of the Philippines, in such a way as to bring his person or
property within the reach of the Philippines, the reason for a single place of taxation no
longer obtains- protection, benefit, and power over the subject matter are no longer confined
to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector
(1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled herein: and besides, the right to vote the
certificates at stockholders' meetings, the right to collect dividends, and the right to dispose
of the shares including the transmission and acquisition thereof by succession, all enjoy the
protection of the Philippines, so that the right to collect the estate and inheritance taxes
cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is
recognized that the state may, consistently with due process, impose a tax upon transfer by
 death of shares of stock in a domestic corporation owned by a decedent whose domicile was
outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942)
316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80).

The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax
Code, which provides as follows:

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

The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from
the California inheritance taxes with respect to intangibles, and (b) the exemption by way of
reduction of P4,000 from the estates of non-residents, under the United States Federal Estate Tax
Law. Section 6 of the California Inheritance Tax Act of 1935, now reenacted as Section 13851,
California Revenue and Taxation Code, reads as follows:

SEC. 6. The following exemption from the tax are hereby allowed:

xxx xxx xxx.

(7) The tax imposed by this act in respect of intangible personal property shall not be
payable if decedent is a resident of a State or Territory of the United States or a foreign state
or country which at the time of his death imposed a legacy, succession of death tax in
respect of intangible personal property within the State or Territory or foreign state or country
of residents of the States or Territory or foreign state or country of residence of the decedent
at the time of his death contained a reciprocal provision under which non-residents were
exempted from legacy or succession taxes or death taxes of every character in respect of
intangible personal property providing the State or Territory or foreign state or country of
residence of such non-residents allowed a similar exemption to residents of the State,
Territory or foreign state or country of residence of such decedent.

Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we
beleive and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from
the tax on the intangible personal property found in the Philippines. Incidentally, this exemption
granted to non-residents under the provision of Section 122 of our Tax Code, was to reduce the
burden of multiple taxation, which otherwise would subject a decedent's intangible personal property
to the inheritance tax, both in his place of residence and domicile and the place where those
properties are found. As regards the exemption or reduction of P4,000 based on the reduction under
the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000
allowed under the Federal Estate Tax Law is in the nature of deduction and not of an exemption.
Besides, as the Tax Court observes--.

. . . this exemption is allowed on all gross estate of non-residents of the United States, who
are not citizens thereof, irrespective of whether there is a corresponding or similar exemption
from transfer or death taxes of non-residents of the Philippines, who are citizens of the
United States; and thirdly, because this exemption is allowed on all gross estates of non-
residents irrespective of whether it involves tangible or intangible, real or personal property;
so that for these reasons petitioner cannot claim a reciprocity. . .

Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of
P3,000 under section 85 of the Tax Code, before it was amended, which in part provides as follows:

SEC. 85. Rates of estate tax.There shall be levied, assessed, collected, and paid upon the
transfer of the net estate of every decedent, whether a resident or non-resident of the
Philippines, a tax equal to the sum of the following percentages of the value of the net estate
determined as provided in sections 88 and 89:
 One per centrum of the amount by which the net estate exceeds three thousand pesos and
does not exceed ten thousand pesos;. . .

It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary
Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together
with interest and other increments. Said Ancilliary Administrator invokes the provisions of Republic
Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese
atrocities who died during the Japanese occupation. The provisions of this Act could not be invoked
during the hearing before the Tax Court for the reason that said Republic Act was approved only on
June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but
was killed by the Japanese military forces, his estate is entitled to the benefits of this Act.
Consequently, the interests and other increments provided in the appealed judgment should not be
paid by his estate.

With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed.
We deem it unnecessary to pass upon the other points raised in the appeal. No costs.

Bengzon, Paras, C.J., Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Endencia, and Felix, JJ., concur.