Persons and Fam. Relations Ass. No.
10
EN BANC [GR No. L-387. October 25, 1946.] BALBINA MENDOZA, appellant,
against PACIANO DIZON, in his capacity as Auditor General,
appealed. Messrs. Eulalio Chaves and Eugene P. La Rosa, in representation of the
appellant. Mr. Assistant Attorney General and the Attorney Alvendza Mr.
Carreon, in representation of appeal.
SYLLABUS
1. ADMINISTRATIVE LAW; BONUS (Gratuity); SIGNIFICANCE OR CONCEPT. -
Administrative Order No.27 of December 7, 1945, using the gratuity word that has
a known, categorical and conclusive in law and jurisprudence significance. The
government has issued together that gratuity is not to wages, salary, or any other
emolument. Means gift, prize, present, something given and received by lucrative
title. In this case more accentuated the difference between the two concepts,
considering that Congress, in its Joint Resolution No. 5 adopted on July 28, 1945,
recommended the study of "ways and means to pay the back salaries, gratuities,
bonuses or other emoluments of the loyal and deserving employees of the
Commonwealth.... " The fact, therefore, that the President chose the term
gratuity, leaving aside other words, indicates that this is a calculated
concession; clearly shows the intention to strictly limit the scope of the privilege
to the letter of the law.
DECISION
BRIONES, M. :
Versa this file on the application submitted originariarnente before this Court by
Balbina Mendoza, recurrent, in which the requests that, under the jurisdiction and
powers conferred on us by rule 45 of the Rules of the ibunales Tl, let's review the
opinion issued by the Paciano office resorted Dizon, in his concept of Auditor
General in the matter of gratification or gratuity of the late John M. Cuevas,
legitimate son of recurrent. Facts and key points of the case are as follows: virtual
library chanrob1es 1aw
Fulfilling its office of Auditor of the province of Ilocos Sur, Juan M. Cuevas died in
Vigan, capital of the province, on November 3, 1945. At the outbreak of War on
December 8, 1941, was on active duty as such Auditor. In 1932 he married Cuevas
Cocadiz Florence. This marriage definitely stay dissolved March 21, 1944 under a
firm divorce decree issued by the Court of First Instance of gatangas on that
date. There was no offspring. It is undisputed that Balbina Mendoza, the
appellant, is the next most relative of the deceased and, therefore, entitled to
inherit, with exclusion of brothers and nephews that he himself left. On 7
December 1945 the President of the Commonwealth of Philippines issued your
Administrative Order No.27 in which under certain conditions the payment of
gratuities to officers and employees of the national government that had been in
active service on December 8, 1941 were available, whether or not called to take
back to their positions after release. This Administrative Order by the President
"was issued under the authority conferred by my existing law (it alludes to the
emergency powers) and to carry out the recommendations of the Joint Committee
established under Resolution No. 5 of Congress Philippines adopted on July 28,
1945. " cralaw virtua1aw library Before December 7, ie the 4th of that month,
since the appellant had sent a request to the Auditor General, accompanied by
the relevant documents that supported it, exposing the ciicunstancia its
relationship with the late John M. Cuevas and ulla relationship relict this property,
including certain amounts of money with the Government, the Philippine National
Bank and Postal Savings Bank, and consequently asking "that the designate as the
missus more next to enable it to receive without delay any amount that was due
to her dead son.... " cralaw virtua1aw library Cocadiz Florence, the divorced wife
has no company officially peared before the Auditor General, nor has presented
any instance. The Xpediente shows that initially the Auditor General Delegate
raised the matter in consultation with the Department of Justice seeking to obtain
an opinion, among other things, whether "the divorced wife mentioned here has
any right to gratification or gratuity to which the deceased husband or intestate is
acreedo And Administrative Order No. 27 dated December 7, 1945, whereas this
sratlvity is equivalent to its suel two corresponding to ios months of January and
February, 1942. "The Department of Justice refused to issue the requested review,
among other reasons because the request concerns a hypothetical case,
considering that there was no conflict of claims, as the wife divociada was not
complaining, not HAVlNG instance more than that presented by Balbina Mendoza,
Mother survivor. Later - March 12, 1946 - the Auditor General Delegate, evidently
making use of the power under Article 262 of the Administrative Code, resolved
on your Balbina instance Mendoza, dictating the following error: jgc:
chanrobles.com.ph"Memorandum for Auditor Pedro Rivera "Central office "As
the gratuity of the late John M. Cuevas under Administrative Order No. 27, dated
December July 1945, Corresponds to His salary for the months of January and
February, 1942 , During Which His marriage in 1932 Cocadiz With Florence was
not yet Dissolved, the decree of Their divorce Having Been issued by the Court of
First Instance of Batangas only on March 21, 1944, the gratuity Said Should be
Deemed to be a part of Their conjugal estate. Only one half thereof may,
THEREFORE be paid to surviving His mother, the claimant HEREIN, lowest Hereby
is designated as His next of kin, the other half Being payable to His divorced wife
as her share.
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 Persons and Fam. Relations Ass. No. 10

(Sgd.) "JUAN CONCON "Deputy Auditor General" by the Auditor in its opinion that the gratuity in question corresponds to the
salaries of Cuevas for the months of January and February 1942 and that,
In this ruling the petitioner has timely filed his appeal, which we now proceed to therefore, the divorced wife is entitled to half because at that time the spouses
decide. The Attorney General, in his brief filed in the name and behalf of the no were even legally divorced, has absolutely no foundation, for there is nothing
Government, raises the contention between the parties in the following summary, in Administrative Order No. 27 which says that gratuities it granted correspond
made with appropriate brevity and fairness : jgc: chanrobles.com.ph "The specifically to the months referred The terms of the arrangement are as follows:.
question raised by the appellant is whether the gratification (gratuity) payable to "The gratuities HEREIN Authorized Shall be equivalent to two months' basic salary
the deceased Juan Cuevas under Administrative Order No. 27 dated December 7, at the rates whos Received on December 8, 1941. "It is clear that the phrase" two
1945, belongs to the vacant inheritance, or if such gratuity should be considered months "is here placed only for purposes of computation or determination of the
perticiente to marital property of the deceased and his wife divorced Government, amount of the gratuity, and the same may correspond to any two months of 1942,
itself, has no interest in the matter;. supports the obligation to pay the gratuity 1943 in June 1944, and two other any month of the year 1945, after already
and is willing to do to whom it is declared eligible . to it "The appellant argues that liberation. It seems superfluous to say that the decision in this case has nothing to
Addministrativa Order No. 27, to arrange payment dde gratuities, use this vovablo do with the question of whether officials and Commonwealth Government
and not another; that gratuity is sinomina or equivalent freely given gift or employees in active service at the outbreak of war had passed or not entitled to
present; that the consideration paid in such Administrative Ordden only have back pay (back wages), have not served during the enemy occupation, or the other
become due and payable desdde its promulgation; and therefore, the right of question of whether the Gobrierno of the Republic is or is not required to pay
deceased Cuevas reciber such gratuities to stay effective long after the derecto them such salaries. None of these issues is before us. For determination and
have remained firm for which he is divorcing his wife. After mature deliberation, resuluci. In merits of the foregoing, the appeal dectamen object is modified and
this representation feels compelled, for the reasons given by the appellant and declares that the appellant is entitled to the full amount of the gratuity belonging
other later will be present, to give their adhesion to the view that the gratuities in to the late John M. Cuevas , subject of course to any valid claim against the estate
question must belong to the vacant inheritance of the deceased Cuevas. "(Case of said deceased relict low as legal provisions for goods dead. No costs. Asi. Is
Attorney General, pages 2 and 3.) We judged successful and arranged to right ordered Moran, Pres., Fair, Paul, Perfect, Bengzon, Padilla and Tuason, JJ., concur.
concluciones appraisals and Attorney General. The bonuses or gratuities dde
question must be governed by the law which provides, that is, by Order
Administrative No. 27 having character and force of law under emergency powers
granted by the Legislature President Philippines to root dae dae war, sane with
the Constitution. The article 1090 of the Civil Code precentua that "the obligations
the law does not presume. Are enforceable only those expressly set forth in this
Code or in special laws, and shall be governed by the precept of the law which has
established; . . . . " cralaw virtua1aw library Now that Order Management uses the
word gratuity having a known, categorical and conclusive in law and jurisprudence
significance. The government has issued together that gratuity is not to wages,
salary, or any other emolument. It means gift, prize, present, something given and
received by lucrative title. In this case more accentuated the difference between
the two concepts, considering that Congress, in its Joint Resolution No. 5 adopted
on 28 July 1945, recommended studying "ways and means to pay the back salaries,
gratuities, bonuses or other emoluments of the loyal and deserving employees of
the Commonwealth. . . . "The fact therefore that the escogiel-a President's term
gratuity, leaving aside other revocable, indicates that this is a calculated
concession, clearly shows the intention to strictly limit the scope of the privilege
to the letter . of the law When there is no ambiguity in the phraseology of the law,
the function is necessarily literalist, ministerial -.... does not have to do subtleties
and deductions, playing with concepts like the juggler with his cups Lo expressed

2|Page
 Persons and Fam. Relations Ass. No. 10

EN BANC The trial court in its order from which these appeals are taken, allowed:

G.R. No. 42551 September 4, 1935 (a) As against the sum of P8,218.54, separately awarded to the plaintiff Sonja
Lilius, the following claims or portions thereof in the order stated:
ALEKO E. LILIUS, for himself and as guardian ad litem of his minor child, Brita One-half of the claim of Dr. W.H. Waterous by virtue of a written P1,500.00
Marianne Lilius, and SONJA MARIA LILIUS, plaintiffs-appellees, assignment of March 9, 1933, by the said Sonja Maria Lilius to him
vs.
MANILA RAILROAD COMPANY, defendant. One-third of the claim of the appellant Laura Lindley 661.13
LAURA LINDLEY SHUMAN, MANILA WINE MERCHANTS, LTD., BANK OF THE Shuman by virtue of a joint judgement obtained by her on August
PHILIPPINE ISLANDS AND MANILA MOTOR CO., INC., intervenors-appellants, and 10, 1933, in the Case No. 44254 of the Court of First Instance of
W.H. WATEROUS, M. MARFORI, JOHN R. MCFIE, JR., ERLANGER & GALINGER, Manila, against the said Sonja Maria Lilius, Aleko E. Lilius and Brita
INC., PHILIPPINE EDUCATION CO., INC., HAMILTON BROWN SHOE CO., ESTRELLA Marianne Lilius
DEL NORTE and EASTERN & PHILIPPINE SHIPPING AGENCIES, LTD., intervenors- One-third of the claim of the St. Paul's Hospital by 518.19
appellees. virtue of a joint written assignment of September 21, 1933, by the
said Sonja Maria Lilius, Aleko E. Lilius and Brita Marianne Lilius to
J.W. Ferrier for intervenor-appellant Shuman. it
Franco and Reinoso for intervenor-appellant Manila Wine Merchants, Ltd.
Feria and La O for intervenor-appellant Bank of the Philippine Islands.
and the balance of the award was ordered paid to the said Brita Marianne Lilius,
Gibbs and McDonough for intervenor-appellant Manila Motor Co.
and
Harvey and O'Brien for plaintiffs-appellees.
John R. Mcfie, Jr., in his behalf and for the intervenors-appellees.
(b) As against the sum of P4,109.28, separately awarded to the plaintiff Brita
Marriane Lilius, the following claims or portions thereof in the order stated:
GODDARD, J.:
One-third of the claim of Laura Lindley Shuman by virtue of a joint P661.13
In this case Laura Lindley Shuman, the Manila Wine Merchants, Ltd., the Bank of judgment obtained by her on August 10, 1933, in Case No. 44254
the Philippine Islands and the Manila Motor Co., Inc., have appealed from an order of the Court of First Instance of Manila, against the said Brita
of the Court of First Instance of Manila fixing the degree of preference of the Marianne Lilius, Sonja Maria Lilius and Aleko E. Lilius
claimants and distributing the proceeds of the judgment of this court in the case One-third of the claim of St. Paul's Hospital by virtue 518.18
of Lilius vs. Manila Railroad Co. (59 Phil., 758), the amount of which judgment in of a joint written assignment of September 21, 1933, by the
the sum of P33,525.03, including interest and costs, was deposited by the railroad said Brita Marianne Lilius, Sonia Maria Lilius and Aleko
company with the clerk of the lower court in that case. After deducting the E. Lilius
attorneys' fees in the sum of P8,016.88, which is not questioned, the net amount
in the hands of the clerk of the lower court pertaining to each of the plaintiffs in
the original action is follows: and the balance of the award was ordered paid to the said Brita Marianne Lilius,
and
Aleko E. Lilius P13,181.33
Sonja Maria Lilius 8,218.54 (c) As against the sum of P13,181.33, awarded to the plaintiff Aleko E. Lilius, the
following claims or portions thereof in the order stated:
Brita Marianne Lilius 4,109.28
The other half of the claim of Dr. W.H. Waterous by virtue of the
final judgement in the original case, G.R. No. 39587 P1,500.00
There was a total of twenty-eight claimants to these funds, whose claims were
presented and decided without objection in the original case in the lower court.

3|Page

The claim of Dr. M. Marfori, by virtue of the final judgment in the
original case, G.R. No. 39587 250.00
The claim of John R. McFie, Jr., by virtue of a written assignment to
him by the said Aleko E. Lilius of November 13, 1931 500.00
The balance of P10, 931.33 of the judgment pertaining to the said
Aleko E. Lilius was allowed and distributed by the lower court
proportionately among the following claimants by virtue of their
written assignment of January 27, 1932:
Erlanger & Galinger, Inc. 3,374.50
Philippine Education Co., Inc., 3,394.94
Hamilton Brown Shoe Co. 1,878.98
Estrella del Norte 1,850.76
Eastern & Philippine Shipping Agencies, Ltd. 432.15
APPEAL OF LAURA LINDLEY SHUMAN
First assignments of error: "The lower court erred in holding that Dr. W.H.
Waterous and Dr. M. Marfori had a claim against the plaintiff, Aleko E. Lilius
superior to the claim of the appellant, Laura Lindley Shuman, against him."
One of the contentions of this appellant under this assignment of error is that her
claim, having been made the basis of the plaintiffs' action and of the award for
damages, as shown in the original decision herein, should constitute, and does
constitute a superior lien against the funds awarded said plaintiffs, to those of any
other claimants, except the two doctors, the hospital and the other nurse, and
that as to the claims of the two doctors, the hospital and the other nurse the claim
of this appellant has equal preference with their claims.
The following items were made the basis of a part of the judgment for damages
awarded to the plaintiffs in the original action against the Manila Railroad
Company:
Por honorarios del Dr. Waterous (Exhibit N-2) P3,000.00
Por la primera cura hecha en el Hospital de Calauang (Exhibit N-5) 250.00 judgment was rendered in her favor against the herein plaintiffs-appellees. The
Por el alquiler de la ambulancia del Hospital General (Exhibit N-4) 10.00
Por la estancia en el Hospital Saint Paul (Exhibit N-3) 3,355.00 transcript on this point is the statement of counsel that the amount of costs in
Persons and Fam. Relations Ass. No. 10
Por los servicios prestados por la enfermera Laura Shuman (Exhibit N-
6) 2,156.00
Por los servisios prestados por la enfermera Alejandra Alcayaga
(Exhibit N-9) 1,450.00
Porlos servicios prestados por la enfermera Carmen Villanueva
(Exhibit N-11) 240.00
Por la perdida de la camara fotografica, pluma fuente y lapiz (Exhibit
N-1) 43.00
Por trajes dañados en el choque 131.00
Total 10,635.00
The trial court in that case directed the defendant Railroad Company to pay P3,000
to Dr. Waterous and to pay to Dr. Marfori P250, but failed to direct the defendant
to pay the corresponding sums to the other persons and entities mentioned in the
portion of the decision copied above.
It must be admitted that the amounts due Dr. Waterous and the others mentioned
is the original decision, including the appellant Shuman, were all used as a basis
for a part of the judgment which plaintiffs secured against the defendants Railroad
Company.
From the foregoing it is clear that the claim of this appellant rests upon the same
ground as those of Doctors Waterous and Marfori. She was also among those who
rendered services to plaintiffs in aid of their recover from the injuries received by
them in the accident for which damages were awarded them in the case against
the Railroad Company. The fact that the trial court did not direct the defendant
Railroad Company to pay directly to this appellant the amount of her claim does
not modify or do away with her equitable right to the same status as that given to
the two doctors mentioned above. The inevitable conclusion is that the claims of
Waterous and Marfori have no preference over her claim for her services as a
nurse. This assignment of error should be and is hereby sustained.
This appellant in her second assignment of error contends that the trial court erred
in failing to allow her claim in the sum of P61.94 as costs in the case in which
record shows that the reason for the disallowance of this item was because no
proof was offered as to the amount of such costs. The only thing appearing in the
case No. 44254, as shown by the bill of costs, was P6l.94. Rule 38 of the Revised
4|Page

Rules of Courts of First Instance requires that ". . . costs shall be taxed by the clerk
on five days' written notice given by the prevailing party to the adverse party, with
which notice given by the prevailing party, verified by his oath or that of his
attorney, shall be served. . . ." The proper evidence, therefore, of the costs in that
case would have been the bill of costs and the taxation of such costs by the clerk.
In order to recover such costs in a separate proceeding, such as this, evidence
must be presented as to the amount of the same. As there was no evidence
offered in this case as to the amount of said costs, the lower court was correct in
disallowing that item. This assignment of error is overruled.
Under her third assignment of error this appellant contends (1) that the funds
separately awarded the wife, Sonja Maria Lilius, partake of the nature of conjugal
property, at least to the extent of the sum of P800 awarded to her as interest on
the principal award of P10,000 made in her favor by the trial court, and as such
should respond for the support of the family, including medical expenses and (2)
that even assuming that the sums awarded separately to Sonja Maria Lilius are not
conjugal property, but her own paraphernal property, still under the provisions of
the Civil Code payment may be required out of said funds, her husband being
insolvent, under her liability for the medical expenses incurred by her husband,
one of the obligations imposed by law upon the wife.
The second contention under this assignment of error can be disposed of by calling
attention to the fact that there is no proof in this case that her husband is
insolvent. It has not been proved that Aleko E. Lilius had no other property outside
of the sum awarded to him in the case against the Railroad Company.
APPEAL OF THE MANILA WINE MERCHANTS, LTD., AND THE BANK OF THE
PHILIPPINE ISLANDS.
The appellants, the Manila Wine Merchants. Ltd., and the Bank of the Philippine
islands also contend that the sum separately awarded Sonja Maria Lilius is
conjugal property and therefore liable for the payment of the private debts of her
husband, Aleko E. Lilius, contracted during her marriage.
it is contended that the damages awarded for personal injury are not classified as
separate property of each of the spouses in article 1396 of the Civil Code and they
should therefore be resumed conjugal. In answer to this, article 1401 of the same
Code, in enumerating the property belonging to the conjugal partnership, does
not mention damages for personal injury.
Persons and Fam. Relations Ass. No. 10
The question raised by these appellants is one of first impression in this
jurisdiction and apparently has never been passed upon by the Supreme Court of
Spain.
The following comment is found in Colin y Capitant, Vol. 6, pages 217 and 218:
"No esta resuelta expresamente en la legislacion espa_¤_ola la cuestion de si las
indemnizaciones debidas por accidentes del trabajo tienen la consideracion de
gananciales o son bienes particulares de los conyuges.
"Inclinan a la solucion de que estas indemnizaciones deben ser consideradas como
gananciales, el hecho de que la sociedad pierde la capacidad de trabajo con el
accidente, que a ella le pertenece, puesto que de la sociedad son los frutos de ese
trabajo; en cambio, la consideracion de que de igual manera que los bienes que
sustituyen a los que cada conyuge lleva al matrimonio como propios tienen el
caracter de propios, hace pensar que las indemnizaciones que vengan a suplir la
capacidad de trabajo aportada por cada conyuge a la sociedad, deben ser
juridicamente reputadas como bienes propios del conyuge que haya sufrido el
accidente. Asi se Ilega a la misma solucion aportada por la jurisprudencia
francesa.".
From the above it appears that there are two distinct theories as to whether
damages rising from an injury suffered by one of the spouses should be considered
conjugal or separate property of the injured spouse. The theory holding that such
damages should form part of the conjugal partnership property is based wholly on
the proposition, also advanced by the Manila Wine Merchants, Ltd., that by the
injury the earning capacity of the injured spouse is diminished to the consequent
prejudice of the conjugal partnership.
Assuming the correctness of this theory, a reading of the decision of this court in
G. R. No. 39587 will show that the sum of P10,000 was awarded to Sonja Maria
Lilius "by way of indemnity for patrimonial and moral damages." The pertinent
part of that decision on this point reads:
"Taking into consideration the fact that the plaintiff Sonja Maria Lilius, wife of the
plaintiff Aleko E. Lilius is-in the language of the court, which saw her at the trial
"young and beautiful and the big scar, which she has on her forehead caused by
the lacerated wound received by her from the accident, disfigures her face and
that the fracture of her left leg has caused a permanent deformity which renders
it very difficult for her to walk', and taking into further consideration her social
standing, neither is the sum of P10,000, adjudicated to her by the said trial court
by way, of indemnity for patrimonial and moral damages, excessive.".
5|Page

It should be added that the interest on that sum is part of the damages
"patrimonial and moral" awarded to Sonja Maria Lilius.
Furthermore it appears in the decision of the trial court in G. R. No. 39587 that
Aleko E. Lilius claimed the sum of P10,000 as damages on account of the loss of
the services of Sonja Maria Lilius as secretary and translator, her particular work
as a member of the conjugal partnership. The trial court disallowed this claim and
neither of the plaintiffs in that case appealed to this court.
In view of the foregoing it is held that the sum of P10,000 with interest thereon
awarded to Sonja Maria Lilius as damages is paraphernal property.
The third assignment of error of the appellant Shuman, the second assignment of
error of the appellant Bank of the Philippine Islands and the sole assignment of
error of the appellant Manila Wine Merchants, Ltd., are overruled.
In its first assignment of error it is contended by the Bank of the Philippines Islands
that by virtue of its writ of garnishment served on the Manila Railroad Company
of February 8, 1933, it acquired a lilen superior to the preference granted by article
1924 of the Civil Code to prior judgments. This error, if at all, is however non-
prejudicial as the record shows that all the creditors declared by the court as
having a right to participate in the proceeds of the judgment in favor of Aleko E.
Lilius were so held by virtue of deeds of assignment executed prior to the date of
the service of notice of the bank's writ of garnishment on the Manila Railroad
Company. These creditors are John R. McFie, jr., whose claim is based on a deed
of assignment dated November 13, 1931, and Erlanger & Galinger, Philippine
Education Co., Inc., Hamilton Brown Shoe Co., Estrella del Norte and Eastern &
Philippine Shipping Agencies, Ltd., whose claims are based on a deed of
assignment dated November 17, 1931. As the record shows that whatever was
left of the judgment in favor of Aleko E. Lilius is not sufficient to pay in full the
credits of the above mentioned creditors and furthermore, in view of the fact that
strictly speaking, there was no existing credit in favor of Aleko E. Lilius to be
garnished on February 3, 1933, as it had been assigned, before that date, to his
creditors, this assignment of error, therefore, must be overruled.
APPEAL OF THE THE MANILA MOTOR CO., INC.
The two error assigned by this appellant read as follows:
"I. The lower court erred in considering the date of the date judgment, Exhibit A,
Manila Motor Co., Inc., instead of the date of the public document upon which it
Persons and Fam. Relations Ass. No. 10
was based in determining the preference among the several claims filed and
litigated in this proceeding.
"ll. The lower court erred in not holding the claim of the claimant-appellant,
Manila Motor Co., Inc., preferred over all other claims against Aleko E. Lilius
evidenced by public instruments and final judgments.".
The claimant has not proven that its credit is evidenced by a public document
within the meaning of article 1924 of the Civil Code. The only evidence offered by
the Manila Motor Co., Inc., in support of its claim of preference against the fund
of Aleko E. Lilius was a certified copy of its judgment against him in civil case No.
41159 of the Court of First Instance of Manila, together with a certified copy of
the writ of execution and the garnishment issued by virtue of said judgment. These
documents appear in the record as Exhibits A, B and C. The alleged public
document evidencing its claim was not offered in evidence and counsel of the
Manila Motor Co., Inc., merely stated at the hearing in the lower court that its
judgment was based on a public document dated May 10, 1931. There is no
explanation as to why it was not presented as evidence along with Exhibits A, B,
and C. In their brief in this court, counsel for the Motor Co., Inc., merely assume
that its credit is evidenced by a public document dated may 10, 1931, because the
court, in its judgment in said civil case No. 41159, refers to a mortgage appearing
in the evidence as Exhibit A, as the basis of its judgment, without mentioning the
date of the execution of the exhibit. This reference in said judgment to a mortgage
is not competent or satisfactory evidence as against third persons upon which to
base a finding that the Manila Motor Company's credit evidenced by a public
document within the meaning of article 1924 of the Civil Code. This court is not
authorized to make use of that judgment as a basis for its findings of fact in this
proceeding. This is shown by the decision of this court in the case of Martinez vs.
Diza 920 Phil., 498). In that syllabus of that decision it is stated:
"1. COURTS OF FIRST INSTANCE; JUDGMENT IN FORMER CIVIL ACTION AS BASIC
FOR FINDINGS OF FACT; ERROR.-A person who was not a party to a former civil
action, or who did not acquire his rights from one of the parties thereto after the
entry of judgment therein, is not bound by such judgment; nor can it be used
against him as a basis for the findings of fact in a judgment rendered in a
subsequent action.".
But even if the court is authorized to accept the statement in that judgment as a
basis for its finding of fact in relation to this claim, still it would not establish the
claim of preference of the Manila Motor Co., Inc. Granting that a mortgage existed
between the Manila Motor Co., Inc., and Aleko E. Lilius, this does not warrant the
conclusion that the instrument evidencing that mortgage is a public document
6|Page
 Persons and Fam. Relations Ass. No. 10

entitled to preference under article 1924 of the Civil Code. Under section 5 of Act la suma de seicientos sesenta y un pesos con trece centavos (P661.13); y al St.
No. 1507 as amended by Act No. 2496, a chattel does not have to be acknowledge Paul's Hospital, quinientos diez y ocho pesos con diez y ocho centavos (P518.18)y,
before a notary public. As against creditors and subsequent encumbrances, the y el sado de dos mil ochocientos sesenta y siete pesos con noventa y siete centavos
law does require an affidavit of good faith appended to the mortgage and (P2,867.97), a Brita Marianne Lilius, por conducto de su tutor;".
recorded with it. (See Giberson vs. A. N. Jureidini Bros., 44 Phil., 216, and Betita
vs. Ganzon, 49 Phil., 87.) A chattel mortgage may, however, be valid as between The remaining portion of the dispositive part of the decision of the trial court is
the parties without such an affidavit of good faith. In 11 Corpus Juris, 482, the rule modified as follows:
is expressly stated that as between the parties and as to third persons who have
no rights against the mortgagor, no affidavit of good faith is necessary. It will thus "That from the sum of P13,181.33 pertaining to Aleko E. Lilius, which is deposited
be seen that under the law, a valid mortgage may exist between the parties with the clerk of the trial court, the following claims shall first be paid:
without its being evidenced by a public document. This court would not be
Dr. W.H. Waterous P1,500.00
justified, merely from the reference by the lower court in that case to a mortgage,
in assuming that its date appears in a public document. if the Manila motor Co., Dr. M. Marfori 250.00
Inc., desired to rely upon a public document in the form of a mortgagor as
establishing its preference in this case, it should have offered that document in Laura Lindley Shuman 661.13
evidence, so that the court might satisfy itself as to its nature and unquestionably John R. McFie, Jr. 500.00
fix the date of its execution. There is nothing either in the judgment relied upon
or in the evidence to show the date of said mortgage. The burden was upon the
claimant to prove that it actually had a public Code. It is essential that the nature and the balance of the sum pertaining to Aleko E. Lilius shall be divided among the
and the date of the document be established by competent evidence before the following entities in proportion to their respective claims:
court can allow a preference as against the other parties to this proceeding. Amount of claim
Inasmuch as the claimant failed to establish its preference, based on a public
Erlanger & Galinger, Inc. P3,672.76
document, the lower court properly held that its claim against the said Aleko E.
Lilius was based on the final judgment in civil case No. 41159 of the Court of First Philippine Education Co., Inc. 3,695.20
Instance of Manila of May 3, 1932. The court, therefore, committed no error in
holding that the claim of the Manila Motor Co., Inc., was inferior in preference to Hamilton-Brown Shoe Co. 2045.00
those of the appellees in this case. Estrella del Norte 2,014.45

This appellant's assignments of error are overulled. Eastern and Philippine Shipping Agencies, Ltd. 470.38

In view of the foregoing the following portion of the dispositive part of the So ordered without special pronouncement as to costs.
decision of the trial court is affirmed.
Malcolm, Villa-Real, Imperial, and Butte, JJ., concur.
"Por estas consideraciones, se ordena y se decreta (a) que del saldo de P8,219.54,
que pertenece a Sonja Maria LIllius y que se halla depositado en la Escribana del
Juzgado, se pague po el Escribano al Dr. W. H. Waterous la suma de mil quinientos
pesos (P1,500), a Laura L. Shuman, seiscientos sesenta y un pesos con trece
centavos (P661.13, y al St. Paul's Hospital, quinientos diez y ocho pesos con diez y
ocho centavos (P518.18), y el remanente de cinco mil cuatrocientos setenta y siete
pesos con veinticuatro centavos (P5,477.24), a Sonja Maria Lililus, o su apoderado;
(b) que del saldo de P4,109.28 que pretence a Brita Marianne Lilius y que se halla
deposito en la Escribania del Juzgado, se pague por el Escribano a Laura Shuman,

7|Page

EN BANC
G.R. No. L-28589 January 8, 1973
RAFAEL ZULUETA, ET AL., plaintiffs-appellees,
vs.
PAN AMERICAN WORLD AIRWAYS, INC., defendant-appellant.
RESOLUTION
CONCEPCION, C.J.:
Both parties in this case have moved for the reconsideration of the decision of this
Court promulgated on February 29, 1972. Plaintiffs maintain that the decision
appealed from should be affirmed in toto. The defendant, in turn, prays that the
decision of this Court be "set aside ... with or without a new trial, ... and that the
complaint be dismissed, with costs; or, in the alternative, that the amount of the
award embodied therein be considerably reduced." .
Subsequently to the filing of its motion for reconsideration, the defendant filed a
"petition to annul proceedings and/or to order the dismissal of plaintiffs-
appellees' complaint" upon the ground that "appellees' complaint actually seeks
the recovery of only P5,502.85 as actual damages, because, for the purpose of
determining the jurisdiction of the lower court, the unspecified sums representing
items of alleged damages, may not be considered, under the settled doctrines of
this Honorable Court," and "the jurisdiction of courts of first instance when the
complaint in the present case was filed on Sept. 30, 1965" was limited to cases "in
which the demand, exclusive of interest, or the value of the property in
controversy amounts to more than ten thousand pesos" and "the mere fact that
the complaint also prays for unspecified moral damages and attorney's fees, does
not bring the action within the jurisdiction of the lower court."
We find no merit in this contention. To begin with, it is not true that "the
unspecified sums representing items or other alleged damages, may not be
considered" — for the purpose of determining the jurisdiction of the court —
"under the settled doctrines of this Honorable Court." In fact, not a single case has
been cited in support of this allegation.
Secondly, it has been held that a clam for moral damages is one not susceptible of
pecuniary estimation.1 In fact, Article 2217 of the Civil Code of the Philippines
Persons and Fam. Relations Ass. No. 10
explicitly provides that "(t)hough incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of the defendant's
wrongful act or omission." Hence, "(n)o proof pecuniary loss necessary" —
pursuant to Article 2216 of the same Code — "in order that moral ... damages may
be adjudicated." And "(t)he assessment of such damages ... is left to the discretion
of the court" - said article adds - "according to the circumstances of each case."
Appellees' complaint is, therefore, within the original jurisdiction of courts of first
instance, which includes "all civil actions in which the subject of the litigation is
not capable of pecuniary estimation."2
Thirdly, in its answer to plaintiffs' original and amended complainants, defendant
had set up a counterclaim in the aggregate sum of P12,000, which is, also, within
the original jurisdiction of said courts, thereby curing the alleged defect if any, in
plaintiffs' complaint.3
We need not consider the jurisdictional controversy as to the
amount the appellant sues to recover because the counterclaim
interposed establishes the jurisdiction of the District
Court. Merchants' Heat & Light Co. v. James B. Clow & Sons, 204
U.S. 286, 27 S. Ct. 285, 51 L. Ed. 488; O. J. Lewis Mercantile Co.
v. Klepner, 176 F. 343 (C.C.A. 2), certiorari denied 216 U.S. 620,
30 S Ct. 575, 54 L. Ed. 641. ... .4
... courts have said that "when the jurisdictional amount is in
question, the tendering of a counterclaim in an amount which in
itself, or added to the amount claimed in the petition, makes up
a sum equal to the amount necessary to the jurisdiction of this
court, jurisdiction is established, whatever may be the state of
the plaintiff's complaint." American Sheet & Tin Plate Co. v.
Winzeler (D.C.) 227 F. 321, 324.5
Thus, in Ago v. Buslon,6 We held:
... . Then, too, petitioner's counterclaim for P37,000.00 was,
also, within the exclusive original jurisdiction of the latter courts,
and there are ample precedents to the effect that "although the
original claim involves less than the jurisdictional amount, ...
jurisdiction can be sustained if the counterclaim (of the
compulsory type)" — such as the one set up by petitioner herein,
based upon the damages allegedly suffered by him in
consequence of the filing of said complaint — "exceeds the
jurisdictional amount." (Moore Federal Practice, 2nd ed. [1948],
8|Page

Vol. 3, p. 41; Ginsburg vs. Pacific Mutual Life Ins. Co. of
California, 69 Fed. [2d] 97; Home Life Ins. Co. vs. Sipp., 11 Fed.
[2d]474; American Sheet & Tin Plate Co. vs. Winzeler [D.C.], 227
Fed. 321, 324; Brix vs. People's Mutual Life Ins. Co., 41 P. 2d. 537,
2 Cal. 2d. 446; Emery vs. Pacific Employees Ins. Co., 67 P. 2d.
1046, 8 Cal. 2d. 663).
Needless to say, having not only failed to question the jurisdiction of the trial court
— either in that court or in this Court, before the rendition of the latter's decision,
and even subsequently thereto, by filing the aforementioned motion for
reconsideration and seeking the reliefs therein prayed for — but, also, urged both
courts to exercise jurisdiction over the merits of the case, defendant is now
estopped from impugning said jurisdiction.7
Before taking up the specific questions raised in defendant's motion for
reconsideration, it should be noted that the same is mainly predicated upon the
premise that plaintiffs' version is inherently incredible, and that this Court should
accept the theory of the defense to the effect that petitioner was off-loaded
because of a bomb-scare allegedly arising from his delay in boarding the aircraft
and subsequent refusal to open his bags for inspection. We need not repeat here
the reasons given in Our decision for rejecting defendant's contention and not
disturbing the findings of fact of His Honor, the Trial Judge, who had the decided
advantage — denied to Us — of observing the behaviour of the witnesses in the
course of the trial and found those of the plaintiffs worthy of credence, not the
evidence for the defense.
It may not be amiss however, to stress the fact that, in his written report, made in
transit from Wake to Manila — or immediately after the occurrence and before
the legal implications or consequences thereof could have been the object of
mature deliberation, so that it could, in a way, be considered as part of the res
gestae — Capt. Zentner stated that Zulueta had been off-loaded "due to drinking"
and "belligerent attitude," thereby belying the story of the defense about said
alleged bomb-scare, and confirming the view that said agent of the defendant had
acted out of resentment because his ego had been hurt by Mr. Zulueta's adamant
refusal to be bullied by him. Indeed, had there been an iota of truth in said story
of the defense, Capt. Zentner would have caused every one of the passengers to
be frisked or searched and the luggage of all of them examined — as it is done
now — before resuming the flight from Wake Island. His failure to do so merely
makes the artificious nature of defendant's version more manifest. Indeed, the
fact that Mrs. Zulueta and Miss Zulueta were on board the plane shows beyond
doubt that Mr. Zulueta could not possibly have intended to blow it up.
Persons and Fam. Relations Ass. No. 10
The defense tries to explain its failure to introduce any evidence to contradict the
testimony of Mr. Zulueta as to why he had gone to the beach and what he did
there, alleging that, in the very nature of things, nobody else could have witnessed
it. Moreover, the defense insists, inter alia, that the testimony of Mr. Zulueta is
inherently incredible because he had no idea as to how many toilets the plane
had; it could not have taken him an hour to relieve himself in the beach; there
were eight (8) commodes at the terminal toilet for men ; if he felt the need of
relieving himself, he would have seen to it that the soldiers did not beat him to
the terminal toilets; he did not tell anybody about the reason for going to the
beach, until after the plane had taken off from Wake.
We find this pretense devoid of merit. Although Mr. Zulueta had to look for a
secluded place in the beach to relieve himself, beyond the view of others,
defendant's airport manager, whom Mr. Zulueta informed about it, soon after the
departure of the plane, could have forthwith checked the veracity of Mr. Zulueta's
statement by asking him to indicate the specific place where he had been in the
beach and then proceeding thereto for purposes of verification.
Then, again, the passenger of a plane seldom knows how many toilets it has. As a
general rule, his knowledge is limited to the toilets for the class — first class or
tourist class — in which he is. Then, too, it takes several minutes for the
passengers of big aircrafts, like those flying from the U.S. to the Philippines, to
deplane. Besides, the speed with which a given passenger may do so depends,
largely, upon the location of his seat in relation to the exit door. He cannot go over
the heads of those nearer than he thereto. Again, Mr. Zulueta may have stayed in
the toilet terminal for some time, expecting one of the commodes therein to be
vacated soon enough, before deciding to go elsewhere to look for a place suitable
to his purpose. But he had to walk, first, from the plane to the terminal building
and, then, after vainly waiting therein for a while, cover a distance of about 400
yards therefrom to the beach, and seek there a place not visible by the people in
the plane and in the terminal, inasmuch as the terrain at Wake Island is flat. What
is more, he must have had to takeoff part, at least, of his clothing, because,
without the facilities of a toilet, he had to wash himself and, then, dry himself up
before he could be properly attired and walk back the 400 yards that separated
him from the terminal building and/or the plane. Considering, in addition to the
foregoing, the fact that he was not feeling well, at that time, We are not prepared
to hold that it could not have taken him around an hour to perform the acts
narrated by him.
But, why — asks the defendant — did he not reveal the same before the plane
took off? The record shows that, even before Mr. Zulueta had reached the ramp
leading to the plane, Capt. Zentner was already demonstrating at him in an
9|Page

intemperate and arrogant tone and attitude ("What do you think you are?),
thereby impelling Mr. Zulueta to answer back in the same vein. As a consequence,
there immediately ensued an altercation in the course of which each apparently
tried to show that he could not be cowed by the other. Then came the order of
Capt. Zentner to off-load all of the Zuluetas, including Mrs. Zulueta and the minor
Miss Zulueta, as well as their luggage, their overcoats and other effects
handcarried by them; but, Mr. Zulueta requested that the ladies be allowed to
continue the trip. Meanwhile, it had taken time to locate his four (4) pieces of
luggage. As a matter of fact, only three (3) of them were found, and the fourth
eventually remained in the plane. In short, the issue between Capt. Zentner and
Mr. Zulueta had been limited to determining whether the latter would allow
himself to be browbeaten by the former. In the heat of the altercation, nobody
had inquired about the cause of Mr. Zulueta's delay in returning to the plane, apart
from the fact that it was rather embarrassing for him to explain, in the presence
and within the hearing of the passengers and the crew, then assembled around
them, why he had gone to the beach and why it had taken him some time to
answer there a call of nature, instead of doing so in the terminal building.
Defendant's motion for reconsideration assails: (1) the amount of damages
awarded as excessive; (2) the propriety of accepting as credible plaintiffs' theory;
(3) plaintiffs' right to recover either moral or exemplary damages; (4) plaintiffs'
right to recover attorney's fees; and (5) the non-enforcement of the compromise
agreement between the defendant and plaintiff's wife, Mrs. Zulueta. Upon the
other hand, plaintiffs' motion for reconsideration contests the decision of this
Court reducing the amount of damages awarded by the trial court to
approximately one-half thereof, upon the ground, not only that, contrary to the
findings of this Court, in said decision, plaintiff had not contributed to the
aggravation of his altercation or incident with Capt. Zentner by reacting to his
provocation with extreme belligerency thereby allowing himself to be dragged
down to the level on which said agent of the defendant had placed himself, but,
also, because the purchasing power of our local currency is now much lower than
when the trial court rendered its appealed decision, over five (5) years ago, on July
5, 1967, which is an undeniable and undisputed fact. Precisely, for this reason,
defendant's characterization as exorbitant of the aggregate award of over
P700,000 by way of damages, apart from attorney's fees in the sum of P75,000, is
untenable. Indeed, said award is now barely equivalent to around 100,000 U. S.
dollars.
It further support of its contention, defendant cites the damages awarded in
previous cases to passengers of airlines,8 as well as in several criminal cases, and
some cases for libel and slander. None of these cases is, however, in point. Said
cases against airlines referred to passengers who were merely constrained to take
Persons and Fam. Relations Ass. No. 10
a tourist class accommodation, despite the fact that they had first class tickets,
and that although, in one of such cases, there was proof that the airline involved
had acted as it did to give preference to a "white" passenger, this motive was not
disclosed until the trial in court. In the case at bar, plaintiff Rafael Zulueta was "off-
loaded" at Wake Island, for having dared to retort to defendant's agent in a tone
and manner matching, if not befitting his intemperate language and arrogant
attitude. As a consequence, Capt. Zentner's attempt to humiliate Rafael Zulueta
had boomeranged against him (Zentner), in the presence of the other passengers
and the crew. It was, also, in their presence that defendant's agent had referred
to the plaintiffs as "monkeys," a racial insult not made openly and publicly in the
abovementioned previous cases against airlines.
In other words, Mr. Zulueta was off-loaded, not to protect the safety of the
aircraft and its passengers, but to retaliate and punish him for the embarrassment
and loss of face thus suffered by defendant's agent. This vindictive motive is made
more manifest by the note delivered to Mr. Zulueta by defendant's airport
manager at Wake Island, Mr. Sitton, stating that the former's stay therein would
be "for a minimum of one week," during which he would be charged $13.30 per
day. This reference to a "minimum of one week" revealed the intention to keep
him there stranded that long, for no other plane, headed for Manila, was expected
within said period of time, although Mr. Zulueta managed to board, days later, a
plane that brought him to Hawaii, whence he flew back to the Philippines, via
Japan.
Neither may criminal cases, nor the cases for libel and slander cited in the
defendant's motion for reconsideration, be equated with the present case.
Indeed, in ordinary criminal cases, the award for damages is, in actual practice, of
purely academic value, for the convicts generally belong to the poorest class of
society. There is, moreover, a fundamental difference between said cases and the
one at bar. The Zuluetas had a contract of carriage with the defendant, as a
common carrier, pursuant to which the latter was bound, for a substantial
monetary considerationpaid by the former, not merely to transport them to
Manila, but, also, to do so with "extraordinary diligence" or "utmost
diligence."9 The responsibility of the common carrier, under said contract, as
regards the passenger's safety, is of such a nature, affecting as it does public
interest, that it "cannot be dispensed with" or even "lessened by stipulation, by
the posting of notices, by statements on tickets, or otherwise." 10 In the present
case, the defendant did not only fail to comply with its obligation to transport Mr.
Zulueta to Manila, but, also, acted in a manner calculated to humiliate him, to
chastise him, to make him suffer, to cause to him the greatest possible
inconvenience, by leaving him in a desolate island, in the expectation that he
10 | P a g e

would be stranded there for a "minimum of one week" and, in addition thereto,
charged therefor $13.30 a day.
It is urged by the defendant that exemplary damages are not recoverable in quasi-
delicts, pursuant to Article 2231 of our Civil Code, except when the defendant has
acted with "gross negligence," and that there is no specific finding that it had so
acted. It is obvious, however, that in off-loading plaintiff at Wake Island, under the
circumstances heretofore adverted to, defendant's agents had acted with malice
aforethought and evident bad faith. If "gross negligence" warrants the award of
exemplary damages, with more reason is its imposition justified when the act
performed is deliberate, malicious and tainted with bad faith. Thus, in Lopez v.
PANAM, 11 We held:
The rationale behind exemplary or corrective damages is, as the
name implies, to provide an example or correction for public
good. Defendant having breached its contracts in bad faith, the
court, as stated earlier, may award exemplary damages in
addition to moral damages (Articles 2229, 2232, New Civil
Code.)
Similarly, in NWA v. Cuenca, 12 this Court declared that an award for exemplary
damages was justified by the fact that the airline's "agent had acted in a wanton,
reckless and oppressive manner" in compelling Cuenca, upon arrival at Okinawa,
to transfer, over his objection, from the first class, where he was accommodated
from Manila to Okinawa, to the tourist class, in his trip to Japan, "under threat of
otherwise leaving him in Okinawa," despite the fact that he had paid in full the
first class fare and was issued in Manila a first class ticket.
Defendant cites Rotea v. Halili, 13 in support of the proposition that a principal is
not liable for exemplary damages owing to acts of his agent unless the former has
participated in said acts or ratified the same. Said case involved, however, the
subsidiary civil liability of an employer arising from criminal acts of his employee,
and "exemplary damages ... may be imposed when the crime was committed with
one or more aggravating circumstances." 14Accordingly, the Rotea case is not in
point, for the case at bar involves a breach of contract, as well as a quasi-delict.
Neither may the case of Palisoc v. Brillantes, 15 invoked by the defendant, be
equated with the case at bar. The Palisoc case dealt with the liability of school
officials for damages arising from the death of a student (Palisoc) due to fist blows
given by another student (Daffon), in the course of a quarrel between them, while
in a laboratory room of the Manila Technical Institute. In an action for damages,
the head thereof and the teacher in charge of said laboratory were held jointly
Persons and Fam. Relations Ass. No. 10
and severally liable with the student who caused said death, for failure of the
school to provide "adequate supervision over the activities of the students in the
school premises," to protect them "from harm, whether at the hands of fellow
students or other parties." Such liability was predicated upon Article 2180 of our
Civil Code, the pertinent part of which reads:
ART. 2180. The obligation imposed by Article 2176 is
demandable not only for one's own acts or omissions, but also
for those of persons for whom one is responsible.
xxx xxx xxx
Lastly, teachers or heads of establishments of arts and trades
shall be liable for damages caused by their pupils and students
or apprentices, so long as they remain in their custody.
xxx xxx xxx
Obviously, the amount of damages warded in the Palisoc case is not and cannot
serve as the measure of the damages recoverable in the present case, the latter
having been caused directly and intentionally by an employee or agent of the
defendant, whereas the student who killed the young Palisoc was in no wise an
agent of the school. Moreover, upon her arrival in the Philippines, Mrs. Zulueta
reported her husband's predicament to defendant's local manager and asked him
to forthwith have him (Mr. Zulueta) brought to Manila, which defendant's
aforementioned manager refused to do, thereby impliedly ratifying the off-
loading of Mr. Zulueta at Wake Island.
It is next urged that, under the contract of carriage with the defendant, Mr.
Zulueta was bound to be present at the time scheduled for the departure of
defendant's plane and that he had, consequently, violated said contract when he
did not show up at such time. This argument might have had some weight had
defendant's plane taken off beforeMr. Zulueta had shown up. But the fact is that
he was ready, willing and able to board the plane about two hours before it
actually took off, and that he was deliberately and maliciously off-loaded on
account of his altercation with Capt. Zentner. It should, also, be noted that,
although Mr. Zulueta was delayed some 20 to 30 minutes, the arrival or departure
of planes is often delayed for much longer periods of time. Followed to its logical
conclusion, the argument adduced by the defense suggests that airlines should be
held liable for damages due to the inconvenience and anxiety, aside from actual
damages, suffered by many passengers either in their haste to arrive at the airport
11 | P a g e

on scheduled time just to find that their plane will not take off until later, or by
reason of the late arrival of the aircraft at its destination.
PANAM impugns the award of attorney's fees upon the ground that no penalty
should be imposed upon the right to litigate; that, by law, it may be awarded only
in exceptional cases; that the claim for attorney's fees has not been proven; and
that said defendant was justified in resisting plaintiff's claim "because it was
patently exorbitant."
Nothing, however, can be farther from the truth. Indeed apart from plaintiff's
claim for actual damages, the amount of which is not contested, plaintiffs
did not ask any specific sum by way of exemplary and moral damages, as well as
attorney's fees, and left the amount thereof to the "sound discretion" of the lower
court. This, precisely, is the reason why PANAM, now, alleges — without
justification that the lower court had no jurisdiction over the subject matter of the
present case.
Moreover, Article 2208 of our Civil Code expressly authorizes the award of
attorney's fees "when exemplary damages are awarded," — as they are in this
case —as well as "in any other case where the court deems it just and equitable
that attorney's fees ... be recovered," and We so deem it just and equitable in the
present case, considering the "exceptional" circumstances obtaining therein,
particularly the bad faith with which defendant's agent had acted, the place where
and the conditions under which Rafael Zulueta was left at Wake Island, the
absolute refusal of defendant's manager in Manila to take any step whatsoever to
alleviate Mr. Zulueta's predicament at Wake and have him brought to Manila —
which, under their contract of carriage, was defendant's obligation to discharge
with "extra-ordinary" or "utmost" diligence — and, the "racial" factor that had,
likewise, tainted the decision of defendant's agent, Capt. Zentner, to off-load him
at Wake Island.
As regards the evidence necessary to justify the sum of P75,000 awarded as
attorney's fees in this case, suffice it to say that the quantity and quality of the
services rendered by plaintiffs' counsel appearing on record, apart from the nature
of the case and the amount involved therein, as well as his prestige as one of the
most distinguished members of the legal profession in the Philippines, of which
judicial cognizance may be taken, amply justify said award, which is a little over
10% of the damages (P700,000) collectible by plaintiffs herein. Indeed, the
attorney's fees in this case is proportionally much less than that adjudged in Lopez
v. PANAM 16 in which the judgment rendered for attorney's fees (P50,000) was
almost 20% of the damages (P275,000) recovered by the plaintiffs therein.
Persons and Fam. Relations Ass. No. 10
The defense assails the last part of the decision sought to be reconsidered, in
which — relying upon Article 172 of our Civil Code, which provides that "(t)he wife
cannot bind the conjugal partnership without the husband's consent, except in
cases provided by law," and it is not claimed that this is one of such cases — We
denied a motion, filed by Mrs. Zulueta, for the dismissal of this case, insofar as she
is concerned - she having settled all her differences with the defendant, which
appears to have paid her the sum of P50,000 therefor - "without prejudice to this
sum being deducted from the award made in said decision." Defendant now
alleges that this is tantamount to holding that said compromise agreement is both
effective and ineffective.
This, of course, is not true. The payment is effective, insofar as it is deductible from
the award, and, because it is due (or part of the amount due) from the
defendant, with or without its compromise agreement with Mrs. Zulueta. What is
ineffective is the compromise agreement, insofar as the conjugal partnership is
concerned. Mrs. Zulueta's motion was for the dismissal of the case insofar as she
was concerned, and the defense cited in support thereof Article 113 of said Code,
pursuant to which "(t)he husband must be joined in all suits by or against the wife
except: ... (2) If they have in fact been separated for at least one year." This
provision, We held, however, refers to suits in which the wife is the principal or
real party in interest, not to the case at bar, "in which the husband is the main
party in interest, both as the person principally aggrieved and as administrator of
the conjugal partnership ... he having acted in this capacity in entering into the
contract of carriage with PANAM and paid the amount due to the latter, under the
contract, with funds of the conjugal partnership," to which the amounts
recoverable for breach of said contract, accordingly, belong. The damages
suffered by Mrs. Zulueta were mainly an in accident of the humiliation to which
her husband had been subjected. The Court ordered that said sum of P50,00 paid
by PANAM to Mrs. Zulueta be deducted from the aggregate award in favor of the
plaintiffs herein for the simple reason that upon liquidation of the conjugal
partnership, as provided by law, said amount would have to be reckoned with,
either as part of her share in the partnership, or as part of the support which might
have been or may be due to her as wife of Rafael Zulueta. It would surely be inane
to sentence the defendant to pay the P700,000 due to the plaintiffs and to direct
Mrs. Zulueta to return said P50,000 to the defendant.
In this connection, it is noteworthy that, for obvious reasons of public policy, she
is not allowed by law to waive her share in the conjugal partnership, before the
dissolution thereof. 17 She cannot even acquire any property by gratuitous title,
without the husband's consent, except from her ascendants, descendants,
parents-in-law, and collateral relatives within the fourth degree. 18
12 | P a g e

It is true that the law favors and encourages the settlement of litigations by
compromise agreement between the contending parties, but, it certainly does not
favor a settlement with one of the spouses, both of whom are plaintiffs or
defendants in a common cause, such as the defense of the rights of the conjugal
partnership, when the effect, even if indirect, of the compromise is to jeopardize
"the solidarity of the family" — which the
law 19 seeks to protect — by creating an additional cause for the misunderstanding
that had arisen between such spouses during the litigation, and thus rendering
more difficult a reconciliation between them.
It is urged that there is no proof as to the purpose of the trip of the plaintiffs, that
neither is there any evidence that the money used to pay the plane tickets came
from the conjugal funds and that the award to Mrs. Zulueta was for her personal
suffering or injuries. There was, however, no individual or specific award in favor
of Mrs. Zulueta or any of the plaintiffs. The award was made in their favor
collectively. Again, in the absence of said proof, the presumption is that the
purpose of the trip was for the common benefit of the plaintiffs and that the
money had come from the conjugal funds, for, unless there is proof to the
contrary, it is presumed "(t)hat things have happened according to the ordinary
course of nature and the ordinary habits of life." 20 In fact Manresa
maintains 21 that they are deemed conjugal, when the source of the money used
therefor is not established, even if the purchase had been made by the wife. 22 And
this is the rule obtaining in the Philippines. Even property registered, under the
Torrens system, in the name of one of the spouses, or in that of the wife only, if
acquired during the marriage, is presumed to belong to the conjugal partnership,
unless there is competent proof to the contrary. 23
PANAM maintains that the damages involved in the case at bar are not among
those forming part of the conjugal partnership pursuant to Article 153 of the Civil
Code, reading:
ART. 153. The following are conjugal partnership property:
(1) That which is acquired by onerous title during the marriage
at the expense of the common fund, whether the acquisition be
for the partnership, or for only one of the spouses;
(2) That which is obtained by the industry, or work, or as salary
of the spouses, or of either of them;
Persons and Fam. Relations Ass. No. 10
(3) The fruits, rents or interests received or due during the
marriage, coming from the common property or from the
exclusive property of each spouse.
Considering that the damages in question have arisen from, inter alia, a breach of
plaintiffs' contract of carriage with the defendant, for which plaintiffs paid their
fare with funds presumably belonging to the conjugal partnership, We hold that
said damages fall under paragraph (1) of said Article 153, the right thereto having
been "acquired by onerous title during the marriage ... ." This conclusion is
bolstered up by Article 148 of our Civil Code, according to which:
ART. 148. The following shall be the exclusive property of each
spouse:
(1) That which is brought to the marriage as his or her own;
(2) That which each acquires, during the marriage, by lucrative
title;
(3) That which is acquired by right of redemption or by exchange
with other property belonging to only one of the spouses;
(4) That which is purchased with exclusive money of the wife or
of the husband.
The damages involved in the case at bar do not come under any of these provisions
or of the other provisions forming part of Chapter 3, Title VI, of Book I of the Civil
Code, which chapter is entitled "Paraphernal Property." What is more, if "(t)hat
which is acquired by right of redemption or by exchange with other property
belonging to only one of the spouses," and "(t)hat which is purchased with
exclusive money of the wife or of the husband," 24 belong exclusively to such wife
or husband, it follows necessarily that that which is acquired with money of the
conjugal partnership belongs thereto or forms part thereof. The rulings
in Maramba v. Lozano 25 and Perez v. Lantin, 26 cited in defendant's motion for
reconsideration, are, in effect, adverse thereto. In both cases, it was merely held
that the presumption under Article 160 of our Civil Code — to the effect that all
property of the marriage belong to the conjugal partnership — does not apply
unless it is shown that it was acquired during marriage. In the present case, the
contract of carriage was concededly entered into, and the damages claimed by
the plaintiffs were incurred, during marriage. Hence, the rights accruing from said
contract, including those resulting from breach thereof by the defendant, are
presumed to belong to the conjugal partnership of Mr. and Mrs. Zulueta. The fact
13 | P a g e

that such breach of contract was coupled, also, with a quasi-delict constitutes an
aggravating circumstance and can not possibly have the effect of depriving the
conjugal partnership of such property rights.
Defendant insists that the use of conjugal funds to redeem property does not
make the property redeemed conjugal if the right of redemption pertained to the
wife. In the absence, however, of proof that such right of redemption pertains to
the wife — and there is no proof that the contract of carriage with PANAM or the
money paid therefor belongs to Mrs. Zulueta — the property involved, or the
rights arising therefrom, must be presumed, therefore, to form part of the
conjugal partnership.
It is true that in Lilius v. Manila Railroad Co., 27 it was held that the "patrimonial
and moral damages" awarded to a young and beautiful woman by reason of a scar
— in consequence of an injury resulting from an automobile accident — which
disfigured her face and fractured her left leg, as well as caused a permanent
deformity, are her paraphernal property. Defendant cites, also, in support of its
contention the following passage from Colin y Capitant:
No esta resuelta expresamente en la legislacion española la
cuestion de si las indemnizaciones debidas por accidentes del
trabaho tienen la consideracion de gananciales, o son bienes
particulares de los conyuges.
Inclinan a la solucion de que estas indemnizaciones deben ser
consideradas como gananciales, el hecho de que la sociedad
pierde la capacidad de trabajocon el accidente, que a ella le
pertenece, puesto que de la sociedad son losfrutos de ese
trabajo; en cambio, la consideracion de que igual manera que
losbienes que sustituyen a los que cada conyuge lleva al
matrimonio como propiostienen el caracter de propios, hace
pensar que las indemnizaciones que vengana suplir la capacidad
de trabajo aportada por cada conyuge a la sociedad, debenser
juridicamente reputadas como bienes propios del conyuge que
haya sufrido elaccidente. Asi se llega a la misma solucion
aportada por la jurisprudencia francesca. 28
This opinion is, however, undecisive, to say the least. It should be noted that Colin
y Capitant were commenting on the French Civil Code; that their comment
referred to indemnities due in consequence of "accidentes del trabajo "resulting
in physical injuries sustained by one of the spouses (which Mrs. Zulueta
has not suffered); and that said commentators admit that the question whether
Persons and Fam. Relations Ass. No. 10
or not said damages are paraphernal property or belong to the conjugal
partnership is not settled under the Spanish law. 29 Besides, the French law and
jurisprudence — to which the comments of Planiol and Ripert, likewise, refer —
are inapposite to the question under consideration, because they differ
basically from the Spanish law in the treatment of the property relations between
husband and wife. Indeed, our Civil Code, like the Spanish Civil Code, favors the
system of conjugal partnership of gains. Accordingly, the former provides that,
"(i)n the absence of marriage settlements, or when the same are void, the system
of relative community or conjugal partnership of gains ... shall govern the property
relations between" the spouses. 30Hence, "(a)ll property of the marriage is
presumed to belong to the conjugal partnership, unless it be proved that it
pertains exclusively to the husband or to the wife." 31
No similar rules are found in the French Civil Code. What is more, under the
provisions thereof, the conjugal partnership exists only when so stipulated in the
"capitulaciones matrimoniales" or by way of exception. In the language of
Manresa —
Prescindimos de los preceptos de los Condigos de Francia, Italia,
Holanda, Portugal, Alemania y Suiza, porsue solo
excepcionalmente, o cuando asi se pacta en las capitulaciones,
admiten el sistema de gananciales. 32
Again, Colin y Capitant, as well as the Lilius case, refer to damages recovered
for physical injuries suffered by the wife. In the case at bar, the party mainly
injured, although not physically, is the husband.
Accordingly, the other Philippine cases 33 and those from Louisiana — whose civil
law is based upon the French Civil Code — cited by the defendant, which similarly
refer to moral damages due to physical injuries suffered by the wife, are, likewise,
inapplicable to the case at bar.
We find, therefore, no plausible reason to disturb the views expressed in Our
decision promulgated on February 29, 1972.
WHEREFORE, the motions for reconsideration above-referred to should be, as
they are hereby denied.
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EN BANC
G.R. No. L-34583 October 22, 1931
THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late
Adolphe Oscar Schuetze,plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Araneta, De Joya, Zaragoza and Araneta for appellant.
Attorney-General Jaranilla for appellee.
VILLA-REAL, J.:
The Bank of the Philippine Islands, as administrator of the estate of the deceased
Adolphe Oscar Schuetze, has appealed to this court from the judgment of the
Court of First Instance of Manila absolving the defendant Juan Posadas, Jr.,
Collector of Internal Revenue, from the complaint filed against him by said plaintiff
bank, and dismissing the complaint with costs.
The appellant has assigned the following alleged errors as committed by the trial
court in its judgment, to wit:
1. The lower court erred in holding that the testimony of Mrs. Schuetze
was inefficient to established the domicile of her husband.
2. The lower court erred in holding that under section 1536 of the
Administrative Code the tax imposed by the defendant is lawful and valid.
3. The lower court erred in not holding that one-half (½) of the proceeds
of the policy in question is community property and that therefore no
inheritance tax can be levied, at least on one-half (½) of the said
proceeds.
4. The lower court erred in not declaring that it would be unconstitutional
to impose an inheritance tax upon the insurance policy here in question
as it would be a taking of property without due process of law.
Persons and Fam. Relations Ass. No. 10
The present complaint seeks to recover from the defendant Juan Posadas, Jr.,
Collector of Internal Revenue, the amount of P1,209 paid by the plaintiff under
protest, in its capacity of administrator of the estate of the late Adolphe Oscar
Schuetze, as inheritance tax upon the sum of P20,150, which is the amount of an
insurance policy on the deceased's life, wherein his own estate was named the
beneficiary.
At the hearing, in addition to documentary and parol evidence, both parties
submitted the following agreed statement of facts of the court for consideration:
It is hereby stipulated and agreed by and between the parties in the
above-entitled action through their respective undersigned attorneys:
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late
Adolphe Oscar Schuetze, is of legal age, a native of Manila, Philippine
Islands, and is and was at all times hereinafter mentioned a resident of
Germany, and at the time of the death of her husband, the late Adolphe
Oscar Schuetze, she was actually residing and living in Germany;
2. That the Bank of the Philippine Islands, is and was at all times
hereinafter mentioned a banking institution duly organized and existing
under and by virtue of the laws of the Philippine Islands;
3. That on or about August 23, 1928, the herein plaintiff before notary
public Salvador Zaragoza, drew a general power appointing the above-
mentioned Bank of the Philippine Islands as her attorney-in-fact, and
among the powers conferred to said attorney-in-fact was the power to
represent her in all legal actions instituted by or against her;
4. That the defendant, of legal age, is and at all times hereinafter
mentioned the duly appointed Collector of Internal Revenue with offices
at Manila, Philippine Islands;
5. That the deceased Adolphe Oscar Schuetze came to the Philippine
Islands for the first time of March 31, 1890, and worked in the several
German firms as a mere employee and that from the year 1903 until the
year 1918 he was partner in the business of Alfredo Roensch;
6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the
habit of making various trips to Europe;
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7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming
from Java, and with the intention of going to Bremen, landed in the
Philippine Islands where he met his death on February 2, 1928;
8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in
Germany, executed a will, in accordance with its law, wherein plaintiff
was named his universal heir;
9. That the Bank of the Philippine Islands by order of the Court of First
Instance of Manila under date of May 24, 1928, was appointed
administrator of the estate of the deceased Adolphe Oscar Schuetze;
10. That, according to the testamentary proceedings instituted in the
Court of First Instance of Manila, civil case No. 33089, the deceased at
the time of his death was possessed of not only real property situated in
the Philippine Islands, but also personal property consisting of shares of
stock in nineteen (19) domestic corporations;
11. That the fair market value of all the property in the Philippine Islands
left by the deceased at the time of his death in accordance with the
inventory submitted to the Court of First Instance of Manila, civil case No.
33089, was P217,560.38;
12. That the Bank of the Philippine Islands, as administrator of the estate
of the deceased rendered its final account on June 19, 1929, and that said
estate was closed on July 16, 1929;
13. That among the personal property of the deceased was found life-
insurance policy No. 194538 issued at Manila, Philippine Islands, on
January 14, 1913, for the sum of $10,000 by the Sun Life Assurance
Company of Canada, Manila branch, a foreign corporation duly organized
and existing under and by virtue of the laws of Canada, and duly
authorized to transact business in the Philippine Islands;
14. That in the insurance policy the estate of the said Adolphe Oscar
Schuetze was named the beneficiary without any qualification
whatsoever;
15. That for five consecutive years, the deceased Adolphe Oscar Schuetze
paid the premiums of said policy to the Sun Life Assurance Company of
Canada, Manila branch;
Persons and Fam. Relations Ass. No. 10
16. That on or about the year 1918, the Sun Life Assurance Company of
Canada, Manila branch, transferred said policy to the Sun Life Assurance
Company of Canada, London branch;
17. That due to said transfer the said Adolphe Oscar Schuetze from 1918
to the time of his death paid the premiums of said policy to the Sun Life
Assurance Company of Canada, London Branch;
18. That the sole and only heir of the deceased Adolphe Oscar Schuetze
is his widow, the plaintiff herein;
19. That at the time of the death of the deceased and at all times
thereafter including the date when the said insurance policy was paid,
the insurance policy was not in the hands or possession of the Manila
office of the Sun Life Assurance Company of Canada, nor in the
possession of the herein plaintiff, nor in the possession of her attorney-
in-fact the Bank of the Philippine Islands, but the same was in the hands
of the Head Office of the Sun Life Assurance Company of Canada, at
Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine Islands as
administrator of the decedent's estate received from the Sun Life
Assurance Company of Canada, Manila branch, the sum of P20,150
representing the proceeds of the insurance policy, as shown in the
statement of income and expenses of the estate of the deceased
submitted on June 18, 1929, by the administrator to the Court of First
Instance of Manila, civil case No. 33089;
21. That the Bank of the Philippine Islands delivered to the plaintiff herein
the said sum of P20,150;
22. That the herein defendant on or about July 5, 1929, imposed an
inheritance tax upon the transmission of the proceeds of the policy in
question in the sum of P20,150 from the estate of the late Adolphe Oscar
Schuetze to the sole heir of the deceased, or the plaintiff herein, which
inheritance tax amounted to the sum of P1,209;
23. That the Bank of the Philippine Islands as administrator of the
decedent's estate and as attorney-in-fact of the herein plaintiff, having
been demanded by the herein defendant to pay inheritance tax
amounting to the sum of P1,209, paid to the defendant under protest the
above-mentioned sum;
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24. That notwithstanding the various demands made by plaintiff to the
defendant, said defendant has refused and refuses to refund to plaintiff
the above mentioned sum of P1,209;
25. That plaintiff reserves the right to adduce evidence as regards the
domicile of the deceased, and so the defendant, the right to present
rebuttal evidence;
26. That both plaintiff and defendant submit this stipulation of facts
without prejudice to their right to introduce such evidence, on points not
covered by the agreement, which they may deem proper and necessary
to support their respective contentions.
In as much as one of the question raised in the appeal is whether an insurance
policy on said Adolphe Oscar Schuetze's life was, by reason of its ownership,
subject to the inheritance tax, it would be well to decide first whether the amount
thereof is paraphernal or community property.
According to the foregoing agreed statement of facts, the estate of Adolphe Oscar
Schuetze is the sole beneficiary named in the life-insurance policy for $10,000,
issued by the Sun Life Assurance Company of Canada on January 14, 1913. During
the following five years the insured paid the premiums at the Manila branch of the
company, and in 1918 the policy was transferred to the London branch.
The record shows that the deceased Adolphe Oscar Schuetze married the plaintiff-
appellant Rosario Gelano on January 16, 1914.
With the exception of the premium for the first year covering the period from
January 14, 1913 to January 14, 1914, all the money used for paying the premiums,
i. e., from the second year, or January 16, 1914, or when the deceased Adolphe
Oscar Schuetze married the plaintiff-appellant Rosario Gelano, until his death on
February 2, 1929, is conjugal property inasmuch as it does not appear to have
exclusively belonged to him or to his wife (art. 1407, Civil Code). As the sum of
P20,150 here in controversy is a product of such premium it must also be deemed
community property, because it was acquired for a valuable consideration, during
said Adolphe Oscar Schuetze's marriage with Rosario Gelano at the expense of the
common fund (art. 1401, No. 1, Civil Code), except for the small part
corresponding to the first premium paid with the deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second edition,
Manresa treats of life insurance in the following terms, to wit:
Persons and Fam. Relations Ass. No. 10
The amount of the policy represents the premiums to be paid, and the
right to it arises the moment the contract is perfected, for at the moment
the power of disposing of it may be exercised, and if death occurs
payment may be demanded. It is therefore something acquired for a
valuable consideration during the marriage, though the period of its
fulfillment, depend upon the death of one of the spouses, which
terminates the partnership. So considered, the question may be said to
be decided by articles 1396 and 1401: if the premiums are paid with the
exclusive property of husband or wife, the policy belongs to the owner;
if with conjugal property, or if the money cannot be proved as coming
from one or the other of the spouses, the policy is community property.
The Supreme Court of Texas, United States, in the case of Martin vs. Moran (11
Tex. Civ. A., 509) laid down the following doctrine:
COMMUNITY PROPERTY — LIFE INSURANCE POLICY. — A husband took
out an endowment life insurance policy on his life, payable "as directed
by will." He paid the premiums thereon out of community funds, and by
his will made the proceeds of the policy payable to his own estate. Held,
that the proceeds were community estate, one-half of which belonged to
the wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of California laid
down the following doctrine:
A testator, after marriage, took out an insurance policy, on which he paid
the premiums from his salary. Held that the insurance money was
community property, to one-half of which, the wife was entitled as
survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the
following doctrine:
A decedent paid the first third of the amount of the premiums on his life-
insurance policy out of his earnings before marriage, and the remainder
from his earnings received after marriage. Held, that one-third of the
policy belonged to his separate estate, and the remainder to the
community property.
Thus both according to our Civil Code and to the ruling of those North American
States where the Spanish Civil Code once governed, the proceeds of a life-
17 | P a g e

insurance policy whereon the premiums were paid with conjugal money, belong
to the conjugal partnership.
The appellee alleges that it is a fundamental principle that a life-insurance policy
belongs exclusively to the beneficiary upon the death of the person insured, and
that in the present case, as the late Adolphe Oscar Schuetze named his own estate
as the sole beneficiary of the insurance on his life, upon his death the latter
became the sole owner of the proceeds, which therefore became subject to the
inheritance tax, citing Del Val vs. Del Val (29 Phil., 534), where the doctrine was
laid down that an heir appointed beneficiary to a life-insurance policy taken out
by the deceased, becomes the absolute owner of the proceeds of such policy upon
the death of the insured.
The estate of a deceased person cannot be placed on the same footing as an
individual heir. The proceeds of a life-insurance policy payable to the estate of the
insured passed to the executor or administrator of such estate, and forms part of
its assets (37 Corpus Juris, 565, sec. 322); whereas the proceeds of a life-insurance
policy payable to an heir of the insured as beneficiary belongs exclusively to said
heir and does not form part of the deceased's estate subject to administrator. (Del
Val vs. Del Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of
the Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out by a married
person becomes the exclusive owner of the proceeds upon the death of the
insured even if the premiums were paid by the conjugal partnership, so, it is
argued, where the beneficiary named is the estate of the deceased whose life is
insured, the proceeds of the policy become a part of said estate upon the death
of the insured even if the premiums have been paid with conjugal funds.
In a conjugal partnership the husband is the manager, empowered to alienate the
partnership property without the wife's consent (art. 1413, Civil Code), a third
person, therefore, named beneficiary in a life-insurance policy becomes the
absolute owner of its proceeds upon the death of the insured even if the
premiums should have been paid with money belonging to the community
property. When a married man has his life insured and names his own estate after
death, beneficiary, he makes no alienation of the proceeds of conjugal funds to a
third person, but appropriates them himself, adding them to the assets of his
estate, in contravention of the provisions of article 1401, paragraph 1, of the Civil
Code cited above, which provides that "To the conjugal partnership belongs" (1)
Property acquired for a valuable consideration during the marriage at the expense
of the common fund, whether the acquisition is made for the partnership or for
one of the spouses only." Furthermore, such appropriation is a fraud practised
Persons and Fam. Relations Ass. No. 10
upon the wife, which cannot be allowed to prejudice her, according to article
1413, paragraph 2, of said Code. Although the husband is the manager of the
conjugal partnership, he cannot of his own free will convert the partnership
property into his own exclusive property.
As all the premiums on the life-insurance policy taken out by the late Adolphe
Oscar Schuetze, were paid out of the conjugal funds, with the exceptions of the
first, the proceeds of the policy, excluding the proportional part corresponding to
the first premium, constitute community property, notwithstanding the fact that
the policy was made payable to the deceased's estate, so that one-half of said
proceeds belongs to the estate, and the other half to the deceased's widow, the
plaintiff-appellant Rosario Gelano Vda. de Schuetze.
The second point to decide in this appeal is whether the Collector of Internal
Revenue has authority, under the law, to collect the inheritance tax upon one-half
of the life-insurance policy taken out by the late Adolphe Oscar Schuetze, which
belongs to him and is made payable to his estate.
According to the agreed statement of facts mentioned above, the plaintiff-
appellant, the Bank of the Philippine Islands, was appointed administrator of the
late Adolphe Oscar Schuetze's testamentary estate by an order dated March 24,
1928, entered by the Court of First Instance of Manila. On July 13, 1928, the Sun
Life Assurance Company of Canada, whose main office is in Montreal, Canada,
paid Rosario Gelano Vda. de Schuetze upon her arrival at Manila, the sum of
P20,150, which was the amount of the insurance policy on the life of said
deceased, payable to the latter's estate. On the same date Rosario Gelano Vda. de
Schuetze delivered the money to said Bank of the Philippine Islands, as
administrator of the deceased's estate, which entered it in the inventory of the
testamentary estate, and then returned the money to said widow.
Section 1536 of the Administrative Code, as amended by section 10 of Act No.
2835 and section 1 of Act No. 3031, contains the following relevant provision:
SEC. 1536. Conditions and rate of taxation. — Every transmission by
virtue of inheritance, devise, bequest, gift mortis causa or advance in
anticipation of inheritance, devise, or bequest of real property located in
the Philippine Islands and real rights in such property; of any franchise
which must be exercised in the Philippine Islands; of any shares,
obligations, or bonds issued by any corporation or sociedad
anonima organized or constituted in the Philippine Islands in accordance
with its laws; of any shares or rights in any partnership, business or
18 | P a g e

industry established in the Philippine Islands or of any personal property
located in the Philippine Islands shall be subject to the following tax:
xxx xxx xxx
In as much as the proceeds of the insurance policy on the life of the late Adolphe
Oscar Schuetze were paid to the Bank of the Philippine Islands, as administrator
of the deceased's estate, for management and partition, and as such proceeds
were turned over to the sole and universal testamentary heiress Rosario Gelano
Vda. de Schuetze, the plaintiff-appellant, here in Manila, the situs of said proceeds
is the Philippine Islands.
In his work "The Law of Taxation," Cooley enunciates the general rule governing
the levying of taxes upon tangible personal property, in the following words:
GENERAL RULE. — The suits of tangible personal property, for purposes
of taxation may be where the owner is domiciled but is not necessarily
so. Unlike intangible personal property, it may acquire a taxation situs in
a state other than the one where the owner is domiciled, merely because
it is located there. Its taxable situs is where it is more or less permanently
located, regardless of the domicile of the owner. It is well settled that the
state where it is more or less permanently located has the power to tax
it although the owner resides out of the state, regardless of whether it
has been taxed for the same period at the domicile of the owner,
provided there is statutory authority for taxing such property. It is equally
well settled that the state where the owner is domiciled has no power to
tax it where the property has acquired an actual situs in another state by
reason of its more or less permanent location in that state. ... (2 Cooley,
The Law of Taxation, 4th ed., p. 975, par. 451.)
With reference to the meaning of the words "permanent" and "in transit," he has
the following to say:
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. — In order to
acquire a situs in a state or taxing district so as to be taxable in the state
or district regardless of the domicile of the owner and not taxable in
another state or district at the domicile of the owner, tangible personal
property must be more or less permanently located in the state or
district. In other words, the situs of tangible personal property is where
it is more or less permanently located rather than where it is merely in
transit or temporarily and for no considerable length of time. If tangible
personal property is more or less permanently located in a state other
Persons and Fam. Relations Ass. No. 10
than the one where the owner is domiciled, it is not taxable in the latter
state but is taxable in the state where it is located. If tangible personal
property belonging to one domiciled in one state is in another state
merely in transitu or for a short time, it is taxable in the former state, and
is not taxable in the state where it is for the time being. . . . .
Property merely in transit through a state ordinarily is not taxable there.
Transit begins when an article is committed to a carrier for transportation
to the state of its destination, or started on its ultimate passage. Transit
ends when the goods arrive at their destination. But intermediate these
points questions may arise as to when a temporary stop in transit is such
as to make the property taxable at the place of stoppage. Whether the
property is taxable in such a case usually depends on the length of time
and the purpose of the interruption of transit. . . . .
. . . It has been held that property of a construction company, used in
construction of a railroad, acquires a situs at the place where used for an
indefinite period. So tangible personal property in the state for the
purpose of undergoing a partial finishing process is not to be regarded as
in the course of transit nor as in the state for a mere temporary purpose.
(2 Cooley, The Law of Taxation, 4th ed., pp. 982, 983 and 988, par. 452.)
If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar
Schuetze and made payable to his estate, were delivered to the Bank of the
Philippine Islands for administration and distribution, they were not in transit but
were more or less permanently located in the Philippine Islands, according to the
foregoing rules. If this be so, half of the proceeds which is community property,
belongs to the estate of the deceased and is subject to the inheritance tax, in
accordance with the legal provision quoted above, irrespective of whether or not
the late Adolphe Oscar Schuetze was domiciled in the Philippine Islands at the
time of his death.
By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of
a life-insurance policy payable to the insured's estate, on which the premiums
were paid by the conjugal partnership, constitute community property, and
belong one-half to the husband and the other half to the wife, exclusively; (2) that
if the premiums were paid partly with paraphernal and partly conjugal funds, the
proceeds are likewise in like proportion paraphernal in part and conjugal in part;
and (3) that the proceeds of a life-insurance policy payable to the insured's estate
as the beneficiary, if delivered to the testamentary administrator of the former as
part of the assets of said estate under probate administration, are subject to the
inheritance tax according to the law on the matter, if they belong to the assured
19 | P a g e
 Persons and Fam. Relations Ass. No. 10

exclusively, and it is immaterial that the insured was domiciled in these Islands or
outside.1awphil.net

Wherefore, the judgment appealed from is reversed, and the defendant is ordered
to return to the plaintiff the one-half of the tax collected upon the amount of
P20,150, being the proceeds of the insurance policy on the life of the late Adolphe
Oscar Schuetze, after deducting the proportional part corresponding to the first
premium, without special pronouncement of costs. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Villamor, and Ostrand, JJ., concur.

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