THE BANK OF THE PHILIPPINE ISLANDS, administrator of the
estate of the late Adolphe Oscar Schuetze,plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellee.
1.LIFE INSURANCE; AMOUNT OF POLICY; KIND OF PROPERTY.—
The proceeds of a life-insurance policy payable to the insured
person's estate, on which the premiums were paid by the conjugal
partnership, constitute community property, and belong onehalf to
the husband exclusively, and the other half to the wife.
2.ID.; ID.; ID.—If the premiums were paid partly with paraphernal
and partly conjugal funds, the proceeds are in like proportion
paraphernal in part and conjugal in part.
3.ID.; ID.; INHERITANCE TAX.—The proceeds of a lif e-insurance
policy payable to the insured person's estate as beneficiary, if
delivered to the testamentary administrator of the former as part of
the assets of said estate under probate administration, are subject to
the inheritance tax according to the law on the matter, if they belong
to the assured exclusively, and it is immaterial that he was domiciled
in these Islands or outside.
The Bank of the Philippine Islands, as administrator of the estate of the
deceased Adolphe Oscar Schuetze, has appealed to this court from the
judgment of the Court of First Instance of Manila absolving the
defendant Juan Posadas, Jr., Collector of Internal Revenue, from the
complaint filed against him by said plaintiff bank, and dismissing the
complaint with costs.
The appellant has assigned the following alleged errors as committed by
the trial court in its judgment, to wit:
1. The lower court erred in holding that the testimony of Mrs.
Schuetze was inefficient to established the domicile of her
husband.
2. The lower court erred in holding that under section 1536 of
the Administrative Code the tax imposed by the defendant is
lawful and valid.
3. The lower court erred in not holding that one-half (½) of
the proceeds of the policy in question is community property
and that therefore no inheritance tax can be levied, at least
on one-half (½) of the said proceeds.
4. The lower court erred in not declaring that it would be
unconstitutional to impose an inheritance tax upon the
insurance policy here in question as it would be a taking of
property without due process of law.
The present complaint seeks to recover from the defendant Juan
Posadas, Jr., Collector of Internal Revenue, the amount of P1,209 paid
by the plaintiff under protest, in its capacity of administrator of the
estate of the late Adolphe Oscar Schuetze, as inheritance tax upon the
1
sum of P20,150, which is the amount of an insurance policy on the
deceased's life, wherein his own estate was named the beneficiary.
At the hearing, in addition to documentary and parol evidence, both
parties submitted the following agreed statement of facts of the court
for consideration:
It is hereby stipulated and agreed by and between the parties
in the above-entitled action through their respective
undersigned attorneys:
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window
of the late Adolphe Oscar Schuetze, is of legal age, a native
of Manila, Philippine Islands, and is and was at all times
hereinafter mentioned a resident of Germany, and at the time
of the death of her husband, the late Adolphe Oscar Schuetze,
she was actually residing and living in Germany;
2. That the Bank of the Philippine Islands, is and was at all
times hereinafter mentioned a banking institution duly
organized and existing under and by virtue of the laws of the
Philippine Islands;
3. That on or about August 23, 1928, the herein plaintiff
before notary public Salvador Zaragoza, drew a general power
appointing the above-mentioned Bank of the Philippine
Islands as her attorney-in-fact, and among the powers
conferred to said attorney-in-fact was the power to represent
her in all legal actions instituted by or against her;
4. That the defendant, of legal age, is and at all times
hereinafter mentioned the duly appointed Collector of Internal
Revenue with offices at Manila, Philippine Islands;
5. That the deceased Adolphe Oscar Schuetze came to the
Philippine Islands for the first time of March 31, 1890, and
worked in the several German firms as a mere employee and
that from the year 1903 until the year 1918 he was partner in
the business of Alfredo Roensch;
6. That from 1903 to 1922 the said Adolphe Oscar Schuetze
was in the habit of making various trips to Europe;
7. That on December 3, 1927, the late Adolphe Oscar
Schuetze coming from Java, and with the intention of going
to Bremen, landed in the Philippine Islands where he met his
death on February 2, 1928;
8. That on March 31, 1926, the said Adolphe Oscar Schuetze,
while in Germany, executed a will, in accordance with its law,
wherein plaintiff was named his universal heir;
9. That the Bank of the Philippine Islands by order of the Court
of First Instance of Manila under date of May 24, 1928, was
appointed administrator of the estate of the deceased Adolphe
Oscar Schuetze;
10. That, according to the testamentary proceedings
instituted in the Court of First Instance of Manila, civil case
No. 33089, the deceased at the time of his death was
possessed of not only real property situated in the Philippine
Islands, but also personal property consisting of shares of
stock in nineteen (19) domestic corporations;
11. That the fair market value of all the property in the
Philippine Islands left by the deceased at the time of his death
in accordance with the inventory submitted to the Court of
First Instance of Manila, civil case No. 33089, was
P217,560.38;
12. That the Bank of the Philippine Islands, as administrator
of the estate of the deceased rendered its final account on
June 19, 1929, and that said estate was closed on July 16,
1929;
13. That among the personal property of the deceased was
found life-insurance policy No. 194538 issued at Manila,
Philippine Islands, on January 14, 1913, for the sum of
$10,000 by the Sun Life Assurance Company of Canada,
Manila branch, a foreign corporation duly organized and
existing under and by virtue of the laws of Canada, and duly
authorized to transact business in the Philippine Islands;
14. That in the insurance policy the estate of the said Adolphe
Oscar Schuetze was named the beneficiary without any
qualification whatsoever;
15. That for five consecutive years, the deceased Adolphe
Oscar Schuetze paid the premiums of said policy to the Sun
Life Assurance Company of Canada, Manila branch;
16. That on or about the year 1918, the Sun Life Assurance
Company of Canada, Manila branch, transferred said policy to
the Sun Life Assurance Company of Canada, London branch;
17. That due to said transfer the said Adolphe Oscar Schuetze
from 1918 to the time of his death paid the premiums of said
policy to the Sun Life Assurance Company of Canada, London
Branch;
18. That the sole and only heir of the deceased Adolphe Oscar
Schuetze is his widow, the plaintiff herein;
19. That at the time of the death of the deceased and at all
times thereafter including the date when the said insurance
policy was paid, the insurance policy was not in the hands or
possession of the Manila office of the Sun Life Assurance
Company of Canada, nor in the possession of the herein
plaintiff, nor in the possession of her attorney-in-fact the Bank
of the Philippine Islands, but the same was in the hands of
the Head Office of the Sun Life Assurance Company of
Canada, at Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine Islands
as administrator of the decedent's estate received from the
Sun Life Assurance Company of Canada, Manila branch, the
sum of P20,150 representing the proceeds of the insurance
policy, as shown in the statement of income and expenses of
2
the estate of the deceased submitted on June 18, 1929, by
the administrator to the Court of First Instance of Manila, civil
case No. 33089;
21. That the Bank of the Philippine Islands delivered to the
plaintiff herein the said sum of P20,150;
22. That the herein defendant on or about July 5, 1929,
imposed an inheritance tax upon the transmission of the
proceeds of the policy in question in the sum of P20,150 from
the estate of the late Adolphe Oscar Schuetze to the sole heir
of the deceased, or the plaintiff herein, which inheritance tax
amounted to the sum of P1,209;
23. That the Bank of the Philippine Islands as administrator of
the decedent's estate and as attorney-in-fact of the herein
plaintiff, having been demanded by the herein defendant to
pay inheritance tax amounting to the sum of P1,209, paid to
the defendant under protest the above-mentioned sum;
24. That notwithstanding the various demands made by
plaintiff to the defendant, said defendant has refused and
refuses to refund to plaintiff the above mentioned sum of
P1,209;
25. That plaintiff reserves the right to adduce evidence as
regards the domicile of the deceased, and so the defendant,
the right to present rebuttal evidence;
26. That both plaintiff and defendant submit this stipulation
of facts without prejudice to their right to introduce such
evidence, on points not covered by the agreement, which they
may deem proper and necessary to support their respective
contentions.
In as much as one of the question raised in the appeal is whether an
insurance policy on said Adolphe Oscar Schuetze's life was, by reason of
its ownership, subject to the inheritance tax, it would be well to decide
first whether the amount thereof is paraphernal or community property.
According to the foregoing agreed statement of facts, the estate of
Adolphe Oscar Schuetze is the sole beneficiary named in the life-
insurance policy for $10,000, issued by the Sun Life Assurance Company
of Canada on January 14, 1913. During the following five years the
insured paid the premiums at the Manila branch of the company, and in
1918 the policy was transferred to the London branch.
The record shows that the deceased Adolphe Oscar Schuetze married
the plaintiff-appellant Rosario Gelano on January 16, 1914.
With the exception of the premium for the first year covering the period
from January 14, 1913 to January 14, 1914, all the money used for
paying the premiums, i. e., from the second year, or January 16, 1914,
or when the deceased Adolphe Oscar Schuetze married the plaintiff-
appellant Rosario Gelano, until his death on February 2, 1929, is
conjugal property inasmuch as it does not appear to have exclusively
belonged to him or to his wife (art. 1407, Civil Code). As the sum of
P20,150 here in controversy is a product of such premium it must also
be deemed community property, because it was acquired for a valuable
consideration, during said Adolphe Oscar Schuetze's marriage with
Rosario Gelano at the expense of the common fund (art. 1401, No. 1,
Civil Code), except for the small part corresponding to the first premium
paid with the deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second
edition, Manresa treats of life insurance in the following terms, to wit:
The amount of the policy represents the premiums to be paid,
and the right to it arises the moment the contract is perfected,
for at the moment the power of disposing of it may be
exercised, and if death occurs payment may be demanded. It
is therefore something acquired for a valuable consideration
during the marriage, though the period of its fulfillment,
depend upon the death of one of the spouses, which
terminates the partnership. So considered, the question may
be said to be decided by articles 1396 and 1401: if the
premiums are paid with the exclusive property of husband or
wife, the policy belongs to the owner; if with conjugal
property, or if the money cannot be proved as coming from
one or the other of the spouses, the policy is community
property.
The Supreme Court of Texas, United States, in the case of Martin vs.
Moran (11 Tex. Civ. A., 509) laid down the following doctrine:
COMMUNITY PROPERTY — LIFE INSURANCE POLICY. — A
husband took out an endowment life insurance policy on his
life, payable "as directed by will." He paid the premiums
thereon out of community funds, and by his will made the
proceeds of the policy payable to his own estate. Held, that
the proceeds were community estate, one-half of which
belonged to the wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of
California laid down the following doctrine:
A testator, after marriage, took out an insurance policy, on
which he paid the premiums from his salary. Held that the
insurance money was community property, to one-half of
which, the wife was entitled as survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down
the following doctrine:
A decedent paid the first third of the amount of the premiums
on his life-insurance policy out of his earnings before
marriage, and the remainder from his earnings received after
marriage. Held, that one-third of the policy belonged to his
separate estate, and the remainder to the community
property.
Thus both according to our Civil Code and to the ruling of those North
American States where the Spanish Civil Code once governed, the
proceeds of a life-insurance policy whereon the premiums were paid
with conjugal money, belong to the conjugal partnership.
3
The appellee alleges that it is a fundamental principle that a life-
insurance policy belongs exclusively to the beneficiary upon the death
of the person insured, and that in the present case, as the late Adolphe
Oscar Schuetze named his own estate as the sole beneficiary of the
insurance on his life, upon his death the latter became the sole owner
of the proceeds, which therefore became subject to the inheritance tax,
citing Del Val vs. Del Val (29 Phil., 534), where the doctrine was laid
down that an heir appointed beneficiary to a life-insurance policy taken
out by the deceased, becomes the absolute owner of the proceeds of
such policy upon the death of the insured.
The estate of a deceased person cannot be placed on the same footing
as an individual heir. The proceeds of a life-insurance policy payable to
the estate of the insured passed to the executor or administrator of such
estate, and forms part of its assets (37 Corpus Juris, 565, sec. 322);
whereas the proceeds of a life-insurance policy payable to an heir of the
insured as beneficiary belongs exclusively to said heir and does not form
part of the deceased's estate subject to administrator. (Del Val vs. Del
Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of
the Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out by a
married person becomes the exclusive owner of the proceeds upon the
death of the insured even if the premiums were paid by the conjugal
partnership, so, it is argued, where the beneficiary named is the estate
of the deceased whose life is insured, the proceeds of the policy become
a part of said estate upon the death of the insured even if the premiums
have been paid with conjugal funds.
In a conjugal partnership the husband is the manager, empowered to
alienate the partnership property without the wife's consent (art. 1413,
Civil Code), a third person, therefore, named beneficiary in a life-
insurance policy becomes the absolute owner of its proceeds upon the
death of the insured even if the premiums should have been paid with
money belonging to the community property. When a married man has
his life insured and names his own estate after death, beneficiary, he
makes no alienation of the proceeds of conjugal funds to a third person,
but appropriates them himself, adding them to the assets of his estate,
in contravention of the provisions of article 1401, paragraph 1, of the
Civil Code cited above, which provides that "To the conjugal partnership
belongs" (1) Property acquired for a valuable consideration during the
marriage at the expense of the common fund, whether the acquisition
is made for the partnership or for one of the spouses only." Furthermore,
such appropriation is a fraud practised upon the wife, which cannot be
allowed to prejudice her, according to article 1413, paragraph 2, of said
Code. Although the husband is the manager of the conjugal partnership,
he cannot of his own free will convert the partnership property into his
own exclusive property.
As all the premiums on the life-insurance policy taken out by the late
Adolphe Oscar Schuetze, were paid out of the conjugal funds, with the
exceptions of the first, the proceeds of the policy, excluding the
proportional part corresponding to the first premium, constitute
community property, notwithstanding the fact that the policy was made
payable to the deceased's estate, so that one-half of said proceeds
belongs to the estate, and the other half to the deceased's widow, the
plaintiff-appellant Rosario Gelano Vda. de Schuetze.
The second point to decide in this appeal is whether the Collector of
Internal Revenue has authority, under the law, to collect the inheritance
tax upon one-half of the life-insurance policy taken out by the late
Adolphe Oscar Schuetze, which belongs to him and is made payable to
his estate.
According to the agreed statement of facts mentioned above, the
plaintiff-appellant, the Bank of the Philippine Islands, was appointed
administrator of the late Adolphe Oscar Schuetze's testamentary estate
by an order dated March 24, 1928, entered by the Court of First Instance
of Manila. On July 13, 1928, the Sun Life Assurance Company of Canada,
whose main office is in Montreal, Canada, paid Rosario Gelano Vda. de
Schuetze upon her arrival at Manila, the sum of P20,150, which was the
amount of the insurance policy on the life of said deceased, payable to
the latter's estate. On the same date Rosario Gelano Vda. de Schuetze
delivered the money to said Bank of the Philippine Islands, as
administrator of the deceased's estate, which entered it in the inventory
of the testamentary estate, and then returned the money to said widow.
Section 1536 of the Administrative Code, as amended by section 10 of
Act No. 2835 and section 1 of Act No. 3031, contains the following
relevant provision:
SEC. 1536. Conditions and rate of taxation. — Every
transmission by virtue of inheritance, devise, bequest,
gift mortis causa or advance in anticipation of inheritance,
devise, or bequest of real property located in the Philippine
Islands and real rights in such property; of any franchise
which must be exercised in the Philippine Islands; of any
shares, obligations, or bonds issued by any corporation
or sociedad anonima organized or constituted in the Philippine
Islands in accordance with its laws; of any shares or rights in
any partnership, business or industry established in the
Philippine Islands or of any personal property located in the
Philippine Islands shall be subject to the following tax:
xxx xxx xxx
In as much as the proceeds of the insurance policy on the life of the late
Adolphe Oscar Schuetze were paid to the Bank of the Philippine Islands,
as administrator of the deceased's estate, for management and
partition, and as such proceeds were turned over to the sole and
universal testamentary heiress Rosario Gelano Vda. de Schuetze, the
plaintiff-appellant, here in Manila, the situs of said proceeds is the
Philippine Islands.
In his work "The Law of Taxation," Cooley enunciates the general rule
governing the levying of taxes upon tangible personal property, in the
following words:
4
GENERAL RULE. — The suits of tangible personal property, for
purposes of taxation may be where the owner is domiciled but
is not necessarily so. Unlike intangible personal property, it
may acquire a taxation situs in a state other than the one
where the owner is domiciled, merely because it is located
there. Its taxable situs is where it is more or less permanently
located, regardless of the domicile of the owner. It is well
settled that the state where it is more or less permanently
located has the power to tax it although the owner resides out
of the state, regardless of whether it has been taxed for the
same period at the domicile of the owner, provided there is
statutory authority for taxing such property. It is equally well
settled that the state where the owner is domiciled has no
power to tax it where the property has acquired an actual situs
in another state by reason of its more or less permanent
location in that state. ... (2 Cooley, The Law of Taxation, 4th
ed., p. 975, par. 451.)
With reference to the meaning of the words "permanent" and "in
transit," he has the following to say:
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. — In
order to acquire a situs in a state or taxing district so as to be
taxable in the state or district regardless of the domicile of the
owner and not taxable in another state or district at the
domicile of the owner, tangible personal property must be
more or less permanently located in the state or district. In
other words, the situs of tangible personal property is where
it is more or less permanently located rather than where it is
merely in transit or temporarily and for no considerable length
of time. If tangible personal property is more or less
permanently located in a state other than the one where the
owner is domiciled, it is not taxable in the latter state but is
taxable in the state where it is located. If tangible personal
property belonging to one domiciled in one state is in another
state merely in transitu or for a short time, it is taxable in the
former state, and is not taxable in the state where it is for the
time being. . . . .
Property merely in transit through a state ordinarily is not
taxable there. Transit begins when an article is committed to
a carrier for transportation to the state of its destination, or
started on its ultimate passage. Transit ends when the goods
arrive at their destination. But intermediate these points
questions may arise as to when a temporary stop in transit is
such as to make the property taxable at the place of stoppage.
Whether the property is taxable in such a case usually
depends on the length of time and the purpose of the
interruption of transit. . . . .
. . . It has been held that property of a construction company,
used in construction of a railroad, acquires a situs at the place
 where used for an indefinite period. So tangible personal
property in the state for the purpose of undergoing a partial
finishing process is not to be regarded as in the course of
transit nor as in the state for a mere temporary purpose. (2
Cooley, The Law of Taxation, 4th ed., pp. 982, 983 and 988,
par. 452.)
If the proceeds of the life-insurance policy taken out by the late Adolphe
Oscar Schuetze and made payable to his estate, were delivered to the
Bank of the Philippine Islands for administration and distribution, they
were not in transit but were more or less permanently located in the
Philippine Islands, according to the foregoing rules. If this be so, half of
the proceeds which is community property, belongs to the estate of the
deceased and is subject to the inheritance tax, in accordance with the
legal provision quoted above, irrespective of whether or not the late
Adolphe Oscar Schuetze was domiciled in the Philippine Islands at the
time of his death.
By virtue of the foregoing, we are of opinion and so hold: (1) That the
proceeds of a life-insurance policy payable to the insured's estate, on
which the premiums were paid by the conjugal partnership, constitute
community property, and belong one-half to the husband and the other
half to the wife, exclusively; (2) that if the premiums were paid partly
with paraphernal and partly conjugal funds, the proceeds are likewise in
like proportion paraphernal in part and conjugal in part; and (3) that the
proceeds of a life-insurance policy payable to the insured's estate as the
beneficiary, if delivered to the testamentary administrator of the former
as part of the assets of said estate under probate administration, are
subject to the inheritance tax according to the law on the matter, if they
belong to the assured exclusively, and it is immaterial that the insured
was domiciled in these Islands or outside.1awphil.net
Wherefore, the judgment appealed from is reversed, and the defendant
is ordered to return to the plaintiff the one-half of the tax collected upon
the amount of P20,150, being the proceeds of the insurance policy on
the life of the late Adolphe Oscar Schuetze, after deducting the
proportional part corresponding to the first premium, without special
pronouncement of costs. So ordered.
Avanceña, C.J., Johnson, Street, Malcolm, Villamor, and Ostrand, JJ.,
concur.

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

2. Petition for the probate of the

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

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

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

5. Claims against the estate filed

by Equitable Banking Corp. with
In his letter [19]
dated December 12, 1991, Atty. Gonzales moved for the the probate Court in the amount
reconsideration of the said estate tax assessment. However, in her of P19,756,428.31 as of March 31,
letter[20] dated April 12, 1994, the BIR Commissioner denied the request 1988, together with the Annexes
and reiterated that the estate is liable for the payment to the claim (pp. 64-88, BIR records); "D" to "D-24"
of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner
received the letter of denial. On June 2, 1994, petitioner filed a petition 6. Claim filed by Banque de L'
for review [21]
before respondent CTA. Trial on the merits ensued. Indochine et de Suez with the
7
probate Court in the amount of
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.
8
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
9
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.
On May 31, 1999, petitioner filed a Motion for Reconsideration [29]
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 Oatehas 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
[28]
aforementioned such that the same were marked, BIR's failure to
formally offer said pieces of evidence and depriving petitioner the
opportunity to cross-examine Alberto, render the same inadmissible in
which 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
10
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
11
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
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.
by 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
12
 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
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
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
an 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
is 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. 5 Circuit Court of Appeals held:
th
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
13
 federal estate tax specifically, that it is a tax
imposed on the act of transferring property by will
or intestacy and, because the act on which the tax
is levied occurs at a discrete time, i.e., the instance
of death, the net value of the property transferred
should be ascertained, as nearly as possible, as of
that time. This analysis supports broad application
of the date-of-death valuation rule.[67]

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

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

WHEREFORE, the instant Petition is GRANTED. Accordingly, the

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

SO ORDERED.

14
URSULINA GANUELAS, METODIO GANUELAS and ANTONIO
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.
Donations; Wills and Succession; Donations Mortis
Causa and Donations Inter Vivos; Words and
Phrases; 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 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.
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 ruling of this Court in Alejandro v.
Geraldez is illuminating: If the donation is made in
contemplation of the donor’s death, meaning that
the full or naked ownership of the donated
properties will pass to the donee only because of
the donor’s 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 donor’s lifetime or independently of the donor’s
death, meaning that the full or naked ownership
(nuda proprietas) of the donated properties passes
to the donee during the donor’s lifetime, not by
reason of his death but because of the deed of
donation, then the donation is inter vivos.
Same; Same; Same; The distinction between a
transfer inter vivos and mortis causa is important
as the validity or revocation of the donation
depends upon its nature.—The distinction between
a transfer inter vivos and mortis causa is important
15
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 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.
Same; Same; Same; Distinguishing Characteristics
of a Donation Mortis Causa.—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.
Same; Same; Same; Same; The phrase “to become
effective upon the death of the DONOR” admits of
no other interpretation but that the donor intended
to transfer the ownership of the properties to the
donee on the former’s death, not during her
lifetime.—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.
Same; Same; Same; Same; 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.—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.
Same; Same; Same; To classify the donation as
inter vivos simply because it is founded on
considerations of love and affection is erroneous—
love and affection may also underlie transfers
mortis causa.—To classify the donation as inter
vivos simply because it is founded
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 underlie transfers mortis
causa.
Same; Same; Same; Donations mortis causa must
comply with the formalities of a will under Article
728 of the Civil Code, failing which the donation is
void and produces no effect.—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. 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.
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[1] of the
Regional 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[2] covering seven parcels
of land in favor 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
on 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[4] purporting to set aside the deed of
donation. More 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[5] against Ursulina,
along with 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,
16
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[6] that
the donation in favor of Ursulina was inter vivos as contemplated under
Article 729 of the Civil Code, [7]
hence, the deed did not have to comply
with the 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,[8] found for the plaintiffs-herein private
respondents, thus:
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,[10] and that 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]
17
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;[15] that the
provision on the effectivity of the donationafter the donors deathsimply
meant that absolute ownership would pertain to the donee on the
donors death;[16] and that since the donation is inter vivos, it may be
revoked only for the reasons provided in Articles 760,[17] 764[18] and
765[19] of the Civil Code.
In a letter of March 16, 1998,[20] private respondent Corazon
Sipalay, 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,[21] welcome private respondents 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.[23] The following 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 [25]
and 749 [26]
of the Civil
Code, except 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
18
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.[31] (Emphasis supplied)
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.[32] In other words,
love and affection may also underline transfers mortis causa.[33]
In Maglasang v. Heirs of Cabatingan,[34] the deeds of
donation contained 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.

19
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant.
1.INHERITANCE TAX; ACCRUAL OF, DISTINCT FROM THE
OBLIGATION TO PAY IT.—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.)
2.ID.; MEASURE OF, BY VALUE OF ESTATE.—If death is the
generating source from which the power of the state to impose
inheritance taxes takes its being and if, upon the death of the
decedent, succession takes place and the right of the state to tax
vests instantly, the tax should be measured by the value of the estate
as it stood at the time of the decedent's death, regardless of any
subsequent contingency affecting value or 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., 968.)
3.ID.; ID.—"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 depreciation is immaterial." (Ross,
Inheritance Taxation, p. 72.)
4.ID.; ID.—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.
5.ID.; TRUSTS AND TRUSTEES.—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
20
re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re
Collard's Estate, 161 N. Y. Supp., 455.)
6.ID.; ID.; ADMINISTRATION EXPENSES.—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 devisees, does not come properly within
the class or reason for exempting administration expenses. * * *
Services 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 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 purposes of .this
tax.
7.ID.; RETROACTIVE LEGISLATION.—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 cannot 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., 351, 360; 49
Law. ed., 232; 25 Sup. Ct. Rep., 44.)
8.ID.; ID.—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., 1602.)
9.ID.; ID.—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 be
given the statute by this court.
10.ID.; ID.; PENAL STATUTES.—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 statutes 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.)
11.ID.; ID.; ID.; REVENUE LAW.—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.
12.ID.; TRUSTS AND TRUSTEES.—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.)
13.ID.; ID.—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 appointing a
trustee to carry into effect the provisions of the will. (See sec. 582,
Code of Civil Procedure.)
14.ID.; ID.; ERROR IN ENGLISH VERSION OF SUBSECTION (B),
SECTION 1543, REVISED ADMINISTRATIVE CODE.—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.
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
21
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
22
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
23
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
24
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.,
25
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; Muñoz &
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 these two sums an additional two hundred per centum, or P965.16, we
to accept them without the additional penalty of twenty five per cent." have as primary tax, correctly computed by the defendant, the sum of
(Syllabus, No. 3.) P1,434.24.
". . . It is of the utmost importance," said the Supreme Court of the To the primary tax thus computed should be added the sums collectible
United States, ". . . that the modes adopted to enforce the taxes levied under section 1544 of the Revised Administrative Code. First should be
should be interfered with as little as possible. Any delay in the added P1,465.31 which stands for interest at the rate of twelve per
proceedings of the officers, upon whom the duty is developed of centum per annum from March 10, 1924, the date of delinquency, to
collecting the taxes, may derange the operations of government, and September 15, 1932, the date of payment under protest, a period
thereby, cause serious detriment to the public." (Dows vs. Chicago, 11 covering 8 years, 6 months and 5 days. To the tax and interest thus
Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., computed should be added the sum of P724.88, representing a
580.) surhcarge of 25 per cent on both the tax and interest, and also P10, the
It results that the estate which plaintiff represents has been delinquent compromise sum fixed by the defendant (Exh. 29), giving a grand total
in the payment of inheritance tax and, therefore, liable for the payment of P3,634.43.
of interest and surcharge provided by law in such cases. As the plaintiff has already paid the sum of P2,052.74, only the sums of
The delinquency in payment occurred on March 10, 1924, the date when P1,581.69 is legally due from the estate. This last sum is P390.42 more
Moore became trustee. The interest due should be computed from that than the amount demanded by the defendant in his counterclaim. But,
date and it is error on the part of the defendant to compute it one month as we cannot give the defendant more than what he claims, we must
later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. hold that the plaintiff is liable only in the sum of P1,191.27 the amount
Posadas, supra), and neither the Collector of Internal Revenuen or this stated in the counterclaim.
court may remit or decrease such interest, no matter how heavily it may The judgment of the lower court is accordingly modified, with costs
burden the taxpayer. against the plaintiff in both instances. So ordered.
To the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the Collector of Internal Revenue, a
surcharge of twenty-five per centum should be added (sec. 1544,
subsec. (b), par. 2, Revised Administrative Code). Demand was made
by the Deputy Collector of Internal Revenue upon Moore in a
communiction dated October 16, 1931 (Exhibit 29). The date fixed for
the payment of the tax and interest was November 30, 1931. November
30 being an official holiday, the tenth day fell on December 1, 1931. As
the tax and interest due were not paid on that date, the estate became
liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the
fifth error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge
due from the estate of Thomas Hanley inaccordance with the
conclusions we have reached.
At the time of his death, the deceased left real properties valued at
P27,920 and personal properties worth P1,465, or a total of P29,385.
Deducting from this amount the sum of P480.81, representing allowable
deductions under secftion 1539 of the Revised Administrative Code, we
have P28,904.19 as the net value of the estate subject to inheritance
tax.
The primary tax, according to section 1536, subsection (c), of the
Revised Administrative Code, should be imposed at the rate of one per
centum upon the first ten thousand pesos and two per centum upon the
amount by which the share exceed thirty thousand pesos, plus an
additional two hundred per centum. One per centum of ten thousand
pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to
26
In the matter of the testate estate of the late Margarita David.
GONZALO D. DAVID, petitioner-appellant,
vs.
CARLOS SISON, oppositor-appellant.
1.DONATIONS; "MORTIS CAUSA"; OWNERSHIP, ELEMENTS OF.—
The donation is mortis causa because the combined effects of the
circumstances surrounding the execution of the deed of donation and
the clauses thereof could not have taken effect before the death of
the donor, M. D. According to the terms of the deed, the most
essential .elements of ownership—the right to dispose of the donated
properties and the right to enjoy the products, profits, possession—
remained with the donor during her lifetime, and would accrue to the
donees only after the donor's death.
2.ID.; ID.; PROPERTIES INCLUDED.—There being enough properties
not included in the donation to answer for the obligations of the
estate of the deceased, the donated properties, which were the
object of extrajudicial partition between the donees, are not
answerable for the obligations left by said deceased.
3.HEIR, LEGATEE, OR DEVISEE, OBLIGATIONS OF.—No heir,
legatee, or devisee may elude the payment of any obligation of the
estate in which the estate as a whole is answerable, and no
discrimination can be made in favor of or against any heir or heiress.
4.ATTORNEY'S FEES; How FIXED.—In estimating the attorney's fees
that should be awarded to petitioner, consideration must be taken of
the fact that the services appear to be generally of routinary
character, not needing any special skill and the exercise of unusual
efforts, nor the employment of long hours of legal study and
research, nor the waste or expenditure of extraordinary length of
time that might deprive him of the opportunity to render legal
services in other cases and collect profitable legal fees, and of the
fact that petitioner is a near relative of the deceased and would have
received a substantial share in the properties left by the deceased, if
the latter had died intestate and had not decided to adopt as her
children two nieces who were in the same rank of relationship with
the deceased as petitioner. David vs. Sison, 76 Phil. 418, No. 49108
March 28, 1946
PERFECTO, J.:
This is an appeal against a resolution issued by Judge Gervasio Diaz, of
the Court of First Instance of Manila, ordering the administrator of the
estate of Margarita David to pay petitioner as attorney's fees, for
services rendered to the estate, from March, 1941, to March, 1943, in
the amount of P18,000.
In the petition filed in the lower court on March 24, 1943, petitioner
prayed that he be awarded an amount equivalent to 5 per cent of the
original inventoried estate, namely, the sum of P72, 779.10, although in
his brief, dated April 11, 1944, he claims that the 5 per cent he is
27
charging should be estimated not only on the basis of the inventoried
estate but including besides the income thereof for two and one-half
years, totalling P1,627,507.24, the 5 per cent thereof would amount to
P81,375.36, more or less.
The oppositor contended that the amount granted by the lower court is
exorbitant, but failed to state in his brief what reasonable amount should
be. At the hearing of this case he manifested he would consider
reasonable the amount of P3,000, although he would not mind any
amount that may be fixed, provided the payment of any part of said
attorney's fees would not be shouldered by his wife, Priscila F. Sison,
one of the heiresses of the estate, nor affected any part of the property
adjudicated to her.
From the above, it can be seen that the two contending parties went to
possible extremes, allowed by their respective feelings and imaginations,
and that the reasonable amount should be found between the two
extremes. It is inconceivable that two reasonable persons, such as we
presume the petitioner and the oppositor to be, neither one showing
that he is beyond any standard of normality, both cultured and trained
in the science of law, disagree from P3,000 to P81,375.36 in appraising
the pecuniary value of the legal services in question. The reason for this
so wide a difference must be found in the fact that both allowed
themselves to give way, not to fair dealing and fair judgment, but to
uncontrollable emotions aroused by intransigent conflict of monetary
interest.
The parties thresh in this appeal three main questions:
(1) Whether the donation executed by the deceased on September 6,
1940, as appears in Exhibit FFFFF, should be considered as inter
vivos or mortis causa, the parties placing great importance on this
question under the theory that, in the first place, the donated properties
must be excluded from the estate proceedings; but in case the donation
is mortis causa, that should be included in the inventory of the estate.
(2) Whether heiress Priscila F. Sison should or should not shoulder the
corresponding burden in the payment of petitioner's fees for the
properties adjudicated to her.
(3) The reasonable amount that must be granted to petitioner as
attorney's fees.
The lower court, after considering the facts in the case, arrived at the
conclusion that the donation was inter vivos, on the strength of the
doctrine that a donation in order to be mortis causa must have for
consideration the donor's death.
We do not have before us the full text of the deed of donation, but only
the following paragraphs of the same as quoted in the record on appeal
of petitioner and in the briefs of both parties:
"Na and naturang "donor," Margarita David y Puato, alang-
alang sa malaki niyang pagtiñgin, pagliñgap at pagmamahal
sa mga nabanguit na "donees" Narcisa de la Fuente at Priscila
de la Fuente, sa pamamagitan nang kasulatang ito, malayang
ibinigay at ipinagkakaloob sa mga naturang Narcisa de la
 Fuente at Priscila de la Fuente, at sa kanilang mga
tagapagmana, "albacea" at "Administradores", sa habang
panahon, ang kanyang mga titulo, interes at participacion sa
mag sumusunod na ari-arian na pawang malines sa lahat
nang mga pananagutan: (Rec. on Appeal, pp. 209, 210.)
Datapwa't ang lahat nang mga tubo at pakinabangan nang
nagbibigay o "donor" na si Margarita David y Puato hanggang
siya ay hindi binabawian nang buhay nang maykapal; at ang
mga pinagbibigyan na si Narcisa de la Fuente at Priscila de la
Fuente ay hindi maaaring maipagbili, maisangal, a to inherit the donated properties by operation of law.
maipagpalit o sa ano pa man paraan, kung walang kaalaman
at pahintulot nang naturang Margarita David y Puato. (Rec.
on Appeal, pp. 212, 213.)
The following facts are pointed to us concerning the deed of donation:
(1) That on December 20, 1938, Margarita David executed her first and
only last will and testament in favor of her grandnieces Narcisa de la
Fuente de Teodoro and Priscila de la Fuente de Sison as residuary
heiresses, and other relatives of the same degree as legatees and
devisees.
(2) That on October 21, 1939, Margarita David adopted, in special
proceedings No. 55861 of the Court of First Instance of Manila, said
grandnieces Narcisa de la Fuente de Teodoro and Priscila de la Fuente
de Sison, making them her adopted children.
(3) That on September 6, 1940, Margarita David executed the deed of
donation in question in favor of her newly adopted children, the same
testamentary residuary heiresses, donating to them practically the same
properties disposed of in the will.
(4) That on November 18, 1940, the Collector of Internal Revenue
rejected the donor's and donee's gift tax returns on the deed of donation
in question, on the ground that the donation is a transfer in
contemplation of death and subject to an estate and inheritance taxes,
which should be paid upon Margarita David's death in accordance with
section paid upon Margarita David's death in accordance with section 88
(b) of the Internal Revenue Code.
(5) That, in fact, after the death of Margarita David the estate and
inheritance taxes on the properties were paid.
(6) That, acting upon the claim made by the probate clerk and by the
cashier of the Court of First Instance of Manila, said court ordered the
executor to pay an additional docketing fee of P786 based on the
inventory of the estate as valued at P1,415,581.99, including the
properties disposed of in the deed of donation.
(7) That when Margarita David signed the deed of donation she was
already irretrievably ill and she knew that the end was near and
inevitable.
(8) That since the donation was executed on September 6, 1940, until
Margarita David's death on February 24, 1941, less than six months had
elapsed.
28
(9) That from the execution of the deed of donation up to the donor's
death, the donation properties remained in her office entitled:
"Margarita David, Administrator's office."
(10) That Margarita David has reserved to herself the usufruct of all the
donated properties during her lifetime, and provided that the donated
properties could not be alienated by the donees without the knowledge
and consent of the donor, Margarita David.
(11) That the donees, being the universal heirs of Margarita David, as
her adopted daughters, without the deed of donation or any will, were
Petitioner mentions, furthermore, that by the adoption of the above-
mentioned grandnieces, the inheritance tax was reduced to about one-
third of the amount it would have been paid if the said grandnieces were
not adopted as children of Margarita David, the inheritance tax actually
paid being P224,000, while, otherwise, the amount would have been
P672,000; and, lastly, the tax to be paid could have been further
reduced by the execution of the deed of donation, as the rate schedule
for gift tax is lower than the rate schedule for inheritance tax.
In one of the paragraphs of the deed of donation above quoted, it
appears that all rents, proceeds, fruits, of the donated properties shall
remain for the exclusive benefit and disposal of the donor, Margartia
David, during her lifetime; and that, without the knowledge consent of
the donor, the donated properties could not be disposed of in any way,
whether by sale, mortgage, barter, or in any other way possible, thus
making the donees just as paper owners of the properties which , for all
practical purposes, remained the properties of Margarita David.
From all the foregoing, we conclude that the donation in question is, in
fact, a donation mortis causa, because the combined effect of the
circumstances surrounding the execution of the deed of donation and of
the above-quoted clauses thereof could not have taken effect before the
death of Margarita David. According to the terms of the deed, the most
essential elements of ownership — the right to dispose of the donated
properties and the right to enjoy the products, profits, possession —
remained with Margarita David during her lifetime, and would accrue to
the donees only after Margarita David's death.
Although we arrived at the conclusion that the donation in question is a
donation mortis causa, we are not inclined to support petitioner's
contention that, in the present case, the donated properties should be
included in the inventory of the estate and should follow the same
proceedings as if they were not donated at all, it appearing that the
donated properties (which, by the way, were the object of an
extrajudicial partition between the donees) are not necessary to answer
for the obligation left by the deceased, there being enough properties
not included in the donation to answer for said obligations.
The second question, that is, whether heiress Priscila F. Sison should or
should not shoulder the corresponding burden in the payment of
petitioner's fees for the properties adjudicated to her, our opinion is that
the question must be answered affirmatively. No heir, legatee, or
devisee may elude the payment of any obligation of the estate which
should be answered by the estate as a whole in which no discrimination
can be made in favor of or against any heir or heiress.
The third question is not so easy to dispose of, as no fast rules can be
se up upon which the reasonable attorney's fees of petitioner can be
estimated with mathematical accuracy.
Memorandum of legal services rendered by petitioner from March, 1941,
to March, 1943, appears as part of his petition dated March 24, 1943,
reproduced in his record on appeal, pages 6 to 42. An additional
memorandum of services rendered until August, 1943, is included in the
supplement pleading, pages 121-128 of the same record on appeal.
We have examined both memoranda of legal services and, although
petitioner spent about two years and a half, the services appear to be
generally of routinary character, not needing any special skill nor the
exertion of unusual efforts, nor the employment of long hours of legal
study and research, nor the waste or expenditure of extraordinary length
of time that might deprive him of the opportunity to render legal services
in other cases and collect profitable legal fees.
But, at the same time, while there is nothing in the services to require
of justify a special compensation, in estimating the reasonable fees that
should be awarded to petitioner, we have considered, among other
factors and circumstances, the length of time which ran from the first
service to the last — around two years and a half — the number of
services rendered, and the fact that petitioner, being a near relative of
the deceased, would have received a substantial share in the numerous
properties left by the deceased, if the latter had died intestate and had
not decided to adopt as her children two nieces who were in the same
rank of relationship with the deceased as petitioner. It appears that
petitioner had received only a small legacy valued at less than P1,000.
After considering all the facts and circumstances in this case, in an effort
to fix an amount that could be as reasonable as possible, the court
decided that petitioner is entitled to the sum of P10,000, as attorney's
fees, to be paid by the estate of the deceased Margarita David, and so
modify the appealed resolution, without pronouncement as to costs.

29
Testate Estate of the Late Felix J. de Guzman. VICTORINO G.
DE GUZMAN, administrator-appellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and
HONORATA DE GUZMAN-MENDIOLA, oppositors-appellants.
Emiliano Samson & R. Balderama-Samson for appellants.
Cezar Paralejo for appellee.
Settlement of Estate; Powers and duties of the administrator of a
decedent’s estate in the matter of expenses for management and
settlement thereof.—An executor or administrator is allowed the
necessary expenses in the care, management, and settlement of the
estate. He is entitled to possess and manage the decedent’s real and
personal estate as long as it is necessary for the payment of the debts
and the expenses of administration. He is accountable for the whole
decedent’s estate which has come into his possession, with all the
interest, profit, and income thereof, and with the proceeds of so
much of such estate as is sold by him, at the price at which it was
sold (Sec. 3, Rule 84; secs. 1 and 7, Rule 85, Rules of Court).
Same; Expenses of the administrator to preserve the family home
and maintain family’s social standing may be approved.—It should
be noted that the family residence was partitioned pro-indiviso
among the decedent’s eight children. Each one of them was given a
one-eight share in conformity with the testator’s will. Five of the eight
co-owners consented to the use of the funds of the estate for repair
and improvement of the family home. It is obvious that the expenses
in question were incurred to preserve the family home and to
maintain the family’s social standing in the community. Obviously,
those expenses redounded to the benefit of all the co-owners. They
were necessary for the preservation and use of the family residence.
As a result of those expenses, the co-owners, including the three
oppositors, would be able to use the family home in comfort,
convenience and security. We hold that the probate court did not err
in approving the use of the income of the estate to defray those
expenses.
Same; Personal expenses of the occupant heir of the family residence
e.g., salary of household help, light and water bills, cost of gas, oil
floor wax and switch nail, may not be charged against the estate.—
The probate court allowed the income of the estate to be used for
those expenses on the theory that the occupancy of the house by
one heir did not deprive the other seven heirs from living in it. Those
expenses consist of the salaries of the house helper, light and water
bills, and the cost of gas, oil, floor wax and switch nail. We are of the
opinion that those expenses were personal expenses of Librada de
Guzman, unuring mainly to her benefit Those expenses, not being
reasonable administration expenses incurred by the administrator,
30
should be charged against the income of the estate. Librada de
Guzman, as an heir, is entitled to share in the net income of the
estate. She occupied the house without paying rent. She should use
her income for her living expenses while occupying the family
residence. The trial court erred in approving those expenses in the
administrator’s accounts. They should be, as they are hereby,
disallowed (See 33 C.J.S. 1239-40).
Same; Expenses for stenographic notes, representation expenses
when unexplained, expenses to celebrate first death anniversary of
the deceased are not chargeable against the estate.—Among these
expenses is the sum of P100 for stenographic notes which, as
admitted by the administrator on page 24 of his brief, should be
disallowed. Another item, “representation expenses” in the sum of
P26.25 (2nd accounting), was not explained. It should likewise be
disallowed. The probate court erred in allowing as expenses of
administration the sum of P268.65 which was incurred during the
celebration of the first death anniversary of the deceased. Those
expenses are disallowed because they have no connection with the
care, management and settlement of the decedent’s estate (Nicolas
vs. Nicolas, 63 Phil. 332).
Same; Lawyer’s fee and cost of a gift to doctor who attended the
deceased in his last illness is a valid charge against the estate.—The
other expenses, namely, P19.30 for the lawyer’s subsistence and
P144 as the cost of the fit to the physician who attended to the
testator during his last illness, are allowable expenses.
AQUINO, J.:
This case is about the propriety of allowing as administration expenses
certain disbursements made by the administrator of the testate estate
of the late Felix J. de Guzman of Gapan, Nueva Ecija.
The deceased testator was survived by eight children named Victorino,
Librada, Severino, Margarita, Josefina, Honorata, Arsenio and Crispina.
His will was duly probated. Letters of administration were issued to his
son, Doctor Victorino G. de Guzman, pursuant to the order dated
September 17, 1964 of the Court of First Instance of Nueva Ecija in
Special Proceeding No. 1431.
One of the properties left by the dent was a residential house located in
the poblacion. In conformity with his last will, that house and the lot on
which it stands were adjudicated to his eight children, each being given
a one-eighth proindiviso share in the project of partition dated March
19, 1966, which was signed by the eight heirs and which was approved
in the lower court's order of April 14, 1967 but without prejudice to the
final outcome of the accounting.
The administrator submitted four accounting reports for the period from
June 16, 1964 to September, 1967. Three heirs Crispina de Guzmans-
Carillo Honorata de Guzman-Mendiola and Arsenio de Guzman
interposed objections to the administrator's disbursements in the total him, at the price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7,
sum of P13,610.48, broken down as follows: Rule 85, Rules of Court).
I. Expense for the improvement and renovation of the decedent's One of the Conditions of the administrator's bond is that he should
residential house. render a true and just account of his administration to the court. The
1. Construction of fence — P3,082.07 court may examine him upon oath With respect to every matter relating
2. Renovation of bathroom — P1,389.52 to his accounting 't and shall so examine him as to the correctness of
3. Repair of terrace and his account before the same is allowed, except when no objection is
interior of house — P5,928.00 — P10,399.59 made to the allowance of the account and its correctness is satisfactorily
II. Living expenses of Librada de Guzman while occupying the family established by competent proof. The heirs, legatees, distributes, and
home without paying rent: creditors of the estate shall have the same privilege as the executor or
1. For house helper — P1,170.00 administrator of being examined on oath on any matter relating to an
2. Light bills — 227.41 administration account." (Sec. 1[c] Rule 81 and secs. 8 and 9, Rule 85,
3. Water bills — 150.80 Rules of Court).
4. Gas oil, floor wax A hearing is usually held before an administrator's account is approved,
and switch nail — 54.90 — P 1,603.11 especially if an interested Party raises objections to certain items in the
III. Other expenses: accounting report (Sec. 10, Rule 85).
1. Lawyer's subsistence — P 19.30 At that hearing, the practice is for the administrator to take the witness
2. Gratuity pay in lieu stand, testify under oath on his accounts and Identify the receipts,
of medical fee — 144.00 vouchers and documents evidencing his disbursements which are
3. For stenographic notes — 100.00 offered as exhibits. He may be interrogated by the court and crossed by
4. For food served on the oppositors's counsel. The oppositors may present proofs to rebut the
decedent's first ad. administrator's evidence in support of his accounts.
death anniversary — 166.65 I. Expenses for the renovation and improvement of the family residence
5. Cost of publication of — P10,399.59. — As already shown above, these expenses consisted of
death anniversary disbursements for the repair of the terrace and interior of the family
of decedent — 102.00 home, the renovation of the bathroom, and the construction of a fence.
6. Representation The probate court allowed those expenses because an administrator has
expenses — 26.25 — P558.20 the duty to "maintain in tenantable repair the houses and other
IV. Irrigation fee P1.049.58 structures and fences belonging to the estate, and deliver the same in
TOTAL P13,610.48 such repair to the heirs or devises" when directed to do so by the court
It should be noted that the probate court in its order of August 29, 1966 (Sec. 2, Rule 84, Rules of Court).
directed the administrator "to refrain from spending the assets of the On the other hand, the oppositors-appellants contend that the trial court
estate for reconstructing and remodeling the house of the deceased and erred in allowing those expenses because the same did not come within
to stop spending (sic) any asset of the estate without first during the category of necessary expenses of administration which are
authority of the court to do so" (pp. 26-27, Record on Appeal). understood to be the reasonable and necessary expenses of caring for
The lower court in its order of April 29, 1968 allowed the d items as the property and managing it until the debts are paid and the estate is
legitimate expenses of administration. From that order, the three partitioned and distributed among the heirs (Lizarraga Hermanos vs.
oppositors appealed to this Court. Their contention is that the probate Abada, 40 Phil. 124).
court erred in approving the utilization of the income of the estate (from As clarified in the Lizarraga case, administration expenses should be
rice harvests) to defray those expenditures which allegedly are not those which are necessary for the management of the estate, for
allowable under the Rules of Court. protecting it against destruction or deterioration, and, possibly, for the
An executor or administrator is allowed the necessary expenses in the production of fruits. They are expenses entailed for the preservation and
care, management, and settlement of the estate. He is entitled to productivity of the estate and its management for purposes of
possess and manage the decedent's real and personal estate as long as liquidation, payment of debts, and distribution of the residue among the
it is necessary for the payment of the debts and the expenses of persons entitled thereto.
administration. He is accountable for the whole decedent's estate which It should be noted that the family residence was
has come into his possession, with all the interest, profit, and income partitioned proindiviso among the decedent's eight children. Each one
thereof, and with the proceeds of so much of such estate as is sold by of them was given a one-eighth share in conformity with the testator's
31
will. Five of the eight co-owners consented to the use of the funds of treated as "assumed expenses" deducted as farming expenses from the
the estate for repair and improvement of the family home. It is obvious value of the net harvests.
that the expenses in question were incurred to preserve the family home The explanation is not quite clear but it was not disputed by the
and to maintain the family's social standing in the community. appellants. The fact is that the said sum of P1,049.58 was paid by the
Obviously, those expenses redounded to the benefit of an the co- administrator to the Penaranda Irrigation System as shown in Official
owners. They were necessary for the preservation and use of the family Receipt No. 3596378 dated April 28, 1967. It was included in his
residence. As a result of those expenses, the co-owners, including the accounting as part of the farming expenses. The amount was properly
three oppositors, would be able to use the family home in comfort, allowed as a legitimate expense of administration.
convenience and security. WHEREFORE, the lower court's order of April 29, 1968 is affirmed with
We hold that the probate court did not err in approving the use of the the modifications that the sum of (a) P1,603.11 as the living expenses
income of the estate to defray those ex of Librada de Guzman. (b) P100 for stenographic notes, (c) P26.25 as
II. Expenses incurred by Librada de Guzman as occupant of the family representation expenses, and (d) P268.65 as expenses for the
residence without paying rent — P1 603.11 — The probate court allowed celebration of the first anniversary of the decedent's death are
the income of the estate to be used for those expenses on the theory disallowed in the administrator's accounts. No costs.
that the occupancy of the house by one heir did not deprive the other SO ORDERED.
seven heirs from living in it. Those expenses consist of the salaries of
the house helper, light and water bills, and the cost of gas, oil floor wax
and switch nail
We are of the opinion that those expenses were personal expenses of
Librada de Guzman, inuring y to her benefit. Those expenses, not being
reasonable administration expenses incurred by the administrator,
should not be charged against the income of the estate.
Librada de Guzman, as an heir, is entitled to share in the net income of
the estate. She occupied the house without paying rent. She should use
her income for her living expenses while occupying the family residence.
The trial court erred in approving those expenses in the administrator's
accounts. They should be, as they are hereby, disallowed (See 33 C.J.S
1239-40).
III. Other expenses — P558.20. — Among these expenses is the sum of
P100 for stenographic notes which, as admitted by the administrator on
page 24 of his brief, should be disallowed. Another item, "representation
expenses" in the sum of P26.25 (2nd accounting), was not explained. it
should likewise be disallowed.
The probate court erred in allowing as expenses of ad. administration
the sum of P268.65 which was incurred during the celebration of the
first death anniversary of the deceased. Those expenses are disallowed
because they have no connection with the care, management and
settlement of the decedent's estate (Nicolas vs. Nicolas 63 Phil 332).
The other expenses, namely, P19.30 for the lawyer's subsistence and
P144 as the cost of the gift to the physician who attended to the testator
during his last s are allowable expenses.
IV. Irrigation fee — P1,049.58. —The appellants question the
deductibility of that expense on the ground that it seems to be a
duplication of the item of P1,320 as irrigation fee for the same 1966-67
crop-year.
The administrator in his comment filed on February 28, 1978 explained
that the item of P1,320 represented the "allotments" for irrigation fees
to eight tenants who cultivated the Intan crop, which allotments were
32
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P.
PAJONAR, as Administratrix of the Estate of Pedro P.
Pajonar, respondents.
RESOLUTION
Taxation; Administration expenses construed 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.—Judicial
expenses are expenses of administration. Administration expenses,
as an allowable deduction from the gross estate of the decedent for
purposes of arriving at the value of the net estate, have been
construed by the federal and state courts of the United States to
include all expenses “essential to the collection of the assets,
payment of debts or the distribution of the property to the persons
entitled to it.” In other words, the expenses must be essential to the
proper settlement of the estate. Expenditures incurred for the
individual benefit of the heirs, devisees or legatees are not
deductible.
GONZAGA-REYES, J.: Supr-ema
Assailed in this petition for review on certiorari is the December 21, 1995
Decision[1] of the Court of Appeals[2] in CA-G.R. Sp. No. 34399 affirming
the 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
33
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.[3] Jur-is
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.[4] The
case was docketed as CTA 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.[6]Juri-ssc
On June 15, 1993, the Commissioner of Internal Revenue filed a motion
for reconsideration[7] of the CTA's May 6, 1993 decision asserting,
among others, 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[8] ordering the
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 [10] of
the National Internal Revenue Code[11] (Tax Code) which provides for
the allowable 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
34
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.[13] However, the tax 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
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
the 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
35
 necessarily the assets of the deceased formed part property during his lifetime should also be considered as a deductible
of his gross estate. x x x administration expense. PNB provided a detailed accounting of
xxx.....xxx.....xxx decedent's property and gave advice as to the proper settlement of the
It is clear therefore that the attorney's fees incurred latter's estate, acts which contributed towards the collection of
in the guardianship proceeding in Spec. Proc. No. decedent's assets and the subsequent settlement of the estate.
1254 were essential to the distribution of the We find that the Court of Appeals did not commit reversible error in
property to the persons entitled thereto. Hence, the affirming the questioned resolution of the Court of Tax Appeals.
attorney's fees incurred in the guardianship WHEREFORE, the December 21, 1995 Decision of the Court of Appeals
proceedings in the amount of P50,000.00 should be is AFFIRMED. The notarial fee for the extrajudicial settlement and the
allowed as a deduction from the gross estate of the attorney's fees in the guardianship proceedings are allowable deductions
decedent. [15]
from the gross estate of Pedro Pajonar.
The deductions from the gross estate permitted under section 79 of the SO ORDERED.
Tax Code basically reproduced the deductions allowed under
Commonwealth Act No. 466 (CA 466), otherwise known as the National
Internal Revenue Code of 1939,[16] and which was the first codification
of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also provided for
the deduction of the "judicial expenses of the testamentary or intestate
proceedings" for purposes of determining the value of the net estate.
Philippine tax laws were, in turn, based on the federal tax laws of the
United States.[17] In accord with established rules of statutory
construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax
laws.[18] Scc-alr
Judicial expenses are expenses of administration.[19] Administration
expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have
been construed by the federal and state courts of the United States to
include all expenses "essential to the collection of the assets, payment
of debts or the distribution of the property to the persons entitled to
it."[20] In other words, the expenses must be essential to the proper
settlement of the estate. Expenditures incurred for the individual benefit
of the heirs, devisees or legatees are not deductible.[21] This distinction
has been carried over to our jurisdiction. Thus, in Lorenzo v.
Posadas[22] the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing
the decedent's real estate for the benefit of the testamentary heir. In
another case, the Court disallowed the premiums paid on the bond filed
by the administrator as an expense of administration since the giving of
a bond is in the nature of a qualification for the office, and not necessary
in the settlement of the estate.[23] Neither may attorney's fees incident
to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate.[24]
Coming to the case at bar, the notarial fee paid for the extrajudicial
settlement is clearly a deductible expense since such settlement effected
a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's
36
MARCELO INVESTMENT AND MANAGEMENT CORPORATION,
and THE HEIRS OF EDWARD T. MARCELO, NAMELY, KATHERINE
J. MARCELO, ANNA MELINDA J. MARCELO REVILLA, and JOHN
STEVEN J. MARCELO, Petitioners,
vs.
JOSE T. MARCELO, JR., Respondent.
DECISION
PEREZ, J.:
The vesting of succession rights on the heirs upon the death of the
decedent gives occasion for the baring of sibling disaccords right at the
onset of the estate proceedings which is the determination of the
administrator of the decedent's estate. In such instances, the liquidation,
partition and distribution of the decedent's estate is prolonged and the
issue of administration becomes, contrary to its very objective, itself the
hindrance to the ultimate goal of settlement of the decedent's estate.
We catch a glimpse of that in this case.
Before us is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the 24 May 2013 Decision of the Court of Appeals in
CA-G.R. CV No. 95219 which affirmed the Order of the Regional Trial
1 2
Court (RTC), Branch 76, Quezon City appointing respondent Jose T.
Marcelo, Jr. (Jose, Jr.) as the new regular administrator of the intestate
estate of decedent Jose T. Marcelo, Sr.
The facts herein occurred in two stages: (1) the first litigation between
two of Jose Marcelo, Sr.’s (Jose, Sr.) compulsory heirs, his sons, Edward,
(ascendant of herein petitioners, heirs of Edward T. Marcelo, Katherine
J. Marcelo, Anna Melinda J. Marcelo Revilla, and John Steven J. Marcelo)
and respondent Jose, Jr., for the appointment of regular administrator
of Jose, Sr.’s estate; and (2) after Edward was appointed regular
administrator of Jose, Sr.’s estate and Edward’s death in 2009,
respondent Jose, Jr.’s revival of his pursuit to administer his father’s,
Jose, Sr.’s, estate. These details of these stages follow:
On 24 August 1987, decedent Jose, Sr. died intestate. He was survived
by his four compulsory heirs: (1) Edward, (2) George, (3) Helen and (4)
respondent Jose, Jr.
Initially, petitioner Marcelo Investment and Management Corporation
(MIMCO) filed a Petition for the issuance of Letters of Administration of
the estate of Jose, Sr. before the RTC, Branch 76, Quezon City docketed
as S.P. Proc. No. Q-88-1448. At first, Helen, along with her brother, Jose,
Jr. separately opposed MIMCO’s petition; the two prayed for their
respective appointment as administrator. Edward opposed Helen’s and
Jose, Jr.’s respective petitions for issuance of Letters of Administration
in their favor and Edward himself prayed for his appointment as regular
administrator. Ultimately, MIMCO, George and Edward banded together:
(1) opposed Helen’s and Jose, Jr.’s petitions, and (2) prayed for
Edward’s appointment as regular administrator of Jose, Sr.’s estate.
On 21 September 1989, pending issuance of letters of administration,
the RTC appointed Helen and Jose, Jr. as special administrators.
37
In an Order dated 13 December 1991, the RTC appointed Edward as
regular administrator of Jose, Sr.’s estate:
WHEREFORE, PREMISES CONSIDERED, this Court resolves as it hereby
resolves to appoint Edward T. Marcelo as the Regular Administrator of
the estate of the late Jose P. Marcelo, Sr. upon the posting of a bond
amounting to THREE HUNDRED THOUSAND PESOS (₱300,000.00). The
aforementioned appointment shall take effect upon his oath as such and
conditioned by a bond of ₱300,000.00 which shall insure the fidelity of
the said regular administrator in the performance of his duties and
obligations as such.3
Taking issue with the RTC’s Order and questioning Edward’s
appointment, Jose, Jr. filed successive oppugnant motions: (1) motion
for reconsideration of the 13 December 1991 Order; and (2) omnibus
motion alleging the RTC Acting Presiding Judge Efren N. Ambrosio’s
(Judge Ambrocio) unusual interest and unduehaste in issuing letters of
administration in favor of Edward.
In an Order dated 12 March 1992, the RTC, through Judge Ambrosio,
denied Jose, Jr.’s motion for reconsideration:
WHEREFORE, prescinding from the foregoing, and fortified by the balm
of clear judicial conscience, the herein motion is hereby denied. The
letters of administration under date of March 4, 1992 issued in favor of
Edward T. Marcelo is maintained with full force and effect. The letters
testamentary issued in favor of Special Administrator, Jose T. Marcelo,
Jr. under date of October 2, 1989 as well as the bond posted by him are
hereby ordered cancelled. Likewise, the Special Administrator, Jose T.
Marcelo, Jr. is hereby ordered to forthwith deliver to the regular
administrator the goods, chattels, money and estate of the deceased in
his hands.4
In the same vein of denial, the RTC ruled on the Omnibus Motion, thus:
After a re-examination of the evidence adduced by the parties and a
consideration of the arguments raised in the aforecited pleadings, this
court arrived at a conclusion that no substantial error was committed by
then Acting Presiding Judge Edren N. Ambrosio which would warrant a
reversal of the questioned orders, namely, the order dated December
13, 1991 and March 12, 1992.5
Adamant on his competence to better administer his father’s estate,
Jose, Jr. appealed Edward’s appointment as regular administrator to the
Court of Appeals in CA-G.R. CV No. 43674. However, the appellate court
affirmed in toto6 the Orders dated 1 October 1993, 13 December 1991
and 12 March 1992 of the intestate court.
The question of who between Edwardand Jose, Jr. should administer
their father’s estate reached us in G.R. No. 123883 (Jose Marcelo, Jr. v.
Court of Appeals and Edward Marcelo): we did not find reversible error
in the appellate court’s decision in CA-G.R. CV No. 43674. We disposed
of the case via a Minute Resolution dated 22 May 1996,7ultimately
affirming the RTC’s and the appellate court’s separate rulings of
Edward’s competence and better suited ability to actas regular
administrator of Jose, Sr.’s estate.
Thereafter, Jose, Jr. persistently opposed Edward’s actions as LIQUIDATION OF THE INVENTORY OF THE
administrator and his inventory of Jose, Sr.’s estate. He filed anew serial ESTATE OF JOSE P. MARCELO, SR.
motions which culminated in the following 23 June 2000 Order of the AS OF JULY 26, 2000
RTC: I. SETTLEMENT OF THE CLAIMS AGAINST THE ESTATE (SCH IV)
After a careful study of the arguments raised by the parties in support Payables
of their respective claims, the Court finds that the motion filed by 1. Marcelo Chemical & Pigment Corp. P 1,556,002.06
oppositor [Jose, Jr.] is not well-taken.
Anent the submission of complete list of stockholders of all the Marcelo 2. Maria Cristina Fertilizer Corp. 797,487.00

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

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

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

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

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

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

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

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

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

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

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

4. Receivables – Marcelo Fiberglass 212,729.17 On 6 January 2010, the RTC issued the assailed Order, now appointing
Jose, Jr. as regular administrator of Jose, Sr.’s estate:
* Based at Par Value
Contrary to the assertion of petitioners, there is no showing that the
Above assets will be distributed equally by the four (4) of us depending
[c]ourt has previously declared oppositor-movant [Jose, Jr.] unfit to be
if these will be sold or not. It is very important to note that equal
appointed as an administrator.
39
The estate is left with no one who will administer the estate, i.e., to
liquidate the estate and distribute the residue among the heirs. As
wellsettled, to liquidate means to determine the assets of the estate and
to pay all debts and expenses. Records clearly show that the estate taxes
due to the government have not been paid. It is, in fact, held that
approval of the project of partition does not necessarily terminate
administration x x x. There is a necessity to appoint a new regular
administrator. Equally noteworthy is that the judicially approved
inventory was prepared way back on August 30, 2000. It is but
imperative that the same be updated.
In the sound judgment of the [c]ourt, oppositor-movant [Jose, Jr.], a
legitimate child of the decedent, appears to occupy higher interest than
Atty. Henry A. Reyes in administering the subject estate.
WHEREFORE, premises considered, oppositor Jose T. Marcelo, Jr. is
appointed as the new regular administrator of the estate of Jose T.
Marcelo, Sr.
Before he enters upon the execution of his trust, and letters of
administration issue, he shall give a bond in the amount of ₱200,000.00,
conditioned as follows:
a. To make and return to the [c]ourt, within three (3) months,
an updated inventory of all goods, chattels, rights, credits, and
estate of the deceased which shall come to his possession or
knowledge or to the possession of any other person for him;
b. To administer according to the Rules of Court rules, all
goods, chattels, rights, credits, and estate which shall at any
time come to his possession or to the possession of any other
person for him, and from the proceeds to pay and discharge
all debts, legacies, and charges on the same, or such
dividends thereon as shall be decreed by the court, not to
mention the taxes due to the government;
c. To render a true and just account of his administration to
the [c]ourt within one (1) year; and at any other time when
required by the Court; and
d. To perform all orders of the [c]ourt. 14
Petitioners filed an Omnibus Motion for Reconsideration of the 6 January
2010 Order and now moved for the appointment instead of George as
administrator of Jose, Sr.’s estate. After Comment on the Omnibus
Motion, the RTC issued another Order dated 23 March 2010, denying
the Omnibus Motion and affirming the appointment of Jose, Jr. as new
regular administrator. Petitioners appealed the RTC’s twin Orders dated
6 January 2010 and 23 March 2010 before the appellate court. This time
around, the Court of Appeals affirmed Jose, Jr.’s appointment as new
regular administrator. Ruling that the selection of administrator lies in
the sound discretion of the trial court, the Court of Appeals held that:
1. The prior Order dated 13 December 1991 of the RTC
appointing Edward as regular administrator instead of Jose,
Jr., which appointment was affirmed by this Court in G.R. No.
40
123883, did not make a finding on Jose, Jr.’s fitness and
suitableness to serve as regular administrator; and
2. On the whole, Jose, Jr. iscompetent and "not wanting in
understanding and integrity," to act as regular administrator
of Jose, Sr.’s estate.
Hence, this appeal by certiorariascribing grave error in the Court of
Appeals’ Decision, to wit:
A.
THERE WAS NO NEED TO APPOINT AN ADMINISTRATOR FOR
THE ESTATE OF JOSE P. MARCELO, SR. AS THERE WAS THEN
NO PENDING INCIDENTS IN THE ESTATE PROCEEDINGS TO
WARRANT THE APPOINTMENT OF AN ADMINISTRATOR.
B.
THE COURT OF APPEALS ERRED IN APPOINTING JOSE, JR.
AS THE ADMINISTRATOR OF JOSE, SR.’S ESTATE
CONSIDERING THAT JOSE, JR. WAS FOUND, BY A FINAL,
IMMUTABLE, AND UNALTERABLE JUDGMENT, TO BE UNFIT
TO ACT AS SUCH. THUS, THE COURT OF APPEALS WAS
CLEARLY MISTAKEN WHEN IT DISREGARDED THE EARLIER
PRONOUNCEMENT ON THE UNFITNESS OF JOSE, JR. TO ACT
AS AN ADMINISTRATOR AS IT GOES AGAINST THE
PRINCIPLE OF CONCLUSIVENESS OF JUDGMENT.
C.
THE COURT OF APPEALS VIOLATED THE PETITIONERS’
RIGHT TO DUE PROCESS, WHEN IT AFFIRMED THE RTC
ORDERS, WITHOUT EVEN BOTHERING TO EXPLAIN WHY
JOSE, JR. AND NOT GEORGE, SHOULD BE APPOINTED AS
ADMINISTRATOR OF JOSE, SR.’S ESTATE.15
The appeal is impressed with merit. While we agree with the lower
courts that the appointment of a regular administrator is still necessary,
we disagree with the appointment of Jose, Jr. as new regular
administrator of Jose, Sr.’s estate.
We first dispose of the issue of whether the appointment of a regular
administrator is still necessary at this liquidation, partition and
distribution stage of the intestate proceedings involving Jose, Sr.’s
estate.
Petitioners contend that the appointment of a regular administrator is
unnecessary where there remains no pending matter in the settlement
of Jose, Sr.’s estate requiring attention and administration. Specifically,
petitioners point out that there is no existing or unliquidated debt against
the estate of Jose, Sr, the settlement thereof being already at the
liquidation, partition and distribution stage. Further on that, the
liquidation and proposed partition had long been approved by the
probate court.
We are not convinced. The settlement of Jose, Sr.’s estate is not yet
through and complete albeit it is at the liquidation, partition and
distribution stage.
Rule 90 of the Rules of Court provides for the Distribution and Partition
of the Estate. The rule provides in pertinent part:
SECTION 1. When order for distribution of residue made. – x x x
No distribution shall be allowed until payment of the obligations above
mentioned has been made or provided for, unless the distributees, or
any of them, give a bond, in a sum tobe fixed by the court, conditioned
for the payment of said obligations within such time as the court directs.
xxxx
SEC. 3. By whom expenses of partition paid. – If at the time of the
distribution the executor or administrator has retained sufficient effects
in his hands which may lawfully be applied for the expenses of partition
of the properties distributed, such expenses of partition may be paid by
such executor or administrator when it appears equitable to the court
and not inconsistent with the intention of the testator; otherwise, they
shall be paid by the parties in proportion to their respective shares or
interest in the premises, and the apportionment shall be settled and
allowed by the court, and, if any person interested in the partition does
not pay his proportion or share, the court may issue an execution in the
name of the executor or administrator against the party not paying for
the sum assessed.
In this case, we observe that the Liquidation of the Inventory of the
Estate, approved by the RTC in its Order dated 16 February 2001, is not
yet in effect and complete. We further note that there has been no
manifestation forthcoming from any of the heirs, or the parties in this
case, regarding the completion of the proposed liquidation and partition
of the estate. In fact, as all parties are definitely aware, the RTC archived
the intestate proceedings pending the payment of estate taxes.
For clarity, we refer to the Liquidation of the Inventory of the Estate,
which was divided into two (2) parts: (1) Settlement of the Claims
against the Estate, and (2) After Settlement of the Claims, distribution
of the remaining assets of the estate to the four (4) compulsory heirs.
The same document listed payables and receivables of the estate
dependent on a number of factors and contingencies:
1. Payables to various companies where the Marcelo family had equity
amounting to ₱6,893,425.33;
Considering that the Estate as of June 3, 1999 has no sufficient cash to
pay-off the above claims of ₱6,893,425.33, [Edward] can work out an
offsetting arrangement since the Estate has also receivables or equity
from these companies as shown below: 16
xxxx
2. Receivables from the same companies amounting to ₱7,748,448.19;
If the above receivables and equity with total value of ₱7,748,448.19
will be offset against the claims of ₱6,893,425.33 the net will show the
following:17
xxxx
3. An offsetting of the payables and receivables to be arranged by the
then regular administrator, Edward; and
41
4. Offsetting of the receivables from Marcelo Rubber & Latex Products,
Inc. amounting to ₱4,341,147.26 against the net claims against the
estate amounting to 3,486,124.40 resulting in net receivables of the
estate in the amount of ₱855,022.86.
There has been no showing from either of the parties that the
receivables of, and claims against, Jose, Sr.’s estate has been actually
liquidated, much less, if an offsetting occurred with the companies listed
in the inventory on one hand, and Jose, Sr.’s estate, on the other.
Although the Marcelo family, in particular the compulsory heirs of Jose,
Sr., hold equity in the corporations mentioned in the inventory,
considering that the corporations are family owned by the Marcelos’,
these corporations are different juridical persons with separate and
distinct personalities from the Marcelo patriarch, the decedent, Jose,
Sr.18
More importantly, the liquidation scheme appears yet to be effected, the
actual partition of the estate, where each heir separately holds his share
in the estate as that which already belongs to him, remains intangible
and the ultimate distribution to the heirs still held in abeyance pending
payment of estate taxes.19
Significantly, even the Liquidation of the Inventory of Jose, Sr.’s estate
states that the valuation amount of the shares of stock as listed therein
is based on par value, which may have varied given the passage of time.
The same document delivers a very important notation that the equal
distribution of the listed assets of the estate will depend on the actual
selling price of these assets less taxes and other deductions:
Above assets will be distributed equally by the four (4) [compulsory
heirs] depending if these will be sold or not. It is very important to note
that equal distribution will be based on actual selling price minus taxes
and other deduction if any, on the above inventories of estate
properties.20 To date, more than a decade has passed since the intestate
proceedings were archived, thus, affecting the value of the estate’s
assets.
From all of the foregoing, it is apparent that the intestate proceedings
involving Jose, Sr.’s estate still requires a regular administrator to finally
settle the estate and distribute remaining assets to the heirs of the
decedent.
We now come to the issue of whether Jose, Jr. may be appointed as
regular administrator despite the previous Order of the RTC on 13
December 1991, affirmed by the appellate court and this Court in G.R.
No. 123883, that as between Jose, Jr. and Edward, the latter was better
suited to act as regular administrator of their father’s estate. Stated
differently, whether Jose, Jr.’s previous non-appointment as regular
administrator of Jose, Sr.’s estate bars his present appointment as such
even in lieu of Edward who is now dead.
A close scrutiny of the records reveals that in all of Jose, Jr.’s pleadings
opposing Edward’s appointment as regular administrator, he
simultaneously prayed for his appointment as regular administrator of
their father’s estate. In short, he proffered his competence and
qualification to be appointed as regular administrator as a legal issue for
resolution of the courts. Essentially, Jose, Jr. was weighed and found
wanting by the RTC, the appellate court, and this Court.
In its 13 December 1991 Order, the RTC categorically ruled on who
between Edward and Jose, Jr. was fit to administer the estate of Jose,
Sr., framing the issue in this wise:
The [c]ourt’s choice as to who among the [compulsory heirs] will be
appointed regular administrator of the estate of Jose, Sr. is now limited
to Edward and Jose, Jr. in view of the withdrawal of Helen T. Marcelo.
It is this [c]ourt’s observation that the continuous internal wranglings
between the heirs would achieve nothing. In the meantime, the estate
of the late Jose, Marcelo, Sr. isdragged further into the quagmire of
dissipation and loss. It would not be amiss to state that the animosity
among the interested [petitioners therein], Edward and Jose, Jr. have
considerably increased since the filing of their respective petitions, but
the [c]ourt on the basis of their qualifications will have to decide whom
to appoint as regular administrator. Willingness to act and/or serve as
regular administrator is no longer in issue here as both applicants are
undoubtedly willing to serve as such. However, after subjecting the
evidence, both testimonial and documentary to careful judicial study,
this [c]ourt now resolves as it hereby resolves to appoint Edward T.
Marcelo as regular administrator of the estate of the late Jose, Sr.
As aptly cited by petitioner, Edward T. Marcelo, there can be no adverse
conclusion that may be inferred from the withdrawal of a petition or
nomination. While it may be true that initially the petition for the
issuance of letters testamentary was filed by Marcelo Investment and
Management Corporation (MIMCO for brevity) and by Danilo O. Ibay as
nominee of Edward and George Marcelo, the same did not constitute a
waiver on the part of Edward T. Marcelo. This can be gleaned from the
withdrawal of the nomination of DaniloO. Ibay and the subsequent filing
of Edward T. Marcelo of his petition for the appointment as legal
administrator on September 14, 1989. Further, nowhere in the
provisions of the Revised Rules of Court is sucha nomination of a party
other than a compulsory heir prohibited.
The documents presented by Jose, Jr. purporting to show that the
deceased had other assets other than those enumerated in the original
petition filed by MIMCO and which should have been included in the
estate cannot be accorded any weight or credence by this [c]ourt, as
the individual who supposedly prepared the document was never
identified and the sources of information notdisclosed. Upon the other
hand, the petition filed by MIMCO was based on the Financial
Statements prepared by an independent auditor, A. F. Pablo and
Associates. On the basis of the information provided by MIMCO in the
original petition, this [c]ourt can determine the probable value and
nature of the estate of the deceased Jose P. Marcelo, Sr.
There is no argument that both Edward and Jose, Jr. are willing to serve
as regular administrator but undoubtedly, Edward appears to be more
responsible and competent that his younger brother, Jose, Jr. This is
42
bolstered by the fact that the family corporations and his own personal
corporation are presently of sound financial condition. This success, the
[c]ourt believes can be attributed to the management skills and the
sound management policies Edward has adopted throughout the years.
Likewise, it can be deduced that among the four(4) children of Jose, Sr.,
it was Edward whom he trusted the most. The deceased valued the
opinion of Edward on decisions that had to bemade and he would have
Edward around in his meetings to discuss matter relating to the
corporations which he managed. Further, as can be gleaned from the
evidence presented by Jose, Jr., it was Edward Marcelo who was
appointed as trustee to vote the deceased’s share in a Marcelo
Corporation, Polaris Marketing Corporation. It was also Edward who was
made co-signatory when the deceased deposited money in the bank to
be given to the children of Jose, Jr. It is thus quite evident that Edward
was really the most trusted child of the deceased.
Upon the other hand, this court looks with deep concern the manner by
which Jose, Jr. treats the corporate properties of the Marcelo Group of
Companies. Evidence shows that sometime October 21, 1998, Jose, Jr.
took evidencing liabilities of the deceased and other pertinent records
and up to the present has not returned them. Jose, Jr. cannot justify the
taking of the records/or borrowing of the same by asserting that he is
now keeping them in his capacity asSpecial Administrator as he was
appointed Special Administrator only on September 21, 1989 whereas
the records were "borrowed" as early as October 21, 1988. Be that as it
may, what belies Jose, Jr.’s assertion is the fact that the records of the
corporation which were allegedly "borrowed/taken" do not form part of
the estate of Jose, Sr. but to the corporation from where they were
taken.
Likewise, it should be noted that the appointment of Jose, Jr. as one of
the Special Administrators does not necessarily make him more qualified
to be appointed as regular administrator. The records of the case will
bear out, that the appointmentof a Special Administrator was premised
on the need to have someone, oversee, manage and preserve the estate
of Jose, Sr., as there was the danger of the estate being dissipated.
Moreover, the [c]ourt never touched on the issue of the qualifications of
the applicants, as there was in fact, no evidence presented on the
matter, other than the bare allegations of the applicants that they were
all qualified to act as such.21 (Citations omitted)
Notably, the decision of the trial court appointing Edward as the
Administrator of the Estate of Jose, Sr., which decision had the
imprimatur of a final resolution by this Court, was not merely a
comparison of the qualifications of Edward and Jose, Jr., but a finding
of the competence of Edward compared to the unfitness of Jose, Jr.
As against this Order of the RTC, its subsequent opposite Order dated 6
January 2010 appointing Jose, Jr. as new regular administrator only had
two (2) sentences to essentially reverse the previous findings.
Contrary to the assertion of petitioners, there is no showing that the
[c]ourt has previously declared [Jose,Jr.] unfit to be appointed as an
administrator.
xxxx
In the sound judgment of the [c]ourt,[Jose, Jr.], a legitimate child of the
decedent, appears to occupy a higher interest than Atty. Henry A. Reyes
in administering the subject estate.22
The first sentence contained in the Order of 6 January 2010 is disproven
by the definite finding of "deepconcern" in the original Order. The
second sentence does not amount to a finding of a qualification superior
to that of the rest of the children of Jose, Sr.
In affirming the issuance of letters of administration to Jose, Jr., the
appellate court dwelt largely on the considerable latitude allowed a
probate court in the determination of a person’s suitability for the office
of judicial administrator. The Court of Appeals only briefly delved into
Jose, Jr.’s numerous attempts to be appointed regular administrator of
Jose, Sr.’s estate which were all denied previously by the same probate
court:
The RTC Order dated 13 December 1991, as affirmed by this [c]ourt in
Decision dated 30 March 1995, and by the Supreme Court in the
Resolution dated 22 May 1996, did not declare [respondent] Jose, Jr.
unfit to serve as administrator. What was ruled upon by the RTC, and
affirmed by this [c]ourt, and by the Supreme Court, was the
appointment of Edward as the administrator of Jose, Sr.’s estate, and
the denial of [respondent] Jose, Jr.’s opposition to Edward’s
appointment. Nowhere was there any categorical ruling, or a definite
finding, that [respondent] Jose, Jr. was, unfit to execute the duties of
the trust by reason of drunkenness, improvidence, or want of
understanding or integrity, or by reason of conviction of an offense
involving moral turpitude. Thus, there is no merit in [petitioners’]
contention that the finding on the unfitness of [respondent] Jose, Jr.
became binding, and precluded the RTC from appointing [respondent]
Jose, Jr., as the new regular administrator of Jose, Sr.’s estate.
Jurisprudence has long held that the selection of an administrator lies in
the sound discretion of the trial court.1âwphi1 The determination of a
person’s suitability for the office of judicial administrator rests, to a great
extent, in the sound judgment of the court exercising the power of
appointment and said judgment is not to be interfered with on appeal
unless the said court is clearly in error. The RTC did not err in appointing
Jose, Jr. as the new administrator, even though his previous prayer for
appointment was denied. Notably, by virtue of Edward’s death, the office
of the regular administrator of Jose, Sr.’s estate was vacated, and it was
within the jurisdiction of the RTC, as probate court, to appoint a new
administrator.23
Evidently, the Court of Appeals like the RTC in its second order, closed
its eyes on the facts detailed by the RTC in the first order.
Considering the two (2) sets of conflicting rulings of the RTC and the
Court of Appeals in the two stages ofthis litigation, we put into proper
43
perspective the 13 December 1991 Order of the RTC appointing Edward
over Jose, Jr. as regular administrator of their father’s estate, which
Order was upheld by us in G.R. No. 123883.
Section 1, Rule 78 of the Rules of Court provides for the general
disqualification of those who wish to serve as administrator:
SECTION 1. Who are incompetent to serve as executors or
administrators.— No person is competent to serve as executor or
administrator who:
(a) Is a minor;
(b) Is not a resident of the Philippines; and
(c) Is in the opinion of the court unfit to execute the duties of
the trust by reason of drunkenness, improvidence, or want of
understanding or integrity, or by reason of conviction of an
offense involving moral turpitude.
Section 6 of the same rule, on the other hand, lists an order of
preference in instances when there is a contest of who should be
appointed administrator:
SEC. 6. When and to whom letters of administration granted.— If no
executor is named in the will, or the executor or executors are
incompetent, refuse the trust, or fail to give bond, or a person dies
intestate, administration shall be granted:
(a) To the surviving spouse, or next of kin, or both, in the
discretion of the court, or to such person as such surviving
spouse, or next of kin, requests to have appointed, if
competent and willing to serve;
(b) If such surviving spouse, or next of kin, or the person
selected by them, be incompetent or unwilling, or ifthe
surviving spouse, or next of kin, neglects for thirty (30) days
after the death of the person to apply for the administration
or to request that administration be granted to some other
person, it may be granted to one ormore of the principal
creditors, if competent and willing to serve;
(c) If there is no such creditor competent and willing to serve,
it may be granted to such other person as the court may
select.
Because Edward and Jose, Jr. are both compulsory heirs of Jose, Sr.,
they were, at the time the issue of administration first cropped, equally
preferred to administer Jose, Sr.’s estate. Necessarily, the courts also
delved into the question of their suitableness and fitness to serve as
administrator, preferring one over the other, framing it as Edward being
more fit and suited to be administrator:
1. Edward has kept the Marcelo family corporations and his
own in good financial condition;
2. The trust reposed by the decedent on Edward who voted
on Jose, Sr.’s behalf in a Marcelo corporation; and
3. Edward being made a co-signatory for money deposited for
Jose, Jr.’s own children.
Plainly, the RTC in its Order dated 13 December 1991, found Edward
competent to serve as regular administrator, more competent than Jose,
Jr., preferred despite equal status in the Order of Preference,
manifesting none of the disqualifications set by law. Still and all, the
same Order likewise judged Jose, Jr.’s suitableness and fitness,or lack
thereof, for the office of administrator, albeit in comparison withEdward
and not with the rest of Jose, Sr.’s children. Jose, Jr. was not what
Edward was.1âwphi1 The fact however, that Edward was made co-
signatory for money deposited for Jose, Jr.’s own children is a telling
commentary against Jose, Jr.’s competence, if not integrity.
Then too, the RTC in the original order made a specific finding, "[viewing
it] with deep concern," Jose, Jr.’s handling of the records of the Marcelo
Group of Companies. It euphemistically called taking of the records
evidencing liabilities of the decedent as "borrowed/taken." However, the
RTC noted that such cannot be justified as the records and other
pertinent documents taken "do not form part of the estate of Jose P.
Marcelo, Sr. but to the corporation from where they were taken."
Contrary to the recent rulings of the RTC and the Court of Appeals
appointing Jose, Jr. as administrator, there is a previous and categorical
ruling on Jose, Jr.’s fitness to serve as such:
It is Jose T. Marcelo’s position that he is more competent, qualified and
suitable for the position of regular administrator.1âwphi1 This, above all
else is the main thrust of this second motion for reconsideration.
However, the court in the exercise of its sound discretion after a
consideration of the evidence adduced by both parties, ruled otherwise
and instead appointed Edward T. Marcelo as regular administrator.
x x x True, Jose T. Marcelo, Jr. was initially appointed as Special
Administrator of the estate of their deceased father but the same was
without the benefit of a hearing on the qualifications of the parties
concerned. x x x This did not however confer on Jose Marcelo, Jr. as
Special Administrator a better right to the office of regular administrator.
x x x.
xxxx
The third assigned error raised by [Jose, Jr.] "that both trial judges erred
in not appointing Special Administrator Jose T. Marcelo, Jr. as Regular
Administrator considering his tested probity and competence as special
administrator, his good name and integrity in accordance with the
evidence," is devoid of merit, as already discussed earlier.
The findings of the lower court in this regard deserve full consideration
x x x.24
Undoubtedly, there has been a declaration that Jose, Jr. is unfit and
unsuitable to administer his father’s estate.
To obviate further delay in the settlement of Jose, Sr.’s estate, we
emphasize that such is already at the liquidation and distribution stage
which project of partition had long been conformed to by the parties.
We note that this case has been unnecessarily prolonged and resulted
in added litigation by the non-payment of estate taxes which is the
ultimate responsibility of the heirs having inchoate right in the estate,
44
should there be assets remaining, to be partitioned and distributed. The
inheritance tax is an obligation of the estate, indirectly the heirs:
SECTION 1. When order for distribution of residue made. – When the
debts, xxx, and inheritance tax, if any, chargeable to the estate in
accordance with law, have been paid, xxx.
No distribution shall be allowed until payment of the obligations above
mentioned has been made or provided for, unless the distributees, or
any of them, give a bond, in a sum to be fixed by the court, conditioned
for the payment of said obligations within such time as the court
directs.25
Given the factual considerations that led to the prior findings on the
unfitness of Jose, Jr. to act as regular administrator; the Affidavit of
Helen26 preferring George as administrator; and the conformity on
record of the rest of Jose, Sr.’s heirs to George’s administration as
reflected in petitioners’ Appellants’ Briefbefore the Court of Appeals:
More importantly, consistent with Section 6, Rule 78 of the Rules of
Court, not only is George the eldestson of Jose, Sr. and, therefore, his
most immediate kin, he has, moreover, been chosen by the rest of the
heirs of Jose, Sr. to perform the functions of an administrator. In this
regard, in addition to George and the heirs of Edward, Helen executed
an Affidavit to manifest her opposition to Jose, Jr. and to support the
appointment of George and herself as joint administrators, a copy of
which was given to the [Court of Appeals.]27 we thus issue Letters of
Administration to George to facilitate and close the settlement of Jose,
Sr.’s estate.28
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 95219 and the Order dated 6 January 2010
of the Regional Trial Court, Branch76, Quezon City in S.P. Proc. No. Q-
88-1448 are REVERSED and SET ASIDE. Letters of Administration shall
issue to George T. Marcelo upon payment of a bond to be set by the
Regional Trial Court, Branch 76, Quezon City. The Regional Trial Court,
Branch 76, Quezon City is likewise directed to complete the settlement
of the decedent's, Jose T. Marcelo, Sr. 's, estate with dispatch starting
from an Order setting a deadline for the parties to pay the estate taxes
and to inform this Court when such has been paid.
SO ORDERED.
Philippine American Life and General Insurance Company vs. donor’s tax, pointing out, in its request, the following: that the
Secretary of Finance, 741 SCRA 578, G.R. No. 210987 transaction cannot attract donor’s tax liability since there was no
November 24, 2014 donative intent and,ergo, no taxable donation, citing BIR Ruling [DA-

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

45
(c.2.2) In the case of shares of stock not listed and traded in the local
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% donor’s tax under Section 99(B) of
the NIRC. Respondent Commissioner likewise held that BIR Ruling [DA-
7
(DT-065) 715-09], 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 Commissioner’s
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 money’s 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 donor’s
tax since Section 100 of the Tax Code does not explicitly
subject the transaction to donor’s 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.
46
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),11 as amended, which has 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 Commissioner’s 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 petitioner’s adverted
sale of shares in PhilamCare attracts donor’s tax.
Procedural Arguments
a. Petitioner’s 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. 7-02,12 as 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
Commissioner’s 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. Camacho14 wherein the Court ruled that where
what is assailed is the validity or constitutionality of a 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 CTA’s 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 petitioner’s 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 Finance’s 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.15 This
is in stark contrast to the OP’s specific mention under the same
provision, so respondents pointed out.
To further reinforce their argument, respondents cite the President’s
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 President’s constitutionally granted power
of control have beendefined in a plethora of cases, most recently in Elma
v. Jacobi,16 wherein it was held that:
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 CTA’s
jurisdiction over the controversy.
The Court’s Ruling
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are
appealable to the CTA
47
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 Commissioner’s exercise of power
under the first paragraph of Sec. 4 of the NIRC––the 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 Commissioner’s 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 this––
where 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 Secretary’s 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.17 Courts should not follow the letter of a statute when to do so
would depart from the true intent of the legislature or would otherwise
yield conclusions inconsistent with the purpose of the act.18 This Court
has, in many cases involving the construction of statutes, 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 Appeals20 to argue against granting the CTA jurisdiction 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 court’s jurisdiction, the Act necessarily limited its authority to
those matters enumerated therein. Inline with this idea we recently
approved said court’s 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.
Petitioner’s 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
48
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
investor’s tax on pawnshops based on their gross income and requiring
all investigating units of the BIR to investigate and assess the lending
investor’s tax due from them. The issuance of RMO No. 15-91 was an
offshoot of the CIR’s 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 Josefina’s 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 CIR’s
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 conflict––that
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 point––a 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 measure’s unconstitutionality or invalidity
before the CTA can result in a petition’s 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 measure’s 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
49
Petitioner essentially questions the CIR’s ruling that Petitioner’s 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.
Petitioner’s above submission is specious.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en
banc has ruled that the CTA now 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 of Sec. 100, which was already in force the moment the NIRC was
interpreted that the power of the CTA includes that of determining enacted.
whether or not there has been grave abuse of discretion amounting to WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the
lack or excess of jurisdiction on the part of the RTC in issuing an Court of Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and
interlocutory order in cases falling within the exclusive appellate January 21, 2014 are hereby AFFIRMED.
jurisdiction of the tax court. It, thus, follows that the CTA, by SO ORDERED.
constitutional mandate, is vested with jurisdiction to issue writs of
certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its
appellate jurisdiction, it must have the authority to issue, among others,
a writ of certiorari. In transferring exclusive jurisdiction over appealed
tax cases to the CTA, it can reasonably be assumed that the law intended
to transfer also such power as is deemed necessary, if not indispensable,
in aid of such appellate jurisdiction. There is no perceivable reason why
the transfer should only be considered as partial, not total. (emphasis
added)
Evidently, City of Manilacan be considered as a departure from Ursal in
that in spite of there being no express grant in law, the CTA is deemed
granted with powers of certiorari by implication. Moreover, City of Manila
diametrically opposes British American Tobacco to the effect that it is
now within the power of the CTA, through its power of certiorari, to rule
on the validity of a particular administrative ruleor regulation so long as
it is within its appellate jurisdiction. Hence, it can now rule not only on
the propriety of an assessment or tax treatment of a certain transaction,
but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact
that the CA petition not only contested the applicability of Sec. 100 of
the NIRC over the sales transaction but likewise questioned the validity
of Sec. 7 (c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of
its jurisdiction over the controversy, contrary to petitioner's arguments.
The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of
donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a
gift.1âwphi1 Thus, even if there is no actual donation, the difference in
price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC
but merely sets the parameters for determining the "fair market value"
of a sale of stocks. Such issuance was made pursuant to the
Commissioner's power to interpret tax laws and to promulgate rules and
regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been
issued after the sale, was being applied retroactively in contravention to
Sec. 246 of the NIRC.26 Instead, it merely called for the strict application

50