G.R. No.

L-43082

June 18, 1937

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

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo
Lorenzo
and
Delfin
Joven
Office of the Solicitor-General Hilado for defendant-appellant.

for

plaintiff-appellant.

LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the defendant,
Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid
by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interst thereon at
the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax
was [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on
the tax in question and which was not included in the original assessment. From the decision of the Court
of First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim,
both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will
(Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922, proceedings for
the probate of his will and the settlement and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said will provides, among other things, as
follows:
4. I direct that any money left by me be given to my nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the
same be used only for the education of my brother's children and their descendants.
6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.
xxx

xxx

xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley
ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took
his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when
he resigned and the plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging
that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and
personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an
inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment
consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25
per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the
testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings
No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of
P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under
protest, notifying the defendant at the same time that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the
said amount hausted, plaintiff went to court with the result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir,
Matthew Hanley, from the moment of the death of the former, and that from the time, the latter
became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the
estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value of the estate upon the
death of the testator, and not, as it should have been held, upon the value thereof at the
expiration of the period of ten years after which, according to the testator's will, the property could
be and was to be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net amount of the estate
subject to said tax, the amounts allowed by the court as compensation to the "trustees" and paid
to them from the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27,
representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June
30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant
against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal: (a) When does the
inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the
basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In
determining the net value of the estate subject to tax, is it proper to deduct the compensation due to
trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the
tax-payer be given retroactive effect? (e) Has there been deliquency in the payment of the inheritance
tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate?
Other points of incidental importance, raised by the parties in their briefs, will be touched upon in the
course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance,
devise, bequest, giftmortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by
his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to,
receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative
at or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a person are
transmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeed
immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the
moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them
a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3
Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321;
Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti
Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51
Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the
Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs
are concerned. But the language of article 657 of the Civil Code is broad and makes no distinction
between different classes of heirs. That article does not speak of forced heirs; it does not even use the
word "heir". It speaks of the rights of succession and the transmission thereof from the moment of death.
The provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a
will as a necessary condition to effect transmission of property does not affect the general rule laid down
in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated
and allowed the transmission is effective as of the death of the testator in accordance with article 657 of
the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the decedent's death. The time when the heirs
legally succeed to the inheritance may differ from the time when the heirs actually receive such
inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde el
falleimiento del causante, hasta que el heredero o legatario entre en posesion de los bienes de la
herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del

presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May
27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation
to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section
1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the
same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be
taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary,
in accordance with the desire of the predecessor.
In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than
that paid by the first, the former must pay the difference.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.
(b) In other cases, within the six months subsequent to the death of the predecessor; but
if judicial testamentary or intestate proceedings shall be instituted prior to the expiration
of said period, the payment shall be made by the executor or administrator before
delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid
within ten days after the date of notice and demand thereof by the collector, there shall be further
added a surcharge of twenty-five per centum.
A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal
Revenue by the Clerk of Court within thirty days after their issuance.
It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the
Spanish to the English version.
The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted,
as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have
been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10,
1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned,
did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten
years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the
value of the estate in 1932, or ten years after the testator's death. The plaintiff introduced evidence
tending to show that in 1932 the real properties in question had a reasonable value of only P5,787. This
amount added to the value of the personal property left by the deceased, which the plaintiff admits is
P1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge, would
amount only to about P169.52.
If death is the generating source from which the power of the estate to impose inheritance taxes takes its
being and if, upon the death of the decedent, succession takes place and the right of the estate to tax
vests instantly, the tax should be measured by the vlaue of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any subsequent increase or
decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance
Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The
right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured

as to any beneficiary by the value at that time of such property as passes to him. Subsequent
appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp.
1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate vests in
possession or the contingency is settled. This rule was formerly followed in New York and has been
adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is
by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p.
231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and
authorities that New York has varied and now requires the immediate appraisal of the postponed estate at
its clear market value and the payment forthwith of the tax on its out of the corpus of the estate
transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y.
Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958;
Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter.
Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats.
1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable
at the time of the predecessor's death, notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted
at that time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value
of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In
the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until March 10, 1924, among which were
their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of
the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be
deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: "In
order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall be
deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate proceedings, . .
. ."
A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16
How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may
lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the
Philippines which requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the duties of his executors and trustees should
be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's
Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed the
desire that his real estate be handled and managed by his executors until the expiration of the period of
ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in
State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The
compensation of a trustee, earned, not in the administration of the estate, but in the management thereof
for the benefit of the legatees or devises, does not come properly within the class or reason for exempting
administration expenses. . . . Service rendered in that behalf have no reference to closing the estate for
the purpose of a distribution thereof to those entitled to it, and are not required or essential to the
perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the
court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary
creation, and intended for the preservation of the estate. No sound reason is given to support the
contention that such expenses should be taken into consideration in fixing the value of the estate for the
purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under
the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No.
3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when
the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended
by Act No. 3031, which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the
decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and
ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be
made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the
incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But
legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs.
Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs.

Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as
prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C.
J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance
makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable
to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no
provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute
by this court.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606
are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature
and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised
Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act
No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the
interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and
demand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only as
required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed against the
state which, under the Constitution, the Executive has the power to pardon. In common use, however,
this sense has been enlarged to include within the term "penal statutes" all status which command or
prohibit certain acts, and establish penalties for their violation, and even those which, without expressly
prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are
not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory
Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A.,
104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev.
143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of
clear legislative intent, we cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be
paid within another given time. As stated by this court, "the mere failure to pay one's tax does not render
one delinqent until and unless the entire period has eplased within which the taxpayer is authorized by
law to make such payment without being subjected to the payment of penalties for fasilure to pay his
taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery
of the decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to the
trustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first
paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well
taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is not
mentioned or used in the will but the intention to create one is clear. No particular or technical words are
required to create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for
the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that
a trust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will his
intention so to do by using language sufficient to separate the legal from the equitable estate, and with
sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust,
and the property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there
must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject;
(3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C.
J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that
certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The
probate court certainly exercised sound judgment in appointment a trustee to carry into effect the
provisions of the will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in
relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed
in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of
the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10,
1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the
estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this
case. A trustee is but an instrument or agent for thecestui que trust (Shelton vs. King, 299 U. S., 90; 33
Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possesson of the trust
estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs.
Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate.
He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his

estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the
beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to hold
that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand,
the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their
estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case at
bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period which
does not offend the rule against petuities. The collection of the tax would then be left to the will of a
private individual. The mere suggestion of this result is a sufficient warning against the accpetance of the
essential to the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed.,
1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19
Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law.
ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay
taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government
but upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this
reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to
him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While
courts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn, 280
U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a
construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1
Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in
Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21
Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty,
39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax statute should be
construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in
injustice to the taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is
allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised
Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47
Phil., 461), this court had occassion to demonstrate trenchment adherence to this policy of the law. It held
that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they
were prevented from praying their internal revenue taxes on time and by mutual agreement closed their
homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend
the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty
five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes
adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the
proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the
operations of government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11
Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax
and, therefore, liable for the payment of interest and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The
interest due should be computed from that date and it is error on the part of the defendant to compute it
one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and
neither the Collector of Internal Revenuen or this court may remit or decrease such interest, no matter
how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the
Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544,
subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal
Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date fixed for the
payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth
day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became
liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff
in his brief.
We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas
Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 as
the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be
imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon the
amount by which the share exceed thirty thousand pesos, plus an additional two hundred per centum.
One per centum of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to
these two sums an additional two hundred per centum, or P965.16, we have as primary tax, correctly
computed by the defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate of
twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the
date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interest
thus computed should be added the sum of P724.88, representing a surhcarge of 25 per cent on both the
tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total
of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the
estate. This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim.
But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable
only in the sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances.
So ordered.

LORENZO V. POSADAS (CASE DIGEST)

Standard
Lorenzo v. Posadas, G.R. No. L-43082 (64 PHIL 353) June 18, 1937
Facts: Herein petitioner Lorenzo, in his capacity as trustee of the estate of a certain Thomas Hanley,
deceased, brought an action against respondent Posadas, Collector of Internal Revenue. Petitioner alleges
the respondent to have exceeded in its tax collection, which, as assessed by the former, should only be in
the amount of PhP1,434.24 instead of PhP2,052.74. Disregarding the allegation, respondent filed a
motion in the CFI of Zamboanga praying that the trustee be made to pay such tax. The motion was
granted. Petitioner paid the amount in protest, however notified the respondent that until a refund is
prompted, suit would be bought for its recovery. Respondent overruled the protest. Hence, the case at bar.
Issue/s:
1. Whether or not the provisions of Act No. 3606 (Tax Law) which is favorable to the taxpayer be given
retroactive effect?
Held and Reasoning: No. The respondent levied and assessed the inheritance tax collected from the
petitioner under the provisions of section 1544 of the Revised Administrative Code as amended by Act
No. 3606. However, the latter only enacted in 1930 not the law in force when the testator died in 1922.
Laws cannot be applied retroactively. The Court states that it is a well-settled principle that inheritance
taxation is governed by the statue in force at the time of the death of the decendent. The Court also
emphasized that a statute should be considered as prospective in its operation, unless the language of
the statute clearly demands or expresses that it shall have retroactive effect Act No. 3606 does not
contain any provisions indicating a legislative intent to give it a retroactive effect. Therefore, the
provisions of Act No. 3606 cannot be applied to the case at bar.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-56340 June 24, 1983
SPOUSES ALVARO PASTOR, JR. and MA. ELENA ACHAVAL DE PASTOR, petitioners,
vs.
THE COURT OF APPEALS, JUAN Y. REYES, JUDGE OF BRANCH I, COURT OF FIRST
INSTANCE OF CEBU and LEWELLYN BARLITO QUEMADA, respondents.
Pelaez, Pelaez, & Pelaez Law Office for petitioners.
Ceniza, Rama & Associates for private respondents.

PLANA, J.:
I. FACTS:
This is a case of hereditary succession.
Alvaro Pastor, Sr. (PASTOR, SR.), a Spanish subject, died in Cebu City on June 5, 1966, survived
by his Spanish wife Sofia Bossio (who also died on October 21, 1966), their two legitimate children
Alvaro Pastor, Jr. (PASTOR, JR.) and Sofia Pastor de Midgely (SOFIA), and an illegitimate child, not
natural, by the name of Lewellyn Barlito Quemada QUEMADA PASTOR, JR. is a Philippine citizen,
having been naturalized in 1936. SOFIA is a Spanish subject. QUEMADA is a Filipino by his
mother's citizenship.
On November 13, 1970, QUEMADA filed a petition for the probate and allowance of an alleged
holographic will of PASTOR, SR. with the Court of First Instance of Cebu, Branch I (PROBATE
COURT), docketed as SP No. 3128-R. The will contained only one testamentary disposition: a
legacy in favor of QUEMADA consisting of 30% of PASTOR, SR.'s 42% share in the operation by
Atlas Consolidated Mining and Development Corporation (ATLAS) of some mining claims in PinaBarot, Cebu.
On November 21, 1970, the PROBATE COURT, upon motion of QUEMADA and after an ex parte
hearing, appointed him special administrator of the entire estate of PASTOR, SR., whether or not
covered or affected by the holographic will. He assumed office as such on December 4, 1970 after
filing a bond of P 5,000.00.
On December 7, 1970, QUEMADA as special administrator, instituted against PASTOR, JR. and his
wife an action for reconveyance of alleged properties of the estate, which included the properties
subject of the legacy and which were in the names of the spouses PASTOR, JR. and his wife, Maria
Elena Achaval de Pastor, who claimed to be the owners thereof in their own rights, and not by
inheritance. The action, docketed as Civil Case No. 274-R, was filed with the Court of First Instance
of Cebu, Branch IX.
On February 2, 1971, PASTOR, JR. and his sister SOFIA filed their opposition to the petition for
probate and the order appointing QUEMADA as special administrator.
On December 5, 1972, the PROBATE COURT issued an order allowing the will to probate.
Appealed to the Court of Appeals in CA-G.R. No. 52961- R, the order was affirmed in a decision
dated May 9, 1977. On petition for review, the Supreme Court in G.R. No. L-46645 dismissed the
petition in a minute resolution dated November 1, 1977 and remanded the same to the PROBATE
COURT after denying reconsideration on January 11, 1978.
For two years after remand of the case to the PROBATE COURT, QUEMADA filed pleading after
pleading asking for payment of his legacy and seizure of the properties subject of said legacy.
PASTOR, JR. and SOFIA opposed these pleadings on the ground of pendency of the reconveyance

suit with another branch of the Cebu Court of First Instance. All pleadings remained unacted upon by
the PROBATE COURT.
On March 5, 1980, the PROBATE COURT set the hearing on the intrinsic validity of the will for
March 25, 1980, but upon objection of PASTOR, JR. and SOFIA on the e ground of pendency of the
reconveyance suit, no hearing was held on March 25. Instead, the PROBATE COURT required the
parties to submit their respective position papers as to how much inheritance QUEMADA was
entitled to receive under the wig. Pursuant thereto, PASTOR. JR. and SOFIA submitted their
Memorandum of authorities dated April 10, which in effect showed that determination of how much
QUEMADA should receive was still premature. QUEMADA submitted his Position paper dated April
20, 1980. ATLAS, upon order of the Court, submitted a sworn statement of royalties paid to the
Pastor Group of tsn from June 1966 (when Pastor, Sr. died) to February 1980. The statement
revealed that of the mining claims being operated by ATLAS, 60% pertained to the Pastor Group
distributed as follows:
1. A. Pastor, Jr. ...................................40.5%
2. E. Pelaez, Sr. ...................................15.0%
3. B. Quemada .......................................4.5%
On August 20, 1980, while the reconveyance suit was still being litigated in Branch IX of the Court of
First Instance of Cebu, the PROBATE COURT issued the now assailed Order of Execution and
Garnishment, resolving the question of ownership of the royalties payable by ATLAS and ruling in
effect that the legacy to QUEMADA was not inofficious. [There was absolutely no statement or claim
in the Order that the Probate Order of December 5, 1972 had previously resolved the issue of
ownership of the mining rights of royalties thereon, nor the intrinsic validity of the holographic will.]
The order of August 20, 1980 found that as per the holographic will and a written acknowledgment of
PASTOR, JR. dated June 17, 1962, of the above 60% interest in the mining claims belonging to the
Pastor Group, 42% belonged to PASTOR, SR. and only 33% belonged to PASTOR, JR. The
remaining 25% belonged to E. Pelaez, also of the Pastor Group. The PROBATE COURT thus
directed ATLAS to remit directly to QUEMADA the 42% royalties due decedent's estate, of which
QUEMADA was authorized to retain 75% for himself as legatee and to deposit 25% with a reputable
banking institution for payment of the estate taxes and other obligations of the estate. The 33%
share of PASTOR, JR. and/or his assignees was ordered garnished to answer for the accumulated
legacy of QUEMADA from the time of PASTOR, SR.'s death, which amounted to over two million
pesos.
The order being "immediately executory", QUEMADA succeeded in obtaining a Writ of Execution
and Garnishment on September 4, 1980, and in serving the same on ATLAS on the same day.
Notified of the Order on September 6, 1980, the oppositors sought reconsideration thereof on the
same date primarily on the ground that the PROBATE COURT gravely abused its discretion when it
resolved the question of ownership of the royalties and ordered the payment of QUEMADA's legacy
after prematurely passing upon the intrinsic validity of the will. In the meantime, the PROBATE
COURT ordered suspension of payment of all royalties due PASTOR, JR. and/or his assignees until
after resolution of oppositors' motion for reconsideration.
Before the Motion for Reconsideration could be resolved, however, PASTOR, JR., this time joined
by his wife Ma. ELENA ACHAVAL DE PASTOR, filed with the Court of Appeals a Petition for
certiorari and Prohibition with a prayer for writ of preliminary injunction (CA-G.R. No. SP- 11373-R).
They assailed the Order dated August 20, 1980 and the writ of execution and garnishment issued
pursuant thereto. The petition was denied on November 18, 1980 on the grounds (1) that its filing
was premature because the Motion for Reconsideration of the questioned Order was still pending
determination by the PROBATE COURT; and (2) that although "the rule that a motion for
reconsideration is prerequisite for an action for certiorari is never an absolute rule," the Order
assailed is "legally valid. "
On December 9, 1980, PASTOR, JR. and his wife moved for reconsideration of the Court of
Appeal's decision of November 18, 1980, calling the attention of the appellate court to another order
of the Probate Court dated November 11, 1980 (i.e., while their petition for certiorari was pending
decision in the appellate court), by which the oppositors' motion for reconsideration of the Probate
Court's Order of August 20, 1980 was denied. [The November 11 Order declared that the questions
of intrinsic validity of the will and of ownership over the mining claims (not the royalties alone) had

been finally adjudicated by the final and executory Order of December 5, 1972, as affirmed by the
Court of Appeals and the Supreme Court, thereby rendering moot and academic the suit for
reconveyance then pending in the Court of First Instance of Cebu, Branch IX. It clarified that only the
33% share of PASTOR, JR. in the royalties (less than 7.5% share which he had assigned to
QUEMADA before PASTOR, SR. died) was to be garnished and that as regards PASTOR, SR.'s
42% share, what was ordered was just the transfer of its possession to the custody of the PROBATE
COURT through the special administrator. Further, the Order granted QUEMADA 6% interest on his
unpaid legacy from August 1980 until fully paid.] Nonetheless, the Court of Appeals denied
reconsideration.
Hence, this Petition for Review by certiorari with prayer for a writ of pre y injunction, assailing the
decision of the Court of Appeals dated November 18, 1980 as well as the orders of the Probate
Court dated August 20, 1980, November 11, 1980 and December 17, 1980, Med by petitioners on
March 26, 1981, followed by a Supplemental Petition with Urgent Prayer for Restraining Order.
In April 1981, the Court (First Division) issued a writ of preliminary injunction, the lifting of which was
denied in the Resolution of the same Division dated October 18, 1982, although the bond of
petitioners was increased from P50,000.00 to P100,000.00.
Between December 21, 1981 and October 12, 1982, private respondent filed seven successive
motions for early resolution. Five of these motions expressly prayed for the resolution of the question
as to whether or not the petition should be given due course.
On October 18, 1982, the Court (First Division) adopted a resolution stating that "the petition in fact
and in effect was given due course when this case was heard on the merits on September 7, (should
be October 21, 1981) and concise memoranda in amplification of their oral arguments on the merits
of the case were filed by the parties pursuant to the resolution of October 21, 1981 . . . " and denied
in a resolution dated December 13, 1982, private respondent's "Omnibus motion to set aside
resolution dated October 18, 1982 and to submit the matter of due course to the present
membership of the Division; and to reassign the case to another ponente."
Upon Motion for Reconsideration of the October 18, 1982 and December 13, 1982 Resolutions, the
Court en banc resolved to CONFIRM the questioned resolutions insofar as hey resolved that the
petition in fact and in effect had been given due course.
II. ISSUES:
Assailed by the petitioners in these proceedings is the validity of the Order of execution and
garnishment dated August 20, 1980 as well as the Orders subsequently issued allegedly to
implement the Probate Order of December 5, 1972, to wit: the Order of November 11, 1980
declaring that the Probate Order of 1972 indeed resolved the issues of ownership and intrinsic
validity of the will, and reiterating the Order of Execution dated August 20, 1980; and the Order of
December 17, 1980 reducing to P2,251,516.74 the amount payable to QUEMADA representing the
royalties he should have received from the death of PASTOR, SR. in 1966 up to February 1980.
The Probate Order itself, insofar as it merely allowed the holographic will in probate, is not
questioned. But petitioners denounce the Probate Court for having acted beyond its jurisdiction or
with grave abuse of discretion when it issued the assailed Orders. Their argument runs this way:
Before the provisions of the holographic win can be implemented, the questions of ownership of the
mining properties and the intrinsic validity of the holographic will must first be resolved with finality.
Now, contrary to the position taken by the Probate Court in 1980 i.e., almost eight years after the
probate of the will in 1972 the Probate Order did not resolve the two said issues. Therefore, the
Probate Order could not have resolved and actually did not decide QUEMADA's entitlement to the
legacy. This being so, the Orders for the payment of the legacy in alleged implementation of the
Probate Order of 1972 are unwarranted for lack of basis.
Closely related to the foregoing is the issue raised by QUEMADA The Probate Order of 1972 having
become final and executory, how can its implementation (payment of legacy) be restrained? Of
course, the question assumes that QUEMADA's entitlement to the legacy was finally adjudged in the
Probate Order.
On the merits, therefore, the basic issue is whether the Probate Order of December 5, 1972 resolved
with finality the questions of ownership and intrinsic validity. A negative finding will necessarily
render moot and academic the other issues raised by the parties, such as the jurisdiction of the

Probate Court to conclusively resolve title to property, and the constitutionality and repercussions of
a ruling that the mining properties in dispute, although in the name of PASTOR, JR. and his wife,
really belonged to the decedent despite the latter's constitutional disqualification as an alien.
On the procedural aspect, placed in issue is the propriety of certiorari as a means to assail the
validity of the order of execution and the implementing writ.
III. DISCUSSION:
1. Issue of Ownership
(a) In a special proceeding for the probate of a will, the issue by and large is restricted to the
extrinsic validity of the will, i.e., whether the testator, being of sound mind, freely executed the will in
accordance with the formalities prescribed by law. (Rules of Court, Rule 75, Section 1; Rule 76,
Section 9.) As a rule, the question of ownership is an extraneous matter which the Probate Court
cannot resolve with finality. Thus, for the purpose of determining whether a certain property should
or should not be included in the inventory of estate properties, the Probate Court may pass upon the
title thereto, but such determination is provisional, not conclusive, and is subject to the final decision
in a separate action to resolve title. [3 Moran, Comments on the Rules of Court (1980 ed.), p. 458;
Valero Vda. de Rodriguez vs. Court of Appeals, 91 SCRA 540.]
(b) The rule is that execution of a judgment must conform to that decreed in the dispositive part of
the decision. (Philippine-American Insurance Co. vs. Honorable Flores, 97 SCRA 811.) However, in
case of ambiguity or uncertainty, the body of the decision may be scanned for guidance in
construing the judgment. (Heirs of Presto vs. Galang, 78 SCRA 534; Fabular vs. Court of Appeals,
119 SCRA 329; Robles vs. Timario. 107 Phil. 809.)
The Order sought to be executed by the assailed Order of execution is the Probate Order of
December 5, 1972 which allegedly resolved the question of ownership of the disputed mining
properties. The said Probate Order enumerated the issues before the Probate Court, thus:
Unmistakably, there are three aspects in these proceedings: (1) the probate of the
holographic will (2) the intestate estate aspect; and (3) the administration
proceedings for the purported estate of the decedent in the Philippines.
In its broad and total perspective the whole proceedings are being impugned by the
oppositors on jurisdictional grounds, i.e., that the fact of the decedent's residence
and existence of properties in the Philippines have not been established.
Specifically placed in issue with respect to the probate proceedings are: (a) whether
or not the holographic will (Exhibit "J") has lost its efficacy as the last will and
testament upon the death of Alvaro Pastor, Sr. on June 5, 1966, in Cebu City,
Philippines; (b) Whether or not the said will has been executed with all the formalities
required by law; and (c) Did the late presentation of the holographic will affect the
validity of the same?
Issues In the Administration Proceedings are as follows: (1) Was the ex- parte
appointment of the petitioner as special administrator valid and proper? (2) Is there
any indispensable necessity for the estate of the decedent to be placed under
administration? (3) Whether or not petition is qualified to be a special administrator of
the estate; and (4) Whether or not the properties listed in the inventory (submitted by
the special administrator but not approved by the Probate Court) are to be excluded.
Then came what purports to be the dispositive portion:
Upon the foregoing premises, this Court rules on and resolves some of the problems
and issues presented in these proceedings, as follows:
(a) The Court has acquired jurisdiction over the probate proceedings as it hereby
allows and approves the so-called holographic will of testator Alvaro Pastor, Sr.,
executed on July 31, 1961 with respect to its extrinsic validity, the same having been
duly authenticated pursuant to the requisites or solemnities prescribed by law. Let,
therefore, a certificate of its allowance be prepared by the Branch Clerk of this Court

to be signed by this Presiding Judge, and attested by the seal of the Court, and
thereafter attached to the will, and the will and certificate filed and recorded by the
clerk. Let attested copies of the will and of the certificate of allowance thereof be sent
to Atlas Consolidated Mining & Development Corporation, Goodrich Bldg., Cebu City,
and the Register of Deeds of Cebu or of Toledo City, as the case may be, for
recording.
(b) There was a delay in the granting of the letters testamentary or of administration
for as a matter of fact, no regular executor and/or administrator has been appointed
up to this time and - the appointment of a special administrator was, and still is,
justified under the circumstances to take possession and charge of the estate of the
deceased in the Philippines (particularly in Cebu) until the problems causing the
delay are decided and the regular executor and/or administrator appointed.
(c) There is a necessity and propriety of a special administrator and later on an
executor and/or administrator in these proceedings, in spite of this Court's
declaration that the oppositors are the forced heirs and the petitioner is merely
vested with the character of a voluntary heir to the extent of the bounty given to him
(under) the will insofar as the same will not prejudice the legitimes of the
oppositor for the following reasons:
1. To submit a complete inventory of the estate of the
decedent-testator Alvaro Pastor, Sr.
2. To administer and to continue to put to prolific
utilization of the properties of the decedent;
3. To keep and maintain the houses and other
structures and belonging to the estate, since the
forced heirs are residing in Spain, and prepare them
for delivery to the heirs in good order after partition
and when directed by the Court, but only after the
payment of estate and inheritance taxes;
(d) Subject to the outcome of the suit for reconveyance of ownership and possession
of real and personal properties in Civil Case No. 274-T before Branch IX of the Court
of First Instance of Cebu,the intestate estate administration aspect must proceed,
unless, however, it is duly proven by the oppositors that debts of the decedent have
already been paid, that there had been an extrajudicial partition or summary one
between the forced heirs, that the legacy to be given and delivered to the petitioner
does not exceed the free portion of the estate of the testator, that the respective
shares of the forced heirs have been fairly apportioned, distributed and delivered to
the two forced heirs of Alvaro Pastor, Sr., after deducting the property willed to the
petitioner, and the estate and inheritance taxes have already been paid to the
Government thru the Bureau of Internal Revenue.
The suitability and propriety of allowing petitioner to remain as special administrator
or administrator of the other properties of the estate of the decedent, which
properties are not directly or indirectly affected by the provisions of the holographic
will (such as bank deposits, land in Mactan etc.), will be resolved in another order as
separate incident, considering that this order should have been properly issued
solely as a resolution on the issue of whether or not to allow and approve the
aforestated will. (Emphasis supplied.)
Nowhere in the dispositive portion is there a declaration of ownership of specific properties. On the
contrary, it is manifest therein that ownership was not resolved. For it confined itself to the question
of extrinsic validity of the win, and the need for and propriety of appointing a special administrator.
Thus it allowed and approved the holographic win "with respect to its extrinsic validity, the same
having been duly authenticated pursuant to the requisites or solemnities prescribed by law." It
declared that the intestate estate administration aspect must proceed " subject to the outcome of the
suit for reconveyance of ownership and possession of real and personal properties in Civil Case
274-T before Branch IX of the CFI of Cebu." [Parenthetically, although the statement refers only to
the "intestate" aspect, it defies understanding how ownership by the estate of some properties could
be deemed finally resolved for purposes of testate administration, but not so for intestate purposes.

Can the estate be the owner of a property for testate but not for intestate purposes?] Then again, the
Probate Order (while indeed it does not direct the implementation of the legacy) conditionally stated
that the intestate administration aspect must proceed "unless . . . it is proven . . . that the legacy to
be given and delivered to the petitioner does not exceed the free portion of the estate of the
testator," which clearly implies that the issue of impairment of legitime (an aspect of intrinsic validity)
was in fact not resolved. Finally, the Probate Order did not rule on the propriety of allowing
QUEMADA to remain as special administrator of estate properties not covered by the holographic
will, "considering that this (Probate) Order should have been properly issued solely as a resolution
on the issue of whether or not to allow and approve the aforestated will. "
(c) That the Probate Order did not resolve the question of ownership of the properties listed in the
estate inventory was appropriate, considering that the issue of ownership was the very subject of
controversy in the reconveyance suit that was still pending in Branch IX of the Court of First Instance
of Cebu.
(d) What, therefore, the Court of Appeals and, in effect, the Supreme Court affirmed en toto when
they reviewed the Probable Order were only the matters properly adjudged in the said Order.
(e) In an attempt to justify the issuance of the Order of execution dated August 20, 1980, the Probate
Court in its Order of November 11, 1980 explained that the basis for its conclusion that the question
of ownership had been formally resolved by the Probate Order of 1972 are the findings in the latter
Order that (1) during the lifetime of the decedent, he was receiving royalties from ATLAS; (2) he had
resided in the Philippines since pre-war days and was engaged in the mine prospecting business
since 1937 particularly in the City of Toledo; and (3) PASTOR, JR. was only acting as dummy for his
father because the latter was a Spaniard.
Based on the premises laid, the conclusion is obviously far-fetched.
(f) It was, therefore, error for the assailed implementing Orders to conclude that the Probate Order
adjudged with finality the question of ownership of the mining properties and royalties, and that,
premised on this conclusion, the dispositive portion of the said Probate Order directed the special
administrator to pay the legacy in dispute.
2. Issue of Intrinsic Validity of the Holographic Will (a) When PASTOR, SR. died in 1966, he was survived by his wife, aside from his two legitimate
children and one illegitimate son. There is therefore a need to liquidate the conjugal partnership and
set apart the share of PASTOR, SR.'s wife in the conjugal partnership preparatory to the
administration and liquidation of the estate of PASTOR, SR. which will include, among others, the
determination of the extent of the statutory usufructuary right of his wife until her death. * When the
disputed Probate order was issued on December 5, 1972, there had been no liquidation of the community properties of PASTOR, SR. and
his wife.

(b) So, also, as of the same date, there had been no prior definitive determination of the assets of
the estate of PASTOR, SR. There was an inventory of his properties presumably prepared by the
special administrator, but it does not appear that it was ever the subject of a hearing or that it was
judicially approved. The reconveyance or recovery of properties allegedly owned but not in the name
of PASTOR, SR. was still being litigated in another court.
(c) There was no appropriate determination, much less payment, of the debts of the decedent and
his estate. Indeed, it was only in the Probate Order of December 5, 1972 where the Probate Court
ordered that... a notice be issued and published pursuant to the provisions of Rule 86 of the
Rules of Court, requiring all persons having money claims against the decedent to
file them in the office of the Branch Clerk of this Court."
(d) Nor had the estate tax been determined and paid, or at least provided for, as of December 5,
1972.
(e) The net assets of the estate not having been determined, the legitime of the forced heirs in
concrete figures could not be ascertained.

(f) All the foregoing deficiencies considered, it was not possible to determine whether the legacy of
QUEMADA - a fixed share in a specific property rather than an aliquot part of the entire net estate of
the deceased - would produce an impairment of the legitime of the compulsory heirs.
(g) Finally, there actually was no determination of the intrinsic validity of the will in other respects. It
was obviously for this reason that as late as March 5, 1980 - more than 7 years after the Probate
Order was issued the Probate Court scheduled on March 25, 1980 a hearing on the intrinsic validity
of the will.
3. Propriety of certiorari
Private respondent challenges the propriety of certiorari as a means to assail the validity of the
disputed Order of execution. He contends that the error, if any, is one of judgment, not jurisdiction,
and properly correctible only by appeal, not certiorari.
Under the circumstances of the case at bar, the challenge must be rejected. Grave abuse of
discretion amounting to lack of jurisdiction is much too evident in the actuations of the probate court
to be overlooked or condoned.
(a) Without a final, authoritative adjudication of the issue as to what properties compose the estate of
PASTOR, SR. in the face of conflicting claims made by heirs and a non-heir (MA. ELENA ACHAVAL
DE PASTOR) involving properties not in the name of the decedent, and in the absence of a
resolution on the intrinsic validity of the will here in question, there was no basis for the Probate
Court to hold in its Probate Order of 1972, which it did not, that private respondent is entitled to the
payment of the questioned legacy. Therefore, the Order of Execution of August 20, 1980 and the
subsequent implementing orders for the payment of QUEMADA's legacy, in alleged implementation
of the dispositive part of the Probate Order of December 5, 1972, must fall for lack of basis.
(b) The ordered payment of legacy would be violative of the rule requiring prior liquidation of the
estate of the deceased, i.e., the determination of the assets of the estate and payment of all debts
and expenses, before apportionment and distribution of the residue among the heirs and legatees.
(Bernardo vs. Court of Appeals, 7 SCRA 367.)
(c) Neither has the estate tax been paid on the estate of PASTOR, SR. Payment therefore of the
legacy to QUEMADA would collide with the provision of the National Internal Revenue Code
requiring payment of estate tax before delivery to any beneficiary of his distributive share of the
estate (Section 107 [c])
(d) The assailed order of execution was unauthorized, having been issued purportedly under Rule
88, Section 6 of the Rules of Court which reads:
Sec. 6. Court to fix contributive shares where devisees, legatees, or heirs have been
in possession. Where devisees, legatees, or heirs have entered into possession of
portions of the estate before the debts and expenses have been settled and paid and
have become liable to contribute for the payment of such debts and expenses, the
court having jurisdiction of the estate may, by order for that purpose, after hearing,
settle the amount of their several liabilities, and order how much and in what manner
each person shall contribute, and may issue execution as circumstances require.
The above provision clearly authorizes execution to enforce payment of debts of estate. A legacy is
not a debt of the estate; indeed, legatees are among those against whom execution is authorized to
be issued.
... there is merit in the petitioners' contention that the probate court generally cannot
issue a writ of execution. It is not supposed to issue a writ of execution because its
orders usually refer to the adjudication of claims against the estate which the
executor or administrator may satisfy without the necessity of resorting to a writ of
execution. The probate court, as such, does not render any judgment enforceable by
execution.
The circumstances that the Rules of Court expressly specifies that the probate court
may issue execution (a) to satisfy (debts of the estate out of) the contributive shares
of devisees, legatees and heirs in possession of the decedent's assets (Sec. 6. Rule

88), (b) to enforce payment of the expenses of partition (Sec. 3, Rule 90), and (c) to
satisfy the costs when a person is cited for examination in probate proceedings (Sec.
13, Rule 142) may mean, under the rule of inclusion unius est exclusion alterius, that
those are the only instances when it can issue a writ of execution. (Vda. de Valera
vs. Ofilada, 59 SCRA 96, 108.)
(d) It is within a court's competence to order the execution of a final judgment; but to order the
execution of a final order (which is not even meant to be executed) by reading into it terms that are
not there and in utter disregard of existing rules and law, is manifest grave abuse of discretion
tantamount to lack of jurisdiction. Consequently, the rule that certiorari may not be invoked to defeat
the right of a prevailing party to the execution of a valid and final judgment, is inapplicable. For when
an order of execution is issued with grave abuse of discretion or is at variance with the judgment
sought to be enforced (PVTA vs. Honorable Gonzales, 92 SCRA 172), certiorari will lie to abate the
order of execution.
(e) Aside from the propriety of resorting to certiorari to assail an order of execution which varies the
terms of the judgment sought to be executed or does not find support in the dispositive part of the
latter, there are circumstances in the instant case which justify the remedy applied for.
Petitioner MA. ELENA ACHAVAL DE PASTOR, wife of PASTOR, JR., is the holder in her own right
of three mining claims which are one of the objects of conflicting claims of ownership. She is not an
heir of PASTOR, SR. and was not a party to the probate proceedings. Therefore, she could not
appeal from the Order of execution issued by the Probate Court. On the other hand, after the
issuance of the execution order, the urgency of the relief she and her co-petitioner husband seek in
the petition for certiorari states against requiring her to go through the cumbersome procedure of
asking for leave to intervene in the probate proceedings to enable her, if leave is granted, to appeal
from the challenged order of execution which has ordered the immediate transfer and/or
garnishment of the royalties derived from mineral properties of which she is the duly registered
owner and/or grantee together with her husband. She could not have intervened before the issuance
of the assailed orders because she had no valid ground to intervene. The matter of ownership over
the properties subject of the execution was then still being litigated in another court in a
reconveyance suit filed by the special administrator of the estate of PASTOR, SR.
Likewise, at the time petitioner PASTOR, JR. Med the petition for certiorari with the Court of
Appeals, appeal was not available to him since his motion for reconsideration of the execution order
was still pending resolution by the Probate Court. But in the face of actual garnishment of their major
source of income, petitioners could no longer wait for the resolution of their motion for
reconsideration. They needed prompt relief from the injurious effects of the execution order. Under
the circumstances, recourse to certiorari was the feasible remedy.
WHEREFORE, the decision of the Court of Appeals in CA G.R. No. SP-11373-R is reversed. The
Order of execution issued by the probate Court dated August 20, 1980, as well as all the Orders
issued subsequent thereto in alleged implementation of the Probate Order dated December 5, 1972,
particularly the Orders dated November 11, 1980 and December 17, 1980, are hereby set aside; and
this case is remanded to the appropriate Regional Trial Court for proper proceedings, subject to the
judgment to be rendered in Civil Case No. 274-R.
SO ORDERED.

THIRD DIVISION
RAFAEL ARSENIO S. DIZON, in his capacity as G.R. No. 140944
the Judicial Administrator of the Estate of the
Present:
deceased JOSE P. FERNANDEZ,
Petitioner,
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COURT OF TAX APPEALS
andCOMMISSIONER OF INTERNAL
Promulgated:
REVENUE,
Respondents.
April 30, 2008

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

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

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate
of his will[5] was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate
court).[6] The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon
(Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and
Assistant Special Administrator, respectively, of the Estate of Jose (Estate). In a
letter[7] dated October 13, 1988, Justice Dizon informed respondent Commissioner of the
Bureau of Internal Revenue (BIR) of the special proceedings for the Estate.
Petitioner alleged that several requests for extension of the period to file the required estate
tax return were granted by the BIR since the assets of the estate, as well as the claims against it,
had yet to be collated, determined and identified. Thus, in a letter[8] dated March 14, 1990,
Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of
the Estate the required estate tax return and to represent the same in securing a Certificate of Tax
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a letter[9] addressed to the BIR
Regional Director for San Pablo City and filed the estate tax return[10] with the same BIR
Regional Office, showing therein a NIL estate tax liability, computed as follows:
COMPUTATION OF TAX
Conjugal Real Property (Sch. 1)
Conjugal Personal Property (Sch.2)
Taxable Transfer (Sch. 3)
Gross Conjugal Estate
Less: Deductions (Sch. 4)

P10,855,020.00
3,460,591.34
14,315,611.34
187,822,576.06

Net Conjugal Estate

Less: Share of Surviving Spouse
Net Share in Conjugal Estate
xxx
Net Taxable Estate
Estate Tax Due

NIL
NIL
NIL

NIL

NIL
.[11]

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued
Certification Nos. 2052[12] and 2053[13] stating that the taxes due on the transfer of real and
personal properties[14] of Jose had been fully paid and said properties may be transferred to his
heirs. Sometime in August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the
probate court appointed petitioner as the administrator of the Estate.[15]
Petitioner requested the probate court's authority to sell several properties forming part of
the Estate, for the purpose of paying its creditors, namely: Equitable Banking Corporation
(P19,756,428.31), Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988),
Manila Banking Corporation (P84,199,160.46 as of February 28, 1989) and State Investment
House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of
the Estate was not included, as it did not file a claim with the probate court since it had security
over several real estate properties forming part of the Estate.[16]

However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR,
Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91003269,[17] demanding the payment of P66,973,985.40 as deficiency estate tax, itemized as
follows:
Deficiency Estate Tax- 1987
Estate tax
25% surcharge- late filing
late payment
Interest
Compromise-non filing
non payment
no notice of death
no CPA Certificate
Total amount due & collectible

P31,868,414.48
7,967,103.62
7,967,103.62
19,121,048.68
25,000.00
25,000.00
15.00
300.00
P66,973,985.40[18]

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

As found by the CTA, the respective parties presented the following pieces of evidence, to
wit:
In the hearings conducted, petitioner did not present testimonial evidence
but merely documentary evidence consisting of the following:

Nature

of

(sic)
1.

2.

3.

4.

Document
Exhibits

Letter dated October 13, 1988

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

"A"

Petition for the probate of the

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

"B" & "B-1

Pleading entitled "Compliance"

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

"C"

Attachment to Exh. "C" which

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

"C-1" to "C-17"

5.

Claims against the estate filed

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

6.

Claim filed by Banque de L'

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

"E" to "E-3"

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"

7.

8.

Demand letter of Manila Banking

Corporation prepared by Asedillo,
Ramos and Associates Law Offices

9.

10.

11.

12.

13.

14.

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"

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"

Letter dated March 14, 1990

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

"I"

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"

Estate Tax Return filed by

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

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"

"K" to "K-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:

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

Documents/
Signatures

BIR Record

Estate Tax Return prepared by

the BIR;

p. 138

Signatures of Ma. Anabella

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

-do-

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

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

-do-

Signature of Ma. Anabella A.

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

-do-

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

-do-

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

-do-

Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991;

p. 139

Signature of Alberto
Enriquez at the lower
portion of Exh. "3";

-do-

Signature of Ma. Anabella A.

Abuloc at the lower
portion of Exh. "3";

-do-

Signature of Raymond S.
Gallardo at the lower
portion of Exh. "3";

-do-

Signature of Maximino
V. Tagle at the lower
portion of Exh. "3";

-do-

13.

14.

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
pp. 169-170[22]

Assessment Notice FAS-E-87-91-00

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
Conjugal Personal Prop.
Gross Conjugal Estate
Less: Deductions
Net Conjugal Estate
Less: Share of Surviving Spouse
Net Share in Conjugal Estate
Add: Capital/Paraphernal
Properties P44,652,813.66
Less: Capital/Paraphernal
Deductions
Net Taxable Estate

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing
Add: Penalties for-No notice of death
No CPA certificate
Total deficiency estate tax

P 5,062,016.00
33,021,999.93
38,084,015.93
26,250,000.00
P 11,834,015.93
5,917,007.96
P 5,917,007.96

44,652,813.66
P 50,569,821.62
============

7,483,835.74
15.00
300.00
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
ofP37,419,493.71 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 BIRCertification Nos. 2052 and 2053 did not deprive the BIR Commissioner of her authority
to re-examine or re-assess the said return filed on behalf of the Estate.[28]
On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA denied in
its Resolution[30] dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally offered by
the respondent BIR by the Court of Tax Appeals which was subsequently
upheld by the Court of Appeals is contrary to the Rules of Court and rulings
of this Honorable Court;
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estate tax return prepared and filed by respondent
BIR knowing that the probate court appointed administrator of the estate of
Jose P. Fernandez had previously filed one as in fact, BIR Certification
Clearance Nos. 2052 and 2053 had been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
disallowing the valid and enforceable claims of creditors against the estate, as
lawful deductions despite clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
validating erroneous double imputation of values on the very same estate
properties in the estate tax return it prepared and filed which effectively
bloated the estate's assets.[31]

The petitioner claims that in as much as the valid claims of creditors against the Estate are
in excess of the gross estate, no estate tax was due; that the lack of a formal offer of evidence is
fatal to BIR's cause; that the doctrine laid down in Vda. de Oate has already been abandoned in
a long line of cases in which the Court held that evidence not formally offered is without any
weight or value; that Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of
evidence is mandatory in character; that, while BIR's witness Alberto Enriquez (Alberto) in his
testimony before the CTA identified the pieces of evidence aforementioned such that the same
were marked, BIR's failure to formally offer said pieces of evidence and depriving petitioner the
opportunity to cross-examine Alberto, render the same inadmissible in evidence; that

assuming arguendo that the ruling in Vda. de Oate is still applicable, BIR failed to comply with
the doctrine's requisites because the documents herein remained simply part of the BIR records
and were not duly incorporated in the court records; that the BIR failed to consider that although
the actual payments made to the Estate creditors were lower than their respective claims, such
were compromise agreements reached long after the Estate's liability had been settled by the
filing of its estate tax return and the issuance of BIR Certification Nos. 2052 and 2053; and that
the reckoning date of the claims against the Estate and the settlement of the estate tax due should
be at the time the estate tax return was filed by the judicial administrator and the issuance of said
BIR Certifications and not at the time the aforementioned Compromise Agreements were entered
into with the Estate's creditors.[32]

On the other hand, respondent counters that the documents, being part of the records of the
case and duly identified in a duly recorded testimony are considered evidence even if the same
were not formally offered; that the filing of the estate tax return by the Estate and the issuance of
BIR Certification Nos. 2052 and 2053 did not deprive the BIR of its authority to examine the
return and assess the estate tax; and that the factual findings of the CTA as affirmed by the CA
may no longer be reviewed by this Court via a petition for review.[33]
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the
pieces of evidence which were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of
the deficiency estate tax imposed against the Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As
cases filed before it are litigated de novo, party-litigants shall prove every minute aspect of their
cases. Indubitably, no evidentiary value can be given the pieces of evidence submitted by the
BIR, as the rules on documentary evidence require that these documents must be formally
offered before the CTA.[34]Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence
which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which
has not been formally offered. The purpose for which the evidence is offered must
be specified.

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

made reference to said doctrine in resolving the issues therein. Indubitably, the doctrine laid
down in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:

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

the same must be formally offered. Corollarily, the mere fact that a particular
document is identified and marked as an exhibit does not mean that it has already
been offered as part of the evidence of a party. In Interpacific Transit, Inc. v.
Aviles [186 SCRA 385], we had the occasion to make a distinction between
identification of documentary evidence and its formal offer as an exhibit. We said
that the first is done in the course of the trial and is accompanied by the marking
of the evidence as an exhibit while the second is done only when the party rests its
case and not before. A party, therefore, may opt to formally offer his evidence if
he believes that it will advance his cause or not to do so at all. In the event he
chooses to do the latter, the trial court is not authorized by the Rules to consider
the same.
However, in People v. Napat-a [179 SCRA 403] citing People v.
Mate [103 SCRA 484], we relaxed the foregoing rule and allowed evidence not
formally offered to be admitted and considered by the trial court provided
the following requirements are present, viz.: first, the same must have been
duly identified by testimony duly recorded and, second, the same must have
been incorporated in the records of the case.[40]

From the foregoing declaration, however, it is clear that Vda. de Oate is merely an
exception to the general rule. Being an exception, it may be applied only when there is strict
compliance with the requisites mentioned therein; otherwise, the general rule in Section 34 of
Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of
evidence were presented and marked during the trial particularly when Alberto took the witness
stand. Alberto identified these pieces of evidence in his direct testimony.[41] He was also
subjected to cross-examination and re-cross examination by petitioner.[42] But Albertos account
and the exchanges between Alberto and petitioner did not sufficiently describe the contents of
the said pieces of evidence presented by the BIR. In fact, petitioner sought that the lead
examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was
incompetent to answer questions relative to the working papers.[43] The lead examiner never
testified. Moreover, while Alberto's testimony identifying the BIR's evidence was duly recorded,
the BIR documents themselves were not incorporated in the records of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist at all in the
instant case. In the aforementioned cases, the exhibits were marked at the pre-trial proceedings
to warrant the pronouncement that the same were duly incorporated in the records of the case.
Thus, we held in Ramos:

In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked during the pretrial 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 PreTrial Order quoted earlier.[44]
While the CTA is not governed strictly by technical rules of evidence,[45] as rules of procedure
are not ends in themselves and are primarily intended as tools in the administration of justice, the
presentation of the BIR's evidence is not a mere procedural technicality which may be
disregarded considering that it is the only means by which the CTA may ascertain and verify the
truth of BIR's claims against the Estate.[46] The BIR's failure to formally offer these pieces of
evidence, despite CTA's directives, is fatal to its cause.[47] Such failure is aggravated by the fact
that not even a single reason was advanced by the BIR to justify such fatal omission. This, we
take against the BIR.
Per the records of this case, the BIR was directed to present its evidence[48] in the hearing
of February 21, 1996, but BIR's counsel failed to appear.[49] The CTA denied petitioner's motion
to consider BIR's presentation of evidence as waived, with a warning to BIR that such
presentation would be considered waived if BIR's evidence would not be presented at the next
hearing. Again, in the hearing of March 20, 1996, BIR's counsel failed to appear.[50] Thus, in its
Resolution[51] dated March 21, 1996, the CTA considered the BIR to have waived presentation of
its evidence. In the same Resolution, the parties were directed to file their respective
memorandum. Petitioner complied but BIR failed to do so.[52] In all of these proceedings, BIR
was duly notified. Hence, in this case, we are constrained to apply our ruling in Heirs of Pedro
Pasag v. Parocha:[53]
A formal offer is necessary because judges are mandated to rest their
findings of facts and their judgment only and strictly upon the evidence offered by
the parties at the trial. Its function is to enable the trial judge to know the purpose
or purposes for which the proponent is presenting the evidence. On the other
hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court
in Constantino v. Court of Appeals ruled that the formal offer of one's evidence
is deemed waived after failing to submit it within a considerable period of
time. It explained that the court cannot admit an offer of evidence made after
a lapse of three (3) months because to do so would "condone an inexcusable
laxity if not non-compliance with a court order which, in effect, would
encourage needless delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial
court had reasonable ground to consider that petitioners had waived their right to
make a formal offer of documentary or object evidence. Despite several
extensions of time to make their formal offer, petitioners failed to comply with
their commitment and allowed almost five months to lapse before finally
submitting it. Petitioners' failure to comply with the rule on admissibility of
evidence is anathema to the efficient, effective, and expeditious dispensation
of justice.

Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the
case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect
and will not be disturbed on appeal unless it is shown that the lower courts committed gross error

in the appreciation of facts.[54] In this case, however, we find the decision of the CA affirming
that of the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned.
As a mode of extinguishing an obligation,[55] condonation or remission of debt[56] is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the
creditor renounces the enforcement of the obligation, which is extinguished in its
entirety or in that part or aspect of the same to which the remission refers. It is an
essential characteristic of remission that it be gratuitous, that there is no
equivalent received for the benefit given; once such equivalent exists, the nature
of the act changes. It may become dation in payment when the creditor receives a
thing different from that stipulated; or novation, when the object or principal
conditions of the obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession which
the creditor receives.[57]
Verily, the second issue in this case involves the construction of Section 79[58] of the
National Internal Revenue Code[59] (Tax Code) which provides for the allowable deductions
from the gross estate of the decedent. The specific question is whether the actual claims of the
aforementioned creditors may be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors.
Claims against the estate, as allowable deductions from the gross estate under Section 79
of the Tax Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1)
(C) and (E) of Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal
Revenue Code of 1939, and which was the first codification of Philippine tax laws. Philippine
tax laws were, in turn, based on the federal tax laws of the United States. Thus, pursuant to
established rules of statutory construction, the decisions of American courts construing the
federal tax code are entitled to great weight in the interpretation of our own tax laws.[60]
It is noteworthy that even in the United States, there is some dispute as to whether the
deductible amount for a claim against the estate is fixed as of the decedent's death which is the
general rule, or the same should be adjusted to reflect post-death developments, such as where a
settlement between the parties results in the reduction of the amount actually paid.[61] On one
hand, the U.S. court ruled that the appropriate deduction is the value that the claim had at the
date of the decedent's death.[62] Also, as held in Propstra v. U.S., [63] where a lien claimed against
the estate was certain and enforceable on the date of the decedent's death, the fact that the
claimant subsequently settled for lesser amount did not preclude the estate from deducting the
entire amount of the claim for estate tax purposes. These pronouncements essentially confirm the
general principle that post-death developments are not material in determining the amount of the
deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-death
settlement should be taken into consideration and the claim should be allowed as a deduction
only to the extent of the amount actually paid.[64] Recognizing the dispute, the Service released
Proposed Regulations in 2007 mandating that the deduction would be limited to the actual
amount paid.[65]
In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply
the Ithaca Trust date-of-death valuation principle to enforceable claims against
the estate. As we interpret Ithaca Trust, when the Supreme Court announced the

date-of-death valuation principle, it was making a judgment about the nature of

the federal estate tax specifically, that it is a tax imposed on the act of transferring
property by will or intestacy and, because the act on which the tax is levied occurs
at a discrete time, i.e., the instance of death, the net value of the property
transferred should be ascertained, as nearly as possible, as of that time. This
analysis supports broad application of the date-of-death valuation rule.[67]

We express our agreement with the date-of-death valuation rule, made pursuant to the
ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.[68] First. There is no law,
nor do we discern any legislative intent in our tax laws, which disregards the date-of-death
valuation principle and particularly provides that post-death developments must be considered in
determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed,
nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the government.[69] Any doubt on whether a person,
article or activity is taxable is generally resolved against taxation.[70] Second. Such construction
finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death.[71] Therefore, the claims existing
at the time of death are significant to, and should be made the basis of, the determination of
allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision
dated April 30, 1999 and the Resolution dated November 3, 1999 of the Court of Appeals in
CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau of Internal Revenue's
deficiency estate tax assessment against the Estate of Jose P. Fernandez is
hereby NULLIFIED. No costs.
SO ORDERED.

Rafael Arsenio S. Dizon, v. CTA and CIR

G.R. No. 140944; April 30, 2008
Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his will was filed. The
probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the Estate of Jose Fernandez.
An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued a deficiency
estate tax assessment, demanding payment of Php 66.97 million as deficiency estate tax. This was subsequently
reduced by CTA to Php 37.42 million. The CA affirmed the CTAs ruling, hence, the instant petition.
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. On the other hand, respondents argue that since the claims of the Estates creditors
have been condoned, such claims may no longer be deducted from the gross estate of the decedent.
Issue: Whether the actual claims of 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
Held: YES. Following the US Supreme Courts ruling in Ithaca Trust Co. v. United States, the Court held that postdeath developments are not material in determining the amount of deduction. This is because estate tax 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 the that time. This is the date-of-death valuation rule.
The Court, in adopting the date-of-death valuation principle, explained that: 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. 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. Therefore, the claims existing at the time of death are significant to, and should be
made the basis of, the determination of allowable deductions.