G.R. No.
L-43082 June 18, 1937 pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8,
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
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
1
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.
2
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
3
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).
4
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
5
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.

6
[G.R. No. 113725. June 29, 2000]
JOHNNY S. RABADILLA,[1] petitioner, vs. COURT OF APPEALS AND MARIA
MARLENA[2] COSCOLUELLA Y BELLEZA VILLACARLOS, respondents.
DECISION
PURISIMA, J.:
This is a petition for review of the decision of the Court of Appeals,[3] dated December 23, 1993,
in CA-G.R. No. CV-35555, which set aside the decision of Branch 52 of the Regional Trial Court
in Bacolod City, and ordered the defendants-appellees (including herein petitioner), as heirs of
Dr. Jorge Rabadilla, to reconvey title over Lot No. 1392, together with its fruits and interests,
to the estate of Aleja Belleza.
The antecedent facts are as follows:
In a Codicil appended to the Last Will and Testament of testatrix Aleja Belleza, Dr. Jorge
Rabadilla, predecessor-in-interest of the herein petitioner, Johnny S. Rabadilla, was instituted
as a devisee of 511, 855 square meters of that parcel of land surveyed as Lot No. 1392 of the
Bacolod Cadastre. The said Codicil, which was duly probated and admitted in Special
Proceedings No. 4046 before the then Court of First Instance of Negros Occidental, contained
the following provisions:
"FIRST
I give, leave and bequeath the following property owned by me to Dr. Jorge Rabadilla resident
of 141 P. Villanueva, Pasay City:
(a) Lot No. 1392 of the Bacolod Cadastre, covered by Transfer Certificate of Title No. RT-4002
(10942), which is registered in my name according to the records of the Register of Deeds of
Negros Occidental.
(b) That should Jorge Rabadilla die ahead of me, the aforementioned property and the rights
which I shall set forth hereinbelow, shall be inherited and acknowledged by the children and
spouse of Jorge Rabadilla.
xxx
FOURTH
(a)....It is also my command, in this my addition (Codicil), that should I die and Jorge Rabadilla
shall have already received the ownership of the said Lot No. 1392 of the Bacolod Cadastre,
covered by Transfer Certificate of Title No. RT-4002 (10942), and also at the time that the lease
of Balbinito G. Guanzon of the said lot shall expire, Jorge Rabadilla shall have the obligation
until he dies, every year to give to Maria Marlina Coscolluela y Belleza, Seventy (75) (sic) piculs
of Export sugar and Twenty Five (25) piculs of Domestic sugar, until the said Maria Marlina
Coscolluela y Belleza dies.
FIFTH
(a) Should Jorge Rabadilla die, his heir to whom he shall give Lot No. 1392 of the Bacolod
Cadastre, covered by Transfer Certificate of Title No. RT-4002 (10492), shall have the obligation
to still give yearly, the sugar as specified in the Fourth paragraph of his testament, to Maria
Marlina Coscolluela y Belleza on the month of December of each year.
SIXTH
I command, in this my addition (Codicil) that the Lot No. 1392, in the event that the one to
whom I have left and bequeathed, and his heir shall later sell, lease, mortgage this said Lot,
the buyer, lessee, mortgagee, shall have also the obligation to respect and deliver yearly ONE
HUNDRED (100) piculs of sugar to Maria Marlina Coscolluela y Belleza, on each month of
December, SEVENTY FIVE (75) piculs of Export and TWENTY FIVE (25) piculs of Domestic, until
Maria Marlina shall die, lastly should the buyer, lessee or the mortgagee of this lot, not have
respected my command in this my addition (Codicil), Maria Marlina Coscolluela y Belleza, shall
immediately seize this Lot No. 1392 from my heir and the latter's heirs, and shall turn it over
to my near desendants, (sic) and the latter shall then have the obligation to give the ONE
HUNDRED (100) piculs of sugar until Maria Marlina shall die. I further command in this my
addition (Codicil) that my heir and his heirs of this Lot No. 1392, that they will obey and follow
that should they decide to sell, lease, mortgage, they cannot negotiate with others than my
near descendants and my sister."[4]
Pursuant to the same Codicil, Lot No. 1392 was transferred to the deceased, Dr. Jorge Rabadilla,
and Transfer Certificate of Title No. 44498 thereto issued in his name.
Dr. Jorge Rabadilla died in 1983 and was survived by his wife Rufina and children Johnny
(petitioner), Aurora, Ofelia and Zenaida, all surnamed Rabadilla.
On August 21, 1989, Maria Marlena Coscolluela y Belleza Villacarlos brought a complaint,
docketed as Civil Case No. 5588, before Branch 52 of the Regional Trial Court in Bacolod City,
against the above-mentioned heirs of Dr. Jorge Rabadilla, to enforce the provisions of subject
Codicil. The Complaint alleged that the defendant-heirs violated the conditions of the Codicil,
in that:
1. Lot No. 1392 was mortgaged to the Philippine National Bank and the Republic Planters Bank
in disregard of the testatrix's specific instruction to sell, lease, or mortgage only to the near
descendants and sister of the testatrix.
2. Defendant-heirs failed to comply with their obligation to deliver one hundred (100) piculs
of sugar (75 piculs export sugar and 25 piculs domestic sugar) to plaintiff Maria Marlena
Coscolluela y Belleza from sugar crop years 1985 up to the filing of the complaint as mandated
by the Codicil, despite repeated demands for compliance.
7
3. The banks failed to comply with the 6th paragraph of the Codicil which provided that in case
of the sale, lease, or mortgage of the property, the buyer, lessee, or mortgagee shall likewise
have the obligation to deliver 100 piculs of sugar per crop year to herein private respondent.
The plaintiff then prayed that judgment be rendered ordering defendant-heirs to
reconvey/return-Lot No. 1392 to the surviving heirs of the late Aleja Belleza, the cancellation
of TCT No. 44498 in the name of the deceased, Dr. Jorge Rabadilla, and the issuance of a new
certificate of title in the names of the surviving heirs of the late Aleja Belleza.
On February 26, 1990, the defendant-heirs were declared in default but on March 28, 1990
the Order of Default was lifted, with respect to defendant Johnny S. Rabadilla, who filed his
Answer, accordingly.
During the pre-trial, the parties admitted that:
On November 15, 1998, the plaintiff (private respondent) and a certain Alan Azurin, son-in-law
of the herein petitioner who was lessee of the property and acting as attorney-in-fact of
defendant-heirs, arrived at an amicable settlement and entered into a Memorandum of
Agreement on the obligation to deliver one hundred piculs of sugar, to the following effect:
"That for crop year 1988-89, the annuity mentioned in Entry No. 49074 of TCT No. 44489 will
be delivered not later than January of 1989, more specifically, to wit:
75 piculs of 'A' sugar, and 25 piculs of 'B' sugar, or then existing in any of our names, Mary Rose
Rabadilla y Azurin or Alan Azurin, during December of each sugar crop year, in Azucar Sugar
Central; and, this is considered compliance of the annuity as mentioned, and in the same
manner will compliance of the annuity be in the next succeeding crop years.
That the annuity above stated for crop year 1985-86, 1986-87, and 1987-88, will be complied
in cash equivalent of the number of piculs as mentioned therein and which is as herein agreed
upon, taking into consideration the composite price of sugar during each sugar crop year,
which is in the total amount of ONE HUNDRED FIVE THOUSAND PESOS (P105,000.00).
That the above-mentioned amount will be paid or delivered on a staggered cash installment,
payable on or before the end of December of every sugar crop year, to wit:
For 1985-86, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1988-89;
For 1986-87, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1989-90;
For 1987-88, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1990-91; and
For 1988-89, TWENTY SIX THOUSAND TWO HUNDRED FIFTY (P26,250.00) Pesos, payable on or
before December of crop year 1991-92."[5]
However, there was no compliance with the aforesaid Memorandum of Agreement except for
a partial delivery of 50.80 piculs of sugar corresponding to sugar crop year 1988 -1989.
On July 22, 1991, the Regional Trial Court came out with a decision, dismissing the complaint
and disposing as follows:
"WHEREFORE, in the light of the aforegoing findings, the Court finds that the action is
prematurely filed as no cause of action against the defendants has as yet arose in favor of
plaintiff. While there maybe the non-performance of the command as mandated exaction
from them simply because they are the children of Jorge Rabadilla, the title holder/owner of
the lot in question, does not warrant the filing of the present complaint. The remedy at bar
must fall. Incidentally, being in the category as creditor of the left estate, it is opined that
plaintiff may initiate the intestate proceedings, if only to establish the heirs of Jorge Rabadilla
and in order to give full meaning and semblance to her claim under the Codicil.
In the light of the aforegoing findings, the Complaint being prematurely filed is DISMISSED
without prejudice.
SO ORDERED."[6]
On appeal by plaintiff, the First Division of the Court of Appeals reversed the decision of the
trial court; ratiocinating and ordering thus:
"Therefore, the evidence on record having established plaintiff-appellant's right to receive 100
piculs of sugar annually out of the produce of Lot No. 1392; defendants-appellee's obligation
under Aleja Belleza's codicil, as heirs of the modal heir, Jorge Rabadilla, to deliver such amount
of sugar to plaintiff-appellant; defendants-appellee's admitted non-compliance with said
obligation since 1985; and, the punitive consequences enjoined by both the codicil and the
Civil Code, of seizure of Lot No. 1392 and its reversion to the estate of Aleja Belleza in case of
such non-compliance, this Court deems it proper to order the reconveyance of title over Lot
No. 1392 from the estates of Jorge Rabadilla to the estate of Aleja Belleza. However, plaintiff-
appellant must institute separate proceedings to re-open Aleja Belleza's estate, secure the
appointment of an administrator, and distribute Lot No. 1392 to Aleja Belleza's legal heirs in
order to enforce her right, reserved to her by the codicil, to receive her legacy of 100 piculs of
sugar per year out of the produce of Lot No. 1392 until she dies.
Accordingly, the decision appealed from is SET ASIDE and another one entered ordering
defendants-appellees, as heirs of Jorge Rabadilla, to reconvey title over Lot No. 1392, together
with its fruits and interests, to the estate of Aleja Belleza.
SO ORDERED."[7]
Dissatisfied with the aforesaid disposition by the Court of Appeals, petitioner found his way to
this Court via the present petition, contending that the Court of Appeals erred in ordering the
reversion of Lot 1392 to the estate of the testatrix Aleja Belleza on the basis of paragraph 6 of
8
the Codicil, and in ruling that the testamentary institution of Dr. Jorge Rabadilla is a modal
institution within the purview of Article 882 of the New Civil Code.
The petition is not impressed with merit.
Petitioner contends that the Court of Appeals erred in resolving the appeal in accordance with
Article 882 of the New Civil Code on modal institutions and in deviating from the sole issue
raised which is the absence or prematurity of the cause of action. Petitioner maintains that
Article 882 does not find application as there was no modal institution and the testatrix
intended a mere simple substitution - i.e. the instituted heir, Dr. Jorge Rabadilla, was to be
substituted by the testatrix's "near descendants" should the obligation to deliver the fruits to
herein private respondent be not complied with. And since the testatrix died single and
without issue, there can be no valid substitution and such testamentary provision cannot be
given any effect.
The petitioner theorizes further that there can be no valid substitution for the reason that the
substituted heirs are not definite, as the substituted heirs are merely referred to as "near
descendants" without a definite identity or reference as to who are the "near descendants"
and therefore, under Articles 843[8] and 845[9] of the New Civil Code, the substitution should
be deemed as not written.
The contentions of petitioner are untenable. Contrary to his supposition that the Court of
Appeals deviated from the issue posed before it, which was the propriety of the dismissal of
the complaint on the ground of prematurity of cause of action, there was no such deviation.
The Court of Appeals found that the private respondent had a cause of action against the
petitioner. The disquisition made on modal institution was, precisely, to stress that the private
respondent had a legally demandable right against the petitioner pursuant to subject Codicil;
on which issue the Court of Appeals ruled in accordance with law.
It is a general rule under the law on succession that successional rights are transmitted from
the moment of death of the decedent[10] and compulsory heirs are called to succeed by
operation of law. The legitimate children and descendants, in relation to their legitimate
parents, and the widow or widower, are compulsory heirs.[11] Thus, the petitioner, his mother
and sisters, as compulsory heirs of the instituted heir, Dr. Jorge Rabadilla, succeeded the latter
by operation of law, without need of further proceedings, and the successional rights were
transmitted to them from the moment of death of the decedent, Dr. Jorge Rabadilla.
Under Article 776 of the New Civil Code, inheritance includes all the property, rights and
obligations of a person, not extinguished by his death. Conformably, whatever rights Dr. Jorge
Rabadilla had by virtue of subject Codicil were transmitted to his forced heirs, at the time of
his death. And since obligations not extinguished by death also form part of the estate of the
decedent; corollarily, the obligations imposed by the Codicil on the deceased Dr. Jorge
Rabadilla, were likewise transmitted to his compulsory heirs upon his death.t
In the said Codicil, testatrix Aleja Belleza devised Lot No. 1392 to Dr. Jorge Rabadilla, subject
to the condition that the usufruct thereof would be delivered to the herein private respondent
every year. Upon the death of Dr. Jorge Rabadilla, his compulsory heirs succeeded to his rights
and title over the said property, and they also assumed his (decedent's) obligation to deliver
the fruits of the lot involved to herein private respondent. Such obligation of the instituted
heir reciprocally corresponds to the right of private respondent over the usufruct, the
fulfillment or performance of which is now being demanded by the latter through the
institution of the case at bar. Therefore, private respondent has a cause of action against
petitioner and the trial court erred in dismissing the complaint below.
Petitioner also theorizes that Article 882 of the New Civil Code on modal institutions is not
applicable because what the testatrix intended was a substitution - Dr. Jorge Rabadilla was to
be substituted by the testatrix's near descendants should there be noncompliance with the
obligation to deliver the piculs of sugar to private respondent.
Again, the contention is without merit.
Substitution is the designation by the testator of a person or persons to take the place of the
heir or heirs first instituted. Under substitutions in general, the testator may either (1) provide
for the designation of another heir to whom the property shall pass in case the original heir
should die before him/her, renounce the inheritance or be incapacitated to inherit, as in a
simple substitution,[12] or (2) leave his/her property to one person with the express charge that
it be transmitted subsequently to another or others, as in a fideicommissary
substitution.[13] The Codicil sued upon contemplates neither of the two.
In simple substitutions, the second heir takes the inheritance in default of the first heir by
reason of incapacity, predecease or renunciation. [14] In the case under consideration, the
provisions of subject Codicil do not provide that should Dr. Jorge Rabadilla default due to
predecease, incapacity or renunciation, the testatrix's near descendants would substitute him.
What the Codicil provides is that, should Dr. Jorge Rabadilla or his heirs not fulfill the conditions
imposed in the Codicil, the property referred to shall be seized and turned over to the
testatrix's near descendants.
Neither is there a fideicommissary substitution here and on this point, petitioner is correct. In
a fideicommissary substitution, the first heir is strictly mandated to preserve the property and
to transmit the same later to the second heir.[15] In the case under consideration, the instituted
heir is in fact allowed under the Codicil to alienate the property provided the negotiation is
with the near descendants or the sister of the testatrix. Thus, a very important element of a
fideicommissary substitution is lacking; the obligation clearly imposing upon the first heir the
preservation of the property and its transmission to the second heir. "Without this obligation
to preserve clearly imposed by the testator in his will, there is no fideicommissary
substitution."[16] Also, the near descendants' right to inherit from the testatrix is not definite.
The property will only pass to them should Dr. Jorge Rabadilla or his heirs not fulfill the
obligation to deliver part of the usufruct to private respondent.
9
Another important element of a fideicommissary substitution is also missing here. Under
Article 863, the second heir or the fideicommissary to whom the property is transmitted must
not be beyond one degree from the first heir or the fiduciary. A fideicommissary substitution
is therefore, void if the first heir is not related by first degree to the second heir. [17] In the case
under scrutiny, the near descendants are not at all related to the instituted heir, Dr. Jorge
Rabadilla.
The Court of Appeals erred not in ruling that the institution of Dr. Jorge Rabadilla under subject
Codicil is in the nature of a modal institution and therefore, Article 882 of the New Civil Code
is the provision of law in point. Articles 882 and 883 of the New Civil Code provide:
Art. 882. The statement of the object of the institution or the application of the property left
by the testator, or the charge imposed on him, shall not be considered as a condition unless it
appears that such was his intention.
That which has been left in this manner may be claimed at once provided that the instituted
heir or his heirs give security for compliance with the wishes of the testator and for the return
of anything he or they may receive, together with its fruits and interests, if he or they should
disregard this obligation.
Art. 883. When without the fault of the heir, an institution referred to in the preceding article
cannot take effect in the exact manner stated by the testator, it shall be complied with in a
manner most analogous to and in conformity with his wishes.
The institution of an heir in the manner prescribed in Article 882 is what is known in the law of
succession as an institucion sub modo or a modal institution. In a modal institution, the
testator states (1) the object of the institution, (2) the purpose or application of the property
left by the testator, or (3) the charge imposed by the testator upon the heir. [18] A "mode"
imposes an obligation upon the heir or legatee but it does not affect the efficacy of his rights
to the succession.[19] On the other hand, in a conditional testamentary disposition, the
condition must happen or be fulfilled in order for the heir to be entitled to succeed the testator.
The condition suspends but does not obligate; and the mode obligates but does not
suspend.[20] To some extent, it is similar to a resolutory condition.[21]
From the provisions of the Codicil litigated upon, it can be gleaned unerringly that the testatrix
intended that subject property be inherited by Dr. Jorge Rabadilla. It is likewise clearly worded
that the testatrix imposed an obligation on the said instituted heir and his successors-in-
interest to deliver one hundred piculs of sugar to the herein private respondent, Marlena
Coscolluela Belleza, during the lifetime of the latter. However, the testatrix did not make Dr.
Jorge Rabadilla's inheritance and the effectivity of his institution as a devisee, dependent on
the performance of the said obligation. It is clear, though, that should the obligation be not
complied with, the property shall be turned over to the testatrix's near descendants. The
manner of institution of Dr. Jorge Rabadilla under subject Codicil is evidently modal in nature
because it imposes a charge upon the instituted heir without, however, affecting the efficacy
of such institution.
Then too, since testamentary dispositions are generally acts of liberality, an obligation imposed
upon the heir should not be considered a condition unless it clearly appears from the Will itself
that such was the intention of the testator. In case of doubt, the institution should be
considered as modal and not conditional.[22]
Neither is there tenability in the other contention of petitioner that the private respondent
has only a right of usufruct but not the right to seize the property itself from the instituted heir
because the right to seize was expressly limited to violations by the buyer, lessee or mortgagee.
In the interpretation of Wills, when an uncertainty arises on the face of the Will, as to the
application of any of its provisions, the testator's intention is to be ascertained from the words
of the Will, taking into consideration the circumstances under which it was made. [23] Such
construction as will sustain and uphold the Will in all its parts must be adopted.[24]
Subject Codicil provides that the instituted heir is under obligation to deliver One Hundred
(100) piculs of sugar yearly to Marlena Belleza Coscuella. Such obligation is imposed on the
instituted heir, Dr. Jorge Rabadilla, his heirs, and their buyer, lessee, or mortgagee should they
sell, lease, mortgage or otherwise negotiate the property involved. The Codicil further provides
that in the event that the obligation to deliver the sugar is not respected, Marlena Belleza
Coscuella shall seize the property and turn it over to the testatrix's near descendants. The non-
performance of the said obligation is thus with the sanction of seizure of the property and
reversion thereof to the testatrix's near descendants. Since the said obligation is clearly
imposed by the testatrix, not only on the instituted heir but also on his successors-in-interest,
the sanction imposed by the testatrix in case of non-fulfillment of said obligation should
equally apply to the instituted heir and his successors-in-interest.
Similarly unsustainable is petitioner's submission that by virtue of the amicable settlement,
the said obligation imposed by the Codicil has been assumed by the lessee, and whatever
obligation petitioner had become the obligation of the lessee; that petitioner is deemed to
have made a substantial and constructive compliance of his obligation through the
consummated settlement between the lessee and the private respondent, and having
consummated a settlement with the petitioner, the recourse of the private respondent is the
fulfillment of the obligation under the amicable settlement and not the seizure of subject
property.
Suffice it to state that a Will is a personal, solemn, revocable and free act by which a person
disposes of his property, to take effect after his death.[25] Since the Will expresses the manner
in which a person intends how his properties be disposed, the wishes and desires of the
testator must be strictly followed. Thus, a Will cannot be the subject of a compromise
agreement which would thereby defeat the very purpose of making a Will.
WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of Appeals, dated
December 23, 1993, in CA-G.R. No. CV-35555 AFFIRMED. No pronouncement as to costs
SO ORDERED.
10
G.R. No. 89783 February 19, 1992
MARIANO B. LOCSIN, JULIAN J. LOCSIN, JOSE B. LOCSIN, AUREA B. LOCSIN, MATILDE L.
CORDERO, SALVADOR B. LOCSIN and MANUEL V. DEL ROSARIO, petitioners,
vs.
THE HON. COURT OF APPEALS, JOSE JAUCIAN, FLORENTINO JAUCIAN, MERCEDES JAUCIAN
ARBOLEDA, HEIRS OF JOSEFINA J. BORJA, HEIRS OF EDUARDO JAUCIAN and HEIRS OF
VICENTE JAUCIAN, respondents.
Aytona Law Office and Siquia Law Offices for petitioners.
Mabella, Sangil & Associates for private respondents.
NARVASA, C.J.:
Reversal of the decision of the Court of Appeals in CA-G.R. No. CV-11186 affirming with
modification the judgment of the Regional Trial Court of Albay in favor of the plaintiffs in Civil
Case No. 7152 entitled "Jose Jaucian, et al. v. Mariano B. Locsin, et al.," an action for recovery
of real property with damages is sought. in these proceedings initiated by petition for review
on certiorari in accordance with Rule 45 of the Rules of Court.
The petition was initially denied due course and dismissed by this Court. It was however
reinstated upon a second motion for reconsideration filed by the petitioners, and the
respondents were required to comment thereon. The petition was thereafter given due course
and the parties were directed to submit their memorandums. These, together with the
evidence, having been carefully considered, the Court now decides the case.
First, the facts as the Court sees them in light of the evidence on record:
The late Getulio Locsin had three children named Mariano, Julian and Magdalena, all surnamed
Locsin. He owned extensive residential and agricultural properties in the provinces of Albay
and Sorsogon. After his death, his estate was divided among his three (3) children as follows:
(a) the coconut lands of some 700 hectares in Bual, Pilar, Sorsogon, were adjudicated to his
daughter, Magdalena Locsin;
(b) 106 hectares of coconut lands were given to Julian Locsin, father of the petitioners Julian,
Mariano, Jose, Salvador, Matilde, and Aurea, all surnamed Locsin;
(c) more than forty (40) hectares of coconut lands in Bogtong, eighteen (18) hectares of
riceland in Daraga, and the residential lots in Daraga, Albay and in Legazpi City went to his son
Mariano, which Mariano brought into his marriage to Catalina Jaucian in 1908. Catalina, for
her part, brought into the marriage untitled properties which she had inherited from her
parents, Balbino Jaucian and Simona Anson. These were augmented by other properties
acquired by the spouses in the course of their union,1 which however was not blessed with
children.
Eventually, the properties of Mariano and Catalina were brought under the Torrens System.
Those that Mariano inherited from his father, Getulio Locsin, were surveyed cadastrally and
registered in the name of "Mariano Locsin, married to Catalina Jaucian.'' 2
Mariano Locsin executed a Last Will and Testament instituting his wife, Catalina, as the sole
and universal heir of all his properties. 3 The will was drawn up by his wife's nephew and
trusted legal adviser, Attorney Salvador Lorayes. Attorney Lorayes disclosed that the spouses
being childless, they had agreed that their properties, after both of them shall have died should
revert to their respective sides of the family, i.e., Mariano's properties would go to his "Locsin
relatives" (i.e., brothers and sisters or nephews and nieces), and those of Catalina to her
"Jaucian relatives." 4
Don Mariano Locsin died of cancer on September 14, 1948 after a lingering illness. In due time,
his will was probated in Special Proceedings No. 138, CFI of Albay without any opposition from
both sides of the family. As directed in his will, Doa Catalina was appointed executrix of his
estate. Her lawyer in the probate proceeding was Attorney Lorayes. In the inventory of her
husband's estate 5 which she submitted to the probate court for approval, 6Catalina declared
that "all items mentioned from Nos. 1 to 33 are the private properties of the deceased and
form part of his capital at the time of the marriage with the surviving spouse, while items Nos.
34 to 42 are conjugal." 7
Among her own and Don Mariano's relatives, Doa Catalina was closest to her nephew,
Attorney Salvador Lorayes, her nieces, Elena Jaucian, Maria Lorayes-Cornelio and Maria Olbes-
Velasco, and the husbands of the last two: Hostilio Cornelio and Fernando Velasco. 8 Her trust
in Hostilio Cornelio was such that she made him custodian of all the titles of her properties;
and before she disposed of any of them, she unfailingly consulted her lawyer-nephew,
Attorney Salvador Lorayes. It was Atty. Lorayes who prepared the legal documents and, more
often than not, the witnesses to the transactions were her niece Elena Jaucian, Maria Lorayes-
Cornelio, Maria Olbes-Velasco, or their husbands. Her niece, Elena Jaucian, was her life-long
companion in her house.
Don Mariano relied on Doa Catalina to carry out the terms of their compact, hence, nine (9)
years after his death, as if in obedience to his voice from the grave, and fully cognizant that
she was also advancing in years, Doa Catalina began transferring, by sale, donation or
assignment, Don Mariano's as well as her own, properties to their respective nephews and
nieces. She made the following sales and donation of properties which she had received from
her husband's estate, to his Locsin nephews and nieces:
EXHIBIT DATE PARTICULARS AREA/SQ.M. PRICE WITNESSES
23 Jan. 26, 1957 Deed of Absolute Sale in 962 P 481
favor of Mariano Locsin
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1-JRL Apr. 7, 1966 Deed of Sale in favor of 430,203 P 20,000 Rosario whose maternal
Jose R. Locsin grandfather was Getulio
Locsin
1-JJL Mar. 22, 1967 Deed of Sale in favor of 5,000 P 1,000 Hostilio Cornello
Julian Locsin (Lot 2020) Helen M. Jaucian 2-MVRJ June 30, 1973 Deed of Reconveyance 319.34 P 500 Antonio Illegible
in favor of Manuel V. del (Lot 2155) Salvador Nical
1 Nov. 29, 1974 Deed of Donation in 26,509 Rosario but the rentals
favor Aurea Locsin, from bigger portion of
Matilde L. Cordero Lot 2155 leased to Filoil
and Salvador Locsin Refinery were assigned to
2 Feb. 4, 1975 Deed of Donation in 34,045 Maria Jaucian Lorayes
favor Aurea Locsin, Cornelio
Matilde L. Cordero Of her own properties, Doa Catalina conveyed the following to her own nephews and nieces
and Salvador Locsin and others:
3 Sept. 9, 1975 Deed of Donation in (Lot 2059) EXHIBIT DATE PARTICULARS AREA/SQ.M. PRICE
favor Aurea Locsin,
Matilde L. Cordero 2-JJL July 16, 1964 Deed of Sale in favor 5,000 P 1,000
and Salvador Locsin Vicente Jaucian (lot 2020)
(6,825 sqm. when
4 July 15, 1974 Deed of Absolute Sale in 1,424 Hostilio Cornelio resurveyed)
favor of Aurea B. Locsin Fernando Velasco
24 Feb. 12, 1973 Deed of Absolute Sale 100 P 1,000
5 July 15, 1974 Deed of Absolute Sale in 1,456 P 5,750 Hostilio Cornelio in favor of Francisco M.
favor of Aurea B. Locsin Elena Jaucian Maquiniana
6 July 15, 1974 Deed of Absolute Sale in 1,237 P 5,720 - ditto - 26 July 15, 1973 Deed of Absolute Sale in 130 P 1,300
favor of Aurea B. Locsin favor of Francisco
7 July 15, 1974 Deed of Absolute Sale in 1,404 P 4,050 - ditto - Maquiniana
favor of Aurea B. Locsin 27 May 3, 1973 Deed of Absolute Sale in 100 P 1,000
15 Nov. 26, 1975 Deed of Sale in favor of 261 P 4,930 - ditto - favor of Ireneo Mamia
Aurea Locsin 28 May 3, 1973 Deed of Absolute Sale in 75 P 750
16 Oct. 17, 1975 Deed of Sale in favor of 533 P 2,000 Delfina Anson favor of Zenaida Buiza
Aurea Locsin M. Acabado 29 May 3, 1973 Deed of Absolute Sale in 150 P 1,500
17 Nov. 26, 1975 Deed of Sale in favor of 373 P 1,000 Leonor Satuito favor of Felisa Morjella
Aurea Locsin Mariano B. Locsin 30 Apr. 3, 1973 Deed of Absolute Sale in 31 P 1,000
19 Sept. 1, 1975 Conditional Donation in 1,130 P 3,000 - ditto - favor of Inocentes Motocinos
favor of Mariano Locsin 31 Feb. 12, 1973 Deed of Absolute Sale in 150 P 1,500
1-MVRJ Dec. 29, 1972 Deed of Reconveyance 1,5110.66 P 1,000 Delfina Anson favor of Casimiro Mondevil
in favor of Manuel V. del (Lot 2155) Antonio Illegible

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32 Mar. 1, 1973 Deed of Absolute Sale in 112 P 1,200
favor of Juan Saballa
25 Dec. 28, 1973 Deed of Absolute Sale in 250 P 2,500
of Rogelio Marticio
Doa Catalina died on July 6, 1977.
Four years before her death, she had made a will on October 22, 1973 affirming and ratifying
the transfers she had made during her lifetime in favor of her husband's, and her own, relatives.
After the reading of her will, all the relatives agreed that there was no need to submit it to the
court for probate because the properties devised to them under the will had already been
conveyed to them by the deceased when she was still alive, except some legacies which the
executor of her will or estate, Attorney Salvador Lorayes, proceeded to distribute.
In 1989, or six (6) years after Doa Catalina's demise, some of her Jaucian nephews and nieces
who had already received their legacies and hereditary shares from her estate, filed action in
the Regional Trial Court of Legaspi City (Branch VIII, Civil Case No. 7152) to recover the
properties which she had conveyed to the Locsins during her lifetime, alleging that the
conveyances were inofficious, without consideration, and intended solely to circumvent the
laws on succession. Those who were closest to Doa Catalina did not join the action.
After the trial, judgment was rendered on July 8, l985 in favor of the plaintiffs (Jaucian), and
against the Locsin defendants, the dispositive part of which reads:
WHEREFORE, this Court renders judgment for the plaintiffs and against the defendants:
(1) declaring the, plaintiffs, except the heirs of Josefina J. Borja and Eduardo Jaucian, who
withdrew, the rightful heirs and entitled to the entire estate, in equal portions, of Catalina
Jaucian Vda. de Locsin, being the nearest collateral heirs by right of representation of Juan and
Gregorio, both surnamed Jaucian, and full-blood brothers of Catalina;
(2) declaring the deeds of sale, donations, reconveyance and exchange and all other
instruments conveying any part of the estate of Catalina J. Vda. de Locsin including, but not
limited to those in the inventory of known properties (Annex B of the complaint) as null and
void ab-initio;
(3) ordering the Register of Deeds of Albay and/or Legazpi City to cancel all certificates of title
and other transfers of the real properties, subject of this case, in the name of defendants, and
derivatives therefrom, and issue new ones to the plaintiffs;
(4) ordering the defendants, jointly and severally, to reconvey ownership and possession of all
such properties to the plaintiffs, together with all muniments of title properly endorsed and
delivered, and all the fruits and incomes received by the defendants from the estate of Catalina,
with legal interest from the filing of this action; and where reconveyance and delivery cannot
be effected for reasons that might have intervened and prevent the same, defendants shall
pay for the value of such properties, fruits and incomes received by them, also with legal
interest from the filing, of this case
(5) ordering each of the defendants to pay the plaintiffs the amount of P30,000.00 as
exemplary damages; and the further sum of P20,000.00 each as moral damages; and
(6) ordering the defendants to pay the plaintiffs attorney's fees and litigation expenses, in the
amount of P30,000.00 without prejudice to any contract between plaintiffs and counsel.
Costs against the defendants.9
The Locsins appealed to the Court of Appeals (CA-G.R. No. CV-11186) which rendered its now
appealed judgment on March 14, 1989, affirming the trial court's decision.
The petition has merit and should be granted.
The trial court and the Court of Appeals erred in declaring the private respondents, nephews
and nieces of Doa Catalina J. Vda. de Locsin, entitled to inherit the properties which she had
already disposed of more than ten (10) years before her death. For those properties did not
form part of her hereditary estate, i.e., "the property and transmissible rights and
obligations existing at the time of (the decedent's) death and those which have accrued
thereto since the opening of the succession." 10 The rights to a person's succession are
transmitted from the moment of his death, and do not vest in his heirs until such
time.11 Property which Doa Catalina had transferred or conveyed to other persons during her
lifetime no longer formed part of her estate at the time of her death to which her heirs may
lay claim. Had she died intestate, only the property that remained in her estate at the time of
her death devolved to her legal heirs; and even if those transfers were, one and all, treated as
donations, the right arising under certain circumstances to impugn and compel the reduction
or revocation of a decedent's gifts inter vivos does not inure to the respondents since neither
they nor the donees are compulsory (or forced) heirs. 12
There is thus no basis for assuming an intention on the part of Doa Catalina, in transferring
the properties she had received from her late husband to his nephews and nieces, an intent to
circumvent the law in violation of the private respondents' rights to her succession. Said
respondents are not her compulsory heirs, and it is not pretended that she had any such, hence
there were no legitimes that could conceivably be impaired by any transfer of her property
during her lifetime. All that the respondents had was an expectancy that in nowise restricted
her freedom to dispose of even her entire estate subject only to the limitation set forth in Art.
750, Civil Code which, even if it were breached, the respondents may not invoke:
Art. 750. The donation may comprehend all the present property of the donor or part thereof,
provided he reserves, in full ownership or in usufruct, sufficient means for the support of
himself, and of all relatives who, at the time of the acceptance of the donation, are by law
entitled to be supported by the donor. Without such reservation, the donation shall be
reduced on petition of any person affected. (634a)
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The lower court capitalized on the fact that Doa Catalina was already 90 years old when she
died on July 6, 1977. It insinuated that because of her advanced years she may have been
imposed upon, or unduly influenced and morally pressured by her husband's nephews and
nieces (the petitioners) to transfer to them the properties which she had inherited from Don
Mariano's estate. The records do not support that conjecture.
For as early as 1957, or twenty-eight (28) years before her death, Doa Catalina had already
begun transferring to her Locsin nephews and nieces the properties which she received from
Don Mariano. She sold a 962-sq.m. lot on January 26, 1957 to his nephew and namesake
Mariano Locsin II. 13 On April 7, 1966, or 19 years before she passed away, she also sold a 43
hectare land to another Locsin nephew, Jose R. Locsin.14 The next year, or on March 22, 1967,
she sold a 5,000-sq.m. portion of Lot 2020 to Julian Locsin.15
On March 27, 1967, Lot 2020 16 was partitioned by and among Doa Catalina, Julian Locsin,
Vicente Jaucian and Agapito Lorete.17 At least Vicente Jaucian, among the other respondents
in this case, is estopped from assailing the genuineness and due execution of the sale of
portions of Lot 2020 to himself, Julian Locsin, and Agapito Lorete, and the partition agreement
that he (Vicente) concluded with the other co-owners of Lot 2020.
Among Doa, Catalina's last transactions before she died in 1977 were the sales of property
which she made in favor of Aurea Locsin and Mariano Locsin in 1975.18
There is not the slightest suggestion in the record that Doa Catalina was mentally
incompetent when she made those dispositions. Indeed, how can any such suggestion be
made in light of the fact that even as she was transferring properties to the Locsins, she was
also contemporaneously disposing of her other properties in favor of the Jaucians? She sold to
her nephew, Vicente Jaucian, on July 16, 1964 (21 years before her death) one-half (or 5,000
sq.m.) of Lot 2020. Three years later, or on March 22, 1967, she sold another 5000 sq.m. of the
same lot to Julian Locsin.19
From 1972 to 1973 she made several other transfers of her properties to her relatives and
other persons, namely: Francisco Maquiniana, Ireneo Mamia, Zenaida Buiza, Feliza Morjella,
Inocentes Motocinos, Casimiro Mondevil, Juan Saballa and Rogelio Marticio. 20 None of those
transactions was impugned by the private respondents.
In 1975, or two years before her death, Doa Catalina sold some lots not only to Don Mariano's
niece, Aurea Locsin, and his nephew, Mariano Locsin
II, 21 but also to her niece, Mercedes Jaucian Arboleda. 22 If she was competent to make that
conveyance to Mercedes, how can there be any doubt that she was equally competent to
transfer her other pieces of property to Aurea and Mariano II?
The trial court's belief that Don Mariano Locsin bequeathed his entire estate to his wife, from
a "consciousness of its real origin" which carries the implication that said estate consisted of
properties which his wife had inherited from her parents, flies in the teeth of Doa Catalina's
admission in her inventory of that estate, that "items 1 to 33 are the private properties of the
deceased (Don Mariano) and forms (sic) part of his capital at the time of the marriage with the
surviving spouse, while items 34 to 42 are conjugal properties, acquired during the marriage."
She would have known better than anyone else whether the listing included any of her
paraphernal property so it is safe to assume that none was in fact included. The inventory was
signed by her under oath, and was approved by the probate court in Special Proceeding No.
138 of the Court of First Instance of Albay. It was prepared with the assistance of her own
nephew and counsel, Atty. Salvador Lorayes, who surely would not have prepared a false
inventory that would have been prejudicial to his aunt's interest and to his own, since he stood
to inherit from her eventually.
This Court finds no reason to disbelieve Attorney Lorayes' testimony that before Don Mariano
died, he and his wife (Doa Catalina), being childless, had agreed that their respective
properties should eventually revert to their respective lineal relatives. As the trusted legal
adviser of the spouses and a full-blood nephew of Doa Catalina, he would not have spun a
tale out of thin air that would also prejudice his own interest.
Little significance, it seems, has been attached to the fact that among Doa Catalina's nephews
and nieces, those closest to her: (a) her lawyer-nephew Attorney Salvador Lorayes; (b) her
niece and companion Elena Jaucian: (c) her nieces Maria Olbes-Velasco and Maria Lorayes-
Cornelio and their respective husbands, Fernando Velasco and Hostilio Cornelio, did not join
the suit to annul and undo the dispositions of property which she made in favor of the Locsins,
although it would have been to their advantage to do so. Their desistance persuasively
demonstrates that Doa Catalina acted as a completely free agent when she made the
conveyances in favor of the petitioners. In fact, considering their closeness to Doa Catalina it
would have been well-nigh impossible for the petitioners to employ "fraud, undue pressure,
and subtle manipulations" on her to make her sell or donate her properties to them. Doa
Catalina's niece, Elena Jaucian, daughter of her brother, Eduardo Jaucian, lived with her in her
house. Her nephew-in-law, Hostilio Cornelio, was the custodian of the titles of her properties.
The sales and donations which she signed in favor of the petitioners were prepared by her
trusted legal adviser and nephew, Attorney Salvador Lorayes. The (1) deed of donation dated
November 19,
197423 in favor of Aurea Locsin, (2) another deed of donation dated February 4, 1975 24 in favor
of Matilde Cordero, and (3) still another deed dated September 9, 1975 25 in favor of Salvador
Lorayes, were all witnessed by Hostilio Cornelio (who is married to Doa Catalina's niece, Maria
Lorayes) and Fernando Velasco who is married to another niece, Maria Olbes.26 The sales
which she made in favor of Aurea Locsin on July 15, 1974 27 were witnessed by Hostilio Cornelio
and Elena Jaucian. Given those circumstances, said transactions could not have been anything
but free and voluntary acts on her part.
Apart from the foregoing considerations, the trial court and the Court of Appeals erred in not
dismissing this action for annulment and reconveyance on the ground of prescription.
Commenced decades after the transactions had been consummated, and six (6) years after
Doa Catalina's death, it prescribed four (4) years after the subject transactions were recorded
in the Registry of Property,28 whether considered an action based on fraud, or one to redress
14
an injury to the rights of the plaintiffs. The private respondents may not feign ignorance of said
transactions because the registration of the deeds was constructive notice thereof to them
and the whole world.29

WHEREFORE, the petition for review is granted. The decision dated March 14, 1989 of the
Court of Appeals in CA-G.R. CV No. 11186 is REVERSED and SET ASIDE. The private respondents'
complaint for annulment of contracts and reconveyance of properties in Civil Case No. 7152 of
the Regional Trial Court, Branch VIII of Legazpi City, is DISMISSED, with costs against the private
respondents, plaintiffs therein.

SO ORDERED.

Cruz, Grio-Aquino and Medialdea, JJ., concur.

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