[G.R. No. 120880.

June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF

THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.

DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed as precipitate
and unfair, suffering the basic and oftly implored requisites of due process of law.Specifically, the
petition assails the Decision[1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No.
31363, where the said court held:

"In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax assessment, are
already final and (u)nappealable -and- the subsequent levy of real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions),
and is not affected or precluded by the pendency of any other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for certiorari with
prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late Ferdinand E. Marcos, the former President of
the Republic of the Philippines, the matter of the settlement of his estate, and its dues to the
government in estate taxes, are still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions
the actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting
through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon
the estate and properties of his father, despite the pendency of the proceedings on probate of the will
of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig,
Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition
with an application for writ of preliminary injunction and/or temporary restraining order on June 28,
1993, seeking to -

I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993, issued
by respondent Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the
Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision [2] on
November 29, 1994, ruling that the deficiency assessments for estate and income tax made upon the
petitioner and the estate of the deceased President Marcos have already become final and
unappealable, and may thus be enforced by the summary remedy of levying upon the properties of
the late President, as was done by the respondent Commissioner of Internal Revenue.

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for Certiorari
with prayer for Restraining Order and Injunction.

No pronouncements as to cost.
SO ORDERED."

Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision,
assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY
THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE
PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY
PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN
CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER COURTS
AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE
THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL
AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS
CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD
ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE
UNLAWFUL MANNER AND METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE
ENFORCED BY RESPONDENTS COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT
COURT SHOULD HAVE FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING
GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period provided in the Revenue
Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late President's ownership or interests in several
properties (both personal and real) make the total value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus, respondents assessment of the estate tax and
their issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.

[b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less served with
copies of the Notices of Levy, contrary to the mandate of Section 213 of the NIRC. As such, petitioner was
never given an opportunity to contest the Notices in violation of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT

MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO
PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS POSSESS THE
POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS
COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED
DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax
liabilities and obligations of the late president, as well as that of his family, associates and "cronies". Said audit
team concluded its investigation with a Memorandum dated July 26, 1991. The investigation disclosed that the
Marcoses failed to file a written notice of the death of the decedent, an estate tax returns [sic], as well as several
income tax returns covering the years 1982 to 1986, -all in violation of the National Internal Revenue Code
(NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of Quezon
City for violations of Sections 82, 83 and 84 (has penalized under Sections 253 and 254 in relation to Section
252- a & b) of the National Internal Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for
the estate of the late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and
the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-002464
(against the estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2)
Deficiency income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-
86-91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and
P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong'
Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax assessments
were all personally and constructively served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda
Marcos (through her caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M.
(Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued against petitioner
Ferdinand 'Bongbong' Marcos II were also personally and constructively served upon him (through his
caretaker) on September 12, 1991, at his last known address at Don Mariano Marcos St. corner P. Guevarra St.,
San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices were served on
October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan Pambansa,
Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or
counsel), to a conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of the
late president, within 30 days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against certain
parcels of land owned by the Marcoses - to satisfy the alleged estate tax and deficiency income taxes of Spouses
Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the
deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax
remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling the
attention of the BIR and requesting that they be duly notified of any action taken by the BIR affecting the
interest of their client Ferdinand 'Bongbong Marcos II, as well as the interest of the late president - copies of the
aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner,
and their counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban
City. The public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993.There being no
bidder, the lots were declared forfeited in favor of the government.

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari and
prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ of
preliminary injunction."

It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the sustenance of government.Taxes are the
lifeblood of the government and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved."[3]
Whether or not the proper avenues of assessment and collection of the said tax obligations were
taken by the respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and void for disregarding the established procedure for
the enforcement of taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos[4] is
specifically cited to bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the
claimant to present a claim before the probate court so that said court may order the administrator to
pay the amount therefor." This remedy is allegedly, exclusive, and cannot be effected through any
other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request
by the government for the immediate payment of taxes, and should order the payment of the same
only within the period fixed by the probate court for the payment of all the debts of the decedent. In
this regard, petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the
Estate of Echarri (67 Phil 502), where it was held that:

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil 803),
relied upon by the petitioner-appellant is good authority on the proposition that the court having control over the
administration proceedings has jurisdiction to entertain the claim presented by the government for taxes due and
to order the administrator to pay the tax should it find that the assessment was proper, and that the tax was legal,
due and collectible. And the rule laid down in that case must be understood in relation to the case of Collector
of Customs vs. Haygood, supra., as to the procedure to be followed in a given case by the government to
effectuate the collection of the tax. Categorically stated, where during the pendency of judicial administration
over the estate of a deceased person a claim for taxes is presented by the government, the court has the authority
to order payment by the administrator; but, in the same way that it has authority to order payment or
satisfaction, it also has the negative authority to deny the same. While there are cases where courts are required
to perform certain duties mandatory and ministerial in character, the function of the court in a case of the
present character is not one of them; and here, the court cannot be an organism endowed with latitude of
judgment in one direction, and converted into a mere mechanical contrivance in another direction."

On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue
taxes is paramount. Thus, the pendency of probate proceedings over the estate of the deceased
does not preclude the assessment and collection, through summary remedies, of estate taxes over
the same. According to the respondent, claims for payment of estate and income taxes due and
assessed after the death of the decedent need not be presented in the form of a claim against the
estate. These can and should be paid immediately. The probate court is not the government agency
to decide whether an estate is liable for payment of estate of income taxes. Well-settled is the rule
that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with indifference nor should it be ignored with
impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to
approve the sale of properties of a deceased person by his prospective heirs before final
adjudication;[5] to determine who are the heirs of the decedent; [6] the recognition of a natural
child;[7] the status of a woman claiming to be the legal wife of the decedent;[8] the legality of
disinheritance of an heir by the testator;[9] and to pass upon the validity of a waiver of hereditary
rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the
decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate
over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:

"Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a
decedent's estate, although it may be viewed as an incident to the complete settlement of an estate, and, under
some statutes, it is made the duty of the probate court to make the amount of the inheritance tax a part of the
final decree of distribution of the estate. It is not against the property of decedent, nor is it a claim against the
estate as such, but it is against the interest or property right which the heir, legatee, devisee, etc., has in the
property formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor is it an adversary proceeding between the state and the person who owes
the tax on the inheritance. However, under other statutes it has been held that the hearing and determination of
the cash value of the assets and the determination of the tax are adversary proceedings. The proceeding has been
held to be necessarily a proceeding in rem.[11]
 In the Philippine experience, the enforcement and collection of estate tax, is executive in
character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal
Revenue. Section 3 of the National Internal Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall
comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in
all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give
effect to and administer the supervisory and police power conferred to it by this Code or other laws."

Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment of claims for
taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the
application of the statute of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the
government.Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.

"Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to
the committee on claims in the ordinary course of administration. In the exercise of its control over the
administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."

Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even
to allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution
of the estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs
even after the distribution of the properties of the decedent. They are exempted from the application of the
statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance."[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax proportionate to the inheritance received.Another
remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands
of an heir or transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda,
21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale
of the properties allegedly owned by the late President, on the ground that it was required to seek first
the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that
implies the necessity of the probate or estate settlement court's approval of the state's claim for
estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is
bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any
distributive share to any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the
petitioner's contention that it is the probate court which approves the assessment and collection of the
estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should
have been pursued through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his
findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in
such form and manner as may be prescribed by implementing regulations within (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the
decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said
decision; otherwise, the decision shall become final, executory and demandable. (As inserted by P.D. 1773)"

Apart from failing to file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments served upon them, allowing
the same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly
undertaken by the Government, collection thereof may have been done in violation of the law.Thus,
the manner and method in which the latter is enforced may be questioned separately, and
irrespective of the finality of the former, because the Government does not have the unbridled
discretion to enforce collection without regard to the clear provision of law."[14]
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing
Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the
Marcos properties, were issued beyond the allowed period, and are therefore null and void:

"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in satisfaction of said
assessments were still issued by respondents well beyond the period mandated in Revenue Memorandum
Circular No. 38-68. These Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax assessment on 12 September
1991. As no notices of distraint of personal property were first issued by respondents, the latter should have
complied with Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than
three (3) months nor later than six (6) months from 12 September 1991. In accordance with the Circular,
respondents only had until 12 March 1992 (the last day of the sixth month) within which to issue these Notices
of Levy. The Notices of Levy, having been issued beyond the period allowed by law, are thus void and of no
effect."[15]

We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive
period and in accordance with the provisions of the present Tax Code. The deficiency tax
assessment, having already become final, executory, and demandable, the same can now be
collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of
tax deficiency in this instance is Article 223 of the NIRC, which pertinently provides:

"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.- (a) In the case of a
false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
action for the collection thereof.

xxx

(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be
collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.

xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in
case of failure to file a return, the tax may be assessed at any time within ten years after the
omission, and any tax so assessed may be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards protesting the validity of the said assessment,
there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary determination at this
time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and
sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos.
0001-0034 and 0141, which were filed by the government to question the ownership and interests of
the late President in real and personal properties located within and outside the
Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the
collection of estate taxes upon the decedent's estate were among those involved in the said cases
pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to
the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth
does not affect the enforcement of tax assessments over the properties indubitably included in his
estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total assessment
of P23,292,607,638.00, stating that this amount deviates from the findings of the Department of
Justice's Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear
evidence of the uncertainty on the part of the Government as to the total value of the estate of the late
President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which
had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the
amount of taxes due upon the subject estate, but the Bureau of Internal Revenue [16] whose
determinations and assessments are presumed correct and made in good faith. [17] The taxpayer has
the duty of proving otherwise. In the absence of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said
assessment.[18] In this instance, petitioner has not pointed out one single provision in the
Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears
a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged
improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the
basis for the charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court
of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the
pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard
or even repugnance of the established institutions for governance in the scheme of a well-ordered
society. The subject tax assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy.[19]This judicial policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound and resilient to petitioner's attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after considering the facts and
circumstances, as well as evidences, that there was sufficient, constructive and/or actual notice of assessments,
levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.

Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs. Marcos at the
latter's last known address, on August 26, 1991 and September 12, 1991, as well as the notices of
assessment personally given to the caretaker of petitioner also at his last known address on September 12, 1991
- the subsequent notices given thereafter could no longer be ignored as they were sent at a time when petitioner
was already here in the Philippines, and at a place where said notices would surely be called to petitioner's
attention, and received by responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the petitioner, at his
office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos
to a conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos - Dean Antonio Coronel
(Annex "B", p. 211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7,
1993 and June 10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest the assessments,
(upon which the Levy and sale of properties were based), nor appealed the same to the Court of Tax Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that petitioner
continuously ignored said Notices despite several opportunities given him to file a protest and to thereafter
appeal to the Court of Tax Appeals, - the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this instant petition for
certiorari."[20]

Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having
been issued without validly serving copies thereof to the petitioner. As a mandatory heir of the
decedent, petitioner avers that he has an interest in the subject estate, and notices of levy upon its
properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner
as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late
president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices
of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under
Section 213 of the NIRC, which pertinently states:
"xxx

...Levy shall be effected by writing upon said certificate a description of the property upon which levy is
made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the
province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the
Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be
none, to the occupant of the property in question.

xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of
sale were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner
himself on April 12, 1993 at his office at the Batasang Pambansa. [21] We cannot therefore,
countenance petitioner's insistence that he was denied due process. Where there was an opportunity
to raise objections to government action, and such opportunity was disregarded, for no justifiable
reason, the party claiming oppression then becomes the oppressor of the orderly functions of
government. He who comes to court must come with clean hands. Otherwise, he not only taints his
name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the
Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.

[G.R. No. 118671. January 29, 1996]

THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner, vs. THE COURT OF
APPEALS (Former Special Sixth Division), MARIA PILAR RUIZ-MONTES, MARIA
CATHRYN RUIZ, CANDICE ALBERTINE RUIZ, MARIA ANGELINE RUIZ and THE
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF PASIG, BRANCH
156, respondents.
 DECISION
PUNO, J.:

This petition for review on certiorari seeks to annul and set aside the decision dated November
10, 1994 and the resolution dated January 5, 1995 of the Court of Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a holographic will naming as his
heirs his only son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes,
and his three granddaughters, private respondents Maria Cathryn, Candice Albertine and Maria
Angeline, all children of Edmond Ruiz. The testator bequeathed to his heirs substantial cash,
personal and real properties and named Edmond Ruiz executor of his estate. 2
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate
was distributed among Edmond Ruiz and private respondents in accordance with the decedents will.
For unbeknown reasons, Edmond, the named executor, did not take any action for the probate of his
fathers holographic will.
On June 29, 1992, four years after the testators death, it was private respondent Maria Pilar Ruiz
Montes who filed before the Regional Trial Court, Branch 156, Pasig, a petition for the probate and
approval of Hilario Ruizs will and for the issuance of letters testamentary to Edmond
Ruiz.3 Surprisingly, Edmond opposed the petition on the ground that the will was executed under
undue influence.
On November 2, 1992, one of the properties of the estate - the house and lot at No. 2 Oliva
Street, Valle Verde IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine and
Maria Angeline4 - was leased out by Edmond Ruiz to third persons.
On January 19, 1993, the probate court ordered Edmond to deposit with the Branch Clerk of
Court the rental deposit and payments totalling P540,000.00 representing the one-year lease of the
Valle Verde property. In compliance, on January 25, 1993, Edmond turned over the amount
of P348,583.56, representing the balance of the rent after deducting P191,416.14 for repair and
maintenance expenses on the estate.5
In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate taxes on the
real properties of the estate. The probate court approved the release of P7,722.00 6
On May 14, 1993, Edmond withdrew his opposition to the probate of the will. Consequently, the
probate court, on May 18, 1993, admitted the will to probate and ordered the issuance of letters
testamentary to Edmond conditioned upon the filing of a bond in the amount of P50,000.00. The
letters testamentary were issued on June 23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor, filed an Ex-Parte Motion
for Release of Funds. It prayed for the release of the rent payments deposited with the Branch Clerk
of Court. Respondent Montes opposed the motion and concurrently filed a Motion for Release of
Funds to Certain Heirs and Motion for Issuance of Certificate of Allowance of Probate Will. Montes
prayed for the release of the said rent payments to Maria Cathryn, Candice Albertine and Maria
Angeline and for the distribution of the testators properties, specifically the Valle Verde property and
the Blue Ridge apartments, in accordance with the provisions of the holographic will.
On August 26, 1993, the probate court denied petitioners motion for release of funds but granted
respondent Montes motion in view of petitioners lack of opposition. It thus ordered the release of the
rent payments to the decedents three granddaughters. It further ordered the delivery of the titleds to
and possession of the properties bequeathed to the three granddaughters and respondent Montes
upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his opposition to respondent
Montes motion for release of rent payments which opposition the court failed to consider.Petitioner
likewise reiterated his previous motion for release of funds.
On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing his
motion for release of funds in view of the fact that the lease contract over Valle Verde property had
been renewed for another year.7
Despite petitioners manifestation, the probate court, on December 22, 1993, ordered the release
of the funds to Edmond but only such amount as may be necessary to cover the espenses of
administration and allowanceas for support of the testators three granddaughters subject to collation
and deductible from their share in the inheritance. The court, however, held in abeyance the release
of the titles to respondent Montes and the three granddaughters until the lapse of six months from the
date of firast publication of the notice to creditors.8 The Court stated thus:
xxx xxx xxx

After consideration of the arguments set forth thereon by the parties, the court resolves to allow Administrator
Edmond M. Ruiz to take possession of the rental payments deposited with the Clerk of Court, Pasig Regional
Trial Court, but only such amount as may be necessary to cover the expenses of administration and allowances
for support of Maria Cathryn Veronique, Candice Albertine and Maria Angeli, which are subject to collation
and deductible from the share in the inheritance of said heirs and insofar as they exceed the fruits or rents
pertaining to them.

As to the release of the titles bequeathed to petitioner Maria Pilar Ruiz-Montes and the above-named heirs, the
same is hereby reconsidered and held in abeyance until the lapse of six (6) months from the date of first
publication of Notice to Creditors.

WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an accounting of the expenses
necessary for administration including provisions for the support Of Maria Cathryn Veronique Ruiz, Candice
Albertine Ruiz and Maria Angeli Ruiz before the amount required can be withdrawn and cause the publication
of the notice to creditors with reasonable dispatch.9

Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of discretion on the part of
respondent judge, the appellate court dismissed the petition and sustained the probate courts order in a decision
dated November 10, 199410 and a resolution dated January 5, 1995.11

Hence, this petition.

Petitioner claims that:

THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING AND CONFIRMING THE
ORDER OF RESPONDENT REGIONAL TRIAL COURT OF PASIG, BRANCH 156, DATED DECEMBER
22, 1993, WHICH WHEN GIVEN DUE COURSE AND IS EFFECTED WOULD: (1) DISALLOW THE
EXECUTOR/ADMINISTRATOR OF THE ESTATE OF THE LATE HILARIO M. RUIZ TO TAKE
POSSESSION OF ALL THE REAL AND PERSONAL PROPERTIES OF THE ESTATE; (2) GRANT
SUPPORT, DURING THE PENDENCY OF THE SETTLEMENT OF AN ESTATE, TO CERTAIN
PERSONS NOT ENTITLED THERETO; AND (3) PREMATURELY PARTITION AND DISTRIBUTE THE
ESTATE PURSUANT TO THE PROVISIONS OF THE HOLOGRAPHIC WILL EVEN BEFORE ITS
INTRINSIC VALIDITY HAS BEEN DETERMINED, AND DESPITE THE EXISTENCE OF UNPAID
DEBTS AND OBLIGATIONS OF THE ESTATE.12

The issue for resolution is whether the probate court, after admitting the will to probate but before
payment of the estates debts and obligations, has the authority: (1) to grant an allowance from the
funds of the estate for the support of the testators grandchildren; (2) to order the release of the titles
to certain heirs; and (3) to grant possession of all properties of the estate to the executor of the will.
On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of Court provides:

Sec. 3. Allowance to widow and family. - The widow and minor or incapacitated children of a deceased person,
during the settlement of the estate, shall receive therefrom under the direction of the court, such allowance as
are provided by law.

Petitioner alleges that this provision only gives the widow and the minor or incapacitated children
of the deceased the right to receive allowances for support during the settlement of estate
proceedings. He contends that the testators three granddaughters do not qualify for an allowance
because they are not incapacitated and are no longer minors but of legal age, married and gainfully
employed. In addition, the provision expressly states children of the deceased which excludes the
latters grandchildren.
It is settled that allowances for support under Section 3 of Rule 83 should not be limited to the
minor or incapacitated children of the deceased. Article 188 13 of the Civil Code of the Philippines, the
substantive law in force at the time of the testators death, provides that during the liquidation of the
conjugal partnership, the deceaseds legitimate spouse and children, regardless of their age, civil
status or gainful employment, are entitled to provisional support from the funds of the estate. 14 The
law is rooted on the fact that the right and duty to support, especially the right to education, subsist
even beyond the age of majority.15
Be that as it may, grandchildren are not entitled to provisional support from the funds of the
decedents estate. The law clearly limits the allowance to widow and children and does not extend it to
the deceaseds grandchildren, regardless of their minority or incapacity. 16 It was error, therefore, for
the appellate court to sustain the probate courts order granting an allowance to the grandchildren of
the testator pending settlement of his estate.
Respondent courts also erred when they ordered the release of the titles of the bequeathed
properties to private respondents six months after the date of first publication of notice to creditors. An
order releasing titles to properties of the estate amounts to an advance distribution of the estate
which is allowed only under the following conditions:

Sec. 2. Advance distribution in special proceedings. - Nothwithstanding a pending controversy or appeal in

proceedings to settle the estate of a decedent, the court may, in its discretion and upon such terms as it may
deem proper and just, permit that such part of the estate as may not be affected by the controversy or appeal be
distributed among the heirs or legatees, upon compliance with the conditions set forth in Rule 90 of these
Rules.17

And Rule 90 provides that:

Sec. 1. When order for distribution of residue made. - When the debts, funeral charges, and expenses of
administration, the allowance to the widow, and inheritance tax, if any, chargeable to the estate in accordance
with law, have been paid, the court, on the application of the executor or administrator, or of a person interested
in the estate, and after hearing upon notice, shall assign the residue of the estate to the persons entitled to the
same, naming them and the proportions, or parts, to which each is entitled, and such persons may demand and
recover their respective shares from the executor or administrator, or any other person having the same in his
possession. If there is a controversy before the court as to who are the lawful heirs of the deceased person or as
to the distributive shares to which each person is entitled under the law, the controversy shall be heard and
decided as in ordinary cases.

No distribution shall be allowed until the payment of the obligations above-mentioned has been made or
provided for, unless the distributees, or any of them, give a bond, in a sum to be fixed by the court,
conditioned for the payment of said obligations within such time as the court directs.18

In settlement of estate proceedings, the distribution of the estate properties can only be made: (1)
after all the debts, funeral charges, expenses of administration, allowance to the widow, and estate
tax have been paid; or (2) before payment of said obligations only if the distributees or any of them
gives a bond in a sum fixed by the court conditioned upon the payment of said obligations within such
time as the court directs, or when provision is made to meet those obligations. 19
In the case at bar, the probate court ordered the release of the titles to the Valle Verde property
and the Blue Ridge apartments to the private respondents after the lapse of six months from the date
of first publication of the notice to creditors. The questioned order speaks of notice to creditors, not
payment of debts and obligations. Hilario Ruiz allegedly left no debts when he died but the taxes on
his estate had not hitherto been paid, much less ascertained. The estate tax is one of those
obligations that must be paid before distribution of the estate. If not yet paid, the rule requires that the
distributees post a bond or make such provisions as to meet the said tax obligation in proportion to
their respective shares in the inheritance.20 Notably, at the time the order was issued the properties of
the estate had not yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of the titles six months
after admitting the will to probate. The probate of a will is conclusive as to its due execution and
extrinsic validity21 and settles only the question of whether the testator, being of sound mind, freely
executed it in accordance with the formalities prescribed by law. 22Questions as to the intrinsic validity
and efficacy of the provisions of the will, the legality of any devise or legacy may be raised even after
the will has been authenticated.23
The intrinsic validity of Hilarios holographic will was controverted by petitioner before the probate
court in his Reply to Montes Opposition to his motion for release of funds 24 and his motion for
reconsideration of the August 26, 1993 order of the said court.25 Therein, petitioner assailed the
distributive shares of the devisees and legatees inasmuch as his fathers will included the estate of his
mother and allegedly impaired his legitime as an intestate heir of his mother. The Rules provide that if
there is a controversy as to who are the lawful heirs of the decedent and their distributive shares in
his estate, the probate court shall proceed to hear and decide the same as in ordinary cases. 26
Still and all, petitioner cannot correctly claim that the assailed order deprived him of his right to
take possession of all the real and personal properties of the estate. The right of an executor or
administrator to the possession and management of the real and personal properties of the deceased
is not absolute and can only be exercised so long as it is necessary for the payment of the debts and
expenses of administration,27 Section 3 of Rule 84 of the Revised Rules of Court explicitly provides:

Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer estate not willed. - An
executor or administrator shall have the right to the possession and management of the real as well as the
personal estate of the deceased so long as it is necessary for the payment of the debts and expenses for
administration.28

When petitioner moved for further release of the funds deposited with the clerk of court, he had been
previously granted by the probate court certain amounts for repair and maintenance expenses on the
properties of the estate, and payment of the real estate taxes thereon. But petitioner moved again for
the release of additional funds for the same reasons he previously cited. It was correct for the probate
court to require him to submit an accounting of the necessary expenses for administration before
releasing any further money in his favor.
It was relevantly noted by the probate court that petitioner had deposited with it only a portion of
the one-year rental income from the Valle Verde property. Petitioner did not deposit its succeeding
rents after renewal of the lease.29 Neither did he render an accounting of such funds.
Petitioner must be reminded that his right of ownership over the properties of his father is merely
inchoate as long as the estate has not been fully settled and partitioned. 30 As executor, he is a mere
trustee of his fathers estate. The funds of the estate in his hands are trust funds and he is held to the
duties and responsibilities of a trustee of the highest order. 31 He cannot unilaterally assign to himself
and possess all his parents properties and the fruits thereof without first submitting an inventory and
appraisal of all real and personal properties of the deceased, rendering a true account of his
administration, the expenses of administration, the amount of the obligations and estate tax, all of
which are subject to a determination by the court as to their veracity, propriety and justness. 32
IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in CA-G.R. SP No.
33045 affirming the order dated December 22, 1993 of the Regional Trial Court, Branch 156, Pasig in
SP Proc. No. 10259 are affirmed with the modification that those portions of the order granting an
allowance to the testators grandchildren and ordering the release of the titles to the private
respondents upon notice to creditors are annulled and set aside.
Respondent judge is ordered to proceed with dispatch in the proceedings below.
SO ORDERED.
Regalado (Chairman), Romero, and Mendoza, JJ., concur.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF

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

RESOLUTION

GONZAGA-REYES, J.: Supr-ema

Assailed in this petition for review on certiorari is the December 21, 1995 Decision[1] of the Court of
Appeals[2] in CA-G.R. Sp. No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax
Appeals in CTA Case No. 4381 granting private respondent Josefina P. Pajonar, as administratrix of
the estate of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing erroneously
paid estate taxes for the year 1988.

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

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

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

On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the
estate of Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her
capacity as administratrix and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with
the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at least some portion
of it, be returned to the heirs.[3] Jur-is

However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina
Pajonar filed a petition for review with the Court of Tax Appeals (CTA), praying for the refund of
P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid estate tax. [4] The case was
docketed as CTA Case No. 4381.

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar
the amount of P252,585.59, representing erroneously paid estate tax for the year 1988.[5]

Among the deductions from the gross estate allowed by the CTA were the amounts of P60,753
representing the notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the
attorney's fees in Special Proceedings No. 1254 for guardianship. [6]Juri-ssc

On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration[7] of the
CTA's May 6, 1993 decision asserting, among others, that the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution[8] ordering the Commissioner of Internal
Revenue to refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of
P76,502.42 representing erroneously paid estate tax for the year 1988. Also, the CTA upheld the
validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in
the guardianship proceedings.

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

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

The sole issue in this case involves the construction of section 79[10] of the National Internal Revenue
Code[11] (Tax Code) which provides for the allowable deductions from the gross estate of the
decedent. More particularly, the question is whether the notarial fee paid for the extrajudicial
settlement in the amount of P60,753 and the attorney's fees in the guardianship proceedings in the
amount of P50,000 may be allowed as deductions from the gross estate of decedent in order to arrive
at the value of the net estate.

We answer this question in the affirmative, thereby upholding the decisions of the appellate courts. J-
jlex
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:

Respondent maintains that only judicial expenses of the testamentary or intestate

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

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

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

The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers
to the guardianship proceeding filed by PNB, as guardian over the ward of Pedro
Pajonar, docketed as Special Proceeding No. 1254 in the RTC (Branch XXXI) of
Dumaguete City. x x x

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

The guardianship proceeding had been terminated upon delivery of the residuary estate
to the heirs entitled thereto. Thereafter, PNB was discharged of any further
responsibility.

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

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

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

Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax
Appeals modified its previous ruling by reducing the refundable amount to P76,502.43 since it found
that a deficiency interest should be imposed and the compromise penalty excluded. [13] However, the
tax court upheld its previous ruling regarding the legality of the deductions -

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

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

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

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

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

In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held
that: Newmiso

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

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

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

3. Attorney's fees, on the other hand, in order to be deductible from the gross estate
must be essential to the settlement of the estate. Acctmis

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

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

Again , this contention must fail.

The guardianship proceeding in this case was necessary for the distribution of the
property of the deceased Pedro Pajonar. As correctly pointed out by respondent CTA,
the PNB was appointed guardian over the assets of the deceased, and that necessarily
the assets of the deceased formed part of his gross estate. x x x

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

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

The deductions from the gross estate permitted under section 79 of the Tax Code basically
reproduced the deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as
the National Internal Revenue Code of 1939,[16] and which was the first codification of Philippine tax
laws. Section 89 (a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses of the
testamentary or intestate proceedings" for purposes of determining the value of the net estate.
Philippine tax laws were, in turn, based on the federal tax laws of the United States. [17] In accord with
established rules of statutory construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax laws. [18] Scc-alr

Judicial expenses are expenses of administration.[19] Administration expenses, as an allowable

deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate,
have been construed by the federal and state courts of the United States to include all expenses
"essential to the collection of the assets, payment of debts or the distribution of the property to the
persons entitled to it."[20] In other words, the expenses must be essential to the proper settlement of
the estate. Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible.[21] This distinction has been carried over to our jurisdiction. Thus, in Lorenzo v.
Posadas[22] the Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing the decedent's real estate for
the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the
bond filed by the administrator as an expense of administration since the giving of a bond is in the
nature of a qualification for the office, and not necessary in the settlement of the estate.[23] Neither
may attorney's fees incident to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate.[24]

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible
expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs.
Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property
during his lifetime should also be considered as a deductible administration expense. PNB provided a
detailed accounting of decedent's property and gave advice as to the proper settlement of the latter's
estate, acts which contributed towards the collection of decedent's assets and the subsequent
settlement of the estate.

We find that the Court of Appeals did not commit reversible error in affirming the questioned
resolution of the Court of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial
fee for the extrajudicial settlement and the attorney's fees in the guardianship proceedings are
allowable deductions from the gross estate of Pedro Pajonar.

SO ORDERED.

THIRD DIVISION

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

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

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

DECISION

NACHURA, J.:

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

The Facts

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

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

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

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

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

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

However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles
Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269,[17] demanding the payment
of P66,973,985.40 as deficiency estate tax, itemized as follows:

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48

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

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

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

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

In the hearings conducted, petitioner did not present testimonial evidence but merely
documentary evidence consisting of the following:

Nature of Document (sic) Exhibits

1. Letter dated October 13, 1988

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

2. Petition for the probate of the

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

3. Pleading entitled "Compliance"

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

4. Attachment to Exh. "C" which

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

5. Claims against the estate filed

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

6. Claim filed by Banque de L'

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

7. Claim of the Manila Banking

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

8. Demand letter of Manila Banking

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

9. Claim of State Investment

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

10. Letter dated March 14, 1990

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

11. Letter dated April 17, 1990

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

12. Estate Tax Return filed by

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

13. Certified true copy of the

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

14. Certification of Payment of

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

Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of
Alberto Enriquez, who was one of the revenue examiners who conducted the investigation
on the estate tax case of the late Jose P. Fernandez. In the course of the direct examination
of the witness, he identified the following:

Documents/
Signatures BIR Record

1. Estate Tax Return prepared by

the BIR; p. 138

2. Signatures of Ma. Anabella

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

3. Memorandum for the Commissioner,

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

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

5. Signature of Ma. Anabella A.

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

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

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

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

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

10. Signature of Ma. Anabella A.

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

11. Signature of Raymond S.

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

12. Signature of Maximino

V. Tagle at the lower
portion of Exh. "3"; -do-
 13. Demand letter (FAS-E-87-91-00),
signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169

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

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de Oate v.
Court of Appeals,[23] the CTA opined that the aforementioned pieces of evidence introduced by the BIR were
admissible in evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as evidence for respondent,
considering that respondent has been declared to have waived the presentation thereof during the
hearing on March 20, 1996, still they could be considered as evidence for respondent since they
were properly identified during the presentation of respondent's witness, whose testimony was
duly recorded as part of the records of this case. Besides, the documents marked as respondent's
exhibits formed part of the BIR records of the case.[24]

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

Conjugal Real Property P 5,062,016.00

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

Estate Tax Due P 29,935,342.97

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

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

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

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

SO ORDERED.[26]

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

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that the
petitioner's act of filing an estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and
2053 did not deprive the BIR Commissioner of her authority to re-examine or re-assess the said return filed on
behalf of the Estate.[28]

On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA denied in its
Resolution[30] dated November 3, 1999.

Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally offered by the
respondent BIR by the Court of Tax Appeals which was subsequently upheld by the Court of
Appeals is contrary to the Rules of Court and rulings of this Honorable Court;

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

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

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

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

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

The Issues

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

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

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

The Courts Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that
these documents must be formally offered before the CTA.[34] Pertinent is Section 34, Rule 132 of the Revised
Rules on Evidence which reads:

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

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

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

However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we
relaxed the foregoing rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first,
the same must have been duly identified by testimony duly recorded and, second, the same
must have been incorporated in the records of the case.[40]

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

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

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

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

xxxx

But what further defeats petitioner's cause on this issue is that respondents' exhibits were marked
and admitted during the pre-trial stage as shown by the Pre-Trial Order quoted earlier.[44]
While the CTA is not governed strictly by technical rules of evidence,[45] as rules of procedure are not ends in
themselves and are primarily intended as tools in the administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may be disregarded considering that it is the only means
by which the CTA may ascertain and verify the truth of BIR's claims against the Estate.[46] The BIR's failure to
formally offer these pieces of evidence, despite CTA's directives, is fatal to its cause.[47] Such failure is
aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal omission.
This, we take against the BIR.

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

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

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

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

It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode of
extinguishing an obligation,[55] condonation or remission of debt[56] is defined as:
 an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces
the enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of
the same to which the remission refers. It is an essential characteristic of remission that it be
gratuitous, that there is no equivalent received for the benefit given; once such equivalent exists,
the nature of the act changes. It may become dation in payment when the creditor receives a
thing different from that stipulated; or novation, when the object or principal conditions of the
obligation should be changed; or compromise, when the matter renounced is in litigation or
dispute and in exchange of some concession which the creditor receives.[57]

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

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

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

On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be
taken into consideration and the claim should be allowed as a deduction only to the extent of the amount
actually paid.[64] Recognizing the dispute, the Service released Proposed Regulations in 2007 mandating that the
deduction would be limited to the actual amount paid.[65]

In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of Appeals held:

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

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

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

SO ORDERED.

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

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

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

DECISION
AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, assailing
the decision of the Court of Appeals in CA G.R. SP No. 27134, entitled Comissioner of Internal
Revenue v. Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of
Tax Appeals, which reversed and set aside the decision of the Court of Tax Appeals (CTA), ordering
the Commissioner of Internal Revenue (Commissioner) to withdraw his letters dated April 21, 1988
and August 4, 1988 assessing donors taxes and to desist from collecting donors taxes from
petitioners.
During the 1987 national elections, petitioners, who are partners in the Angara, Abello,
Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the campaign
funds of Senator Edgardo Angara, then running for the Senate. In letters dated April 21, 1988, the
Bureau of Internal Revenue (BIR) assessed each of the petitioners P263,032.66 for their
contributions. On August 2, 1988, petitioners questioned the assessment through a letter to the BIR.
They claimed that political or electoral contributions are not considered gifts under the National
Internal Revenue Code (NIRC), and that, therefore, they are not liable for donors tax. The claim for
exemption was denied by the Commissioner.[1]
 On September 12, 1988, petitioners filed a petition for review with the CTA, which was decided
on October 7, 1991 in favor of the petitioners. As aforestated, the CTA ordered the Commissioner to
desist from collecting donors taxes from the petitioners.[2]
On appeal, the Court of Appeals reversed and set aside the CTA decision on April 20,
1994.[3] The appellate Court ordered the petitioners to pay donors tax amounting to P263,032.66
each, reasoning as follows:

The National Internal Revenue Code, as amended, provides:

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

Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether the transfer is in trust
or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or
intangible, is subject to donors or gift tax.

A gift is generally defined as a voluntary transfer of property by one to another without any consideration or
compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250).

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

As correctly pointed out by the Solicitor General:

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

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

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

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

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

In the light of the above BIR Ruling, it is clear that the political contributions of the private respondents to Sen.
Edgardo Angara are taxable gifts. The vagueness of the law as to what comprise the gift subject to tax was
made concrete by the above-quoted BIR ruling. Hence, there is no doubt that political contributions are taxable
gifts.[4]
 Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its resolution
of June 16, 1995.[5]
Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO CONSIDER IN
ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE
PETITIONERS POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO DONORS
TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO CONSIDER
THE DEFINITION OF AN ELECTORAL CONTRIBUTION UNDER THE OMNIBUS
ELECTION CODE IN DETERMINING WHETHER OR NOT POLITICAL
CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT
SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX APPEALS
AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL CONTRIBUTIONS
ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN
JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT KNOWN AT THE TIME
THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE MAINLY
ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY AFTER THE
ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT CONSTRUE
THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER AND STRICLTY
AGAINST THE GOVERNMENT IN ACCORDANCE WITH APPLICABLE PRINCIPLES
OF STATUTORY CONSTRUCTION?[6]

First, Fifth and Sixth Issues

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

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

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

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

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

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

. . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who
accepts it.

Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase
in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi.[7]
 The present case falls squarely within the definition of a donation. Petitioners, the late Manuel G.
Abello[8], Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave P882,661.31 to
the campaign funds of Senator Edgardo Angara, without any material consideration. All three
elements of a donation are present. The patrimony of the four petitioners were reduced
by P882,661.31 each. Senator Edgardo Angaras patrimony correspondingly increased
by P3,530,645.24[9]. There was intent to do an act of liberality or animus donandi was present since
each of the petitioners gave their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and
unambiguous, thereby leaving no room for construction. In Rizal Commercial Banking Corporation v.
Intermediate Appellate Court[10] the Court enunciated:

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

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

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

Second Issue

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

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

Third Issue

Petitioners maintain that the definition of an electoral contribution under the Omnibus Election
Code is essential to appreciate how a political contribution differs from a taxable gift. [11]Section 94(a)
of the said Code defines electoral contribution as follows:

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

Since the purpose of an electoral contribution is to influence the results of the election, petitioners
again claim that donative intent is not present. Petitioners attempt to place the barrier of mutual
exclusivity between donative intent and the purpose of political contributions. This Court reiterates
that donative intent is not negated by the presence of other intentions, motives or purposes which do
not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that the consideration for a
gift is the liberality of the donor, while the consideration for a political contribution is the desire of the
giver to influence the result of an election by supporting candidates who, in the perception of the
giver, would influence the shaping of government policies that would promote the general welfare and
economic well-being of the electorate, including the giver himself.
Petitioners attempt is strained. The fact that petitioners will somehow in the future benefit from the
election of the candidate to whom they contribute, in no way amounts to a valuable material
consideration so as to remove political contributions from the purview of a donation. Senator Angara
was under no obligation to benefit the petitioners. The proper performance of his duties as a legislator
is his obligation as an elected public servant of the Filipino people and not a consideration for the
political contributions he received. In fact, as a public servant, he may even be called to enact laws
that are contrary to the interests of his benefactors, for the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was to fund the campaign of
Senator Angara in his bid for a senatorial seat, cannot be considered as a material consideration so
as to negate a donation.

Fourth Issue

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

. . . It is a familiar principle of law that prolonged practice by the government agency charged with the
execution of a statute, acquiesced in and relied upon by all concerned over an appreciable period of time, is an
authoritative interpretation thereof, entitled to great weight and the highest respect. . . .[12]

This Court holds that the BIR is not precluded from making a new interpretation of the law,
especially when the old interpretation was flawed. It is a well-entrenched rule that

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

Seventh Issue

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

Eighth Issue

Petitioners next contend that tax laws are construed liberally in favor of the taxpayer and strictly
against the government. This rule of construction, however, does not benefit petitioners because, as
stated, there is here no room for construction since the law is clear and unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations involved in this case,
Congress approved Republic Act No. 7166 on November 25, 1991, providing in Section 13 thereof
that political/electoral contributions, duly reported to the Commission on Elections, are not subject to
the payment of any gift tax. This all the more shows that the political contributions herein made are
subject to the payment of gift taxes, since the same were made prior to the exempting legislation, and
Republic Act No. 7166 provides no retroactive effect on this point.
 WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172804 January 24, 2011

GONZALO VILLANUEVA, represented by his heirs, Petitioner,

vs.
SPOUSES FROILAN and LEONILA BRANOCO, Respondents.

DECISION

CARPIO, J.:

The Case

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

The Facts

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

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

KNOW ALL MEN BY THESE PRESENTS:

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

That as we live[d] together as husband and wife with Juan Arcillas, we begot children, namely:
LUCIO, VICENTA, SEGUNDINA, and ADELAIDA, all surnamed ARCILLAS, and by reason of poverty
which I suffered while our children were still young; and because my husband Juan Arcillas aware as
he was with our destitution separated us [sic] and left for Cebu; and from then on never cared what
happened to his family; and because of that one EUFRACIA RODRIGUEZ, one of my nieces who
also suffered with our poverty, obedient as she was to all the works in our house, and because of the
love and affection which I feel [for] her, I have one parcel of land located at Sitio Amambajag, Culaba,
Leyte bearing Tax Decl. No. 1878 declared in the name of Alvegia Rodrigo, I give (devise) said land
in favor of EUFRACIA RODRIGUEZ, her heirs, successors, and assigns together with all the
improvements existing thereon, which parcel of land is more or less described and bounded as
follows:
1. Bounded North by Amambajag River; East, Benito Picao; South, Teofilo Uyvico; and West, by
Public land; 2. It has an area of 3,492 square meters more or less; 3. It is planted to coconuts now
bearing fruits; 4. Having an assessed value of ₱240.00; 5. It is now in the possession of EUFRACIA
RODRIGUEZ since May 21, 1962 in the concept of an owner, but the Deed of Donation or that
ownership be vested on her upon my demise.

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

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

Respondents entered the Property in 1983 and paid taxes afterwards.

The Ruling of the Trial Court

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

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

Ruling of the Court of Appeals

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

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

Respondents see no reversible error in the CA’s ruling and pray for its affirmance.

The Issue

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

The Ruling of the Court

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

 Naked Title Passed from Rodrigo to Rodriguez Under a Perfected Donation

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

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

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

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

Further –

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

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

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

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

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

Second. What Rodrigo reserved for herself was only the beneficial title to the Property, evident from
Rodriguez’s undertaking to "give one [half] x x x of the produce of the land to Apoy Alve during her
lifetime."17 Thus, the Deed’s stipulation that "the ownership shall be vested on [Rodriguez] upon my
demise," taking into account the non-reversion clause, could only refer to Rodrigo’s beneficial title.
We arrived at the same conclusion in Balaqui v. Dongso18 where, as here, the donor, while "b[inding]
herself to answer to the [donor] and her heirs x x x that none shall question or disturb [the donee’s]
right," also stipulated that the donation "does not pass title to [the donee] during my lifetime; but when
I die, [the donee] shall be the true owner" of the donated parcels of land. In finding the disposition as
a gift inter vivos, the Court reasoned:
Taking the deed x x x as a whole, x x x x it is noted that in the same deed [the donor] guaranteed to
[the donee] and her heirs and successors, the right to said property thus conferred. From the moment
[the donor] guaranteed the right granted by her to [the donee] to the two parcels of land by virtue of
the deed of gift, she surrendered such right; otherwise there would be no need to guarantee said
right. Therefore, when [the donor] used the words upon which the appellants base their contention
that the gift in question is a donation mortis causa [that the gift "does not pass title during my lifetime;
but when I die, she shall be the true owner of the two aforementioned parcels"] the donor meant
nothing else than that she reserved of herself the possession and usufruct of said two parcels
of land until her death, at which time the donee would be able to dispose of them
freely.19 (Emphasis supplied)

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

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

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

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

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

Petitioner Acquired No Title Over the Property

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

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

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

Ancillary Matters Petitioner Raises Irrelevant

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

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

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19201 June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX APPEALS, respondents.

Hilado and Hilado for petitioner.

Office of the Solicitor General for respondents.

PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner,
for the construction of a new Catholic Church in the locality. The total amount was actually spent for
the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29,
1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax
against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax
amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15,
1960, and the compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and
the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the
Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the
parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish
Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted
that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for
such would be a clear violation of the provisions of the Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:

... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its
Archbishops and Bishops with respect to the properties of the church within their parish. They
are the guardians, superintendents or administrators of these properties, with the right of
succession and may sue and be sued.

xxx xxx xxx

The petitioner impugns the, fairness of the assessment with the argument that he should not
be held liable for gift taxes on donation which he did not receive personally since he was not
yet the parish priest of Victorias in the year 1957 when said donation was given. It is intimated
that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin
Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the Roman
Catholic Church. Following petitioner's line of thinking, we should be equally unfair to hold that
the assessment now in question should have been addressed to, and collected from, the Rev.
Fr. Crispin Ruiz to be paid from income derived from his present parish where ever it may be.
It does not seem right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's
gift tax on a donation to which they were not benefited.

xxx xxx xxx

We saw no legal basis then as we see none now, to include within the Constitutional
exemption, taxes which partake of the nature of an excise upon the use made of the properties
or upon the exercise of the privilege of receiving the properties. (Phipps vs. Commissioner of
Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)

It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by
law, and the party claiming exemption must justify his claim by a clear, positive, or express
grant of such privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23,
1956; 53 O.G. 3762.)

The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the Constitution
of the Philippines, should not be interpreted to mean exemption from all kinds of taxes.
Statutes exempting charitable and religious property from taxation should be construed fairly
though strictly and in such manner as to give effect to the main intent of the lawmakers.
(Roman Catholic Church vs. Hastrings 5 Phil. 701.)

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision of the respondent

Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to the
imposition of the compromise penalty in the amount of P20.00 (Collector of Internal Revenue
v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro
Lladoc is hereby ordered to pay to the respondent the amount of P900.00 as donee's gift tax,
plus the surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c) of the
Tax Code, and one per centum (1%) monthly interest from May 15, 1958 to the date of actual
payment. The surcharge of 25% provided in Section 120 for failure to file a return may not be
imposed as the failure to file a return was not due to willful neglect.( ... ) No costs.

The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly
committed by the Tax Court, all of which converge on the singular issue of whether or not petitioner
should be liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of
the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The exemption is only from the payment of
taxes assessed on such properties enumerated, as property taxes, as contra distinguished from
excise taxes. In the present case, what the Collector assessed was a donee's gift tax; the
assessment was not on the properties themselves. It did not rest upon general ownership; it was an
excise upon the use made of the properties, upon the exercise of the privilege of receiving the
properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting
provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on
the transfer of property by way of gift inter vivos, the imposition of which on property used exclusively
for religious purposes, does not constitute an impairment of the Constitution. As well observed by the
learned respondent Court, the phrase "exempt from taxation," as employed in the Constitution (supra)
should not be interpreted to mean exemption from all kinds of taxes. And there being no clear,
positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be
denied.

The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax
liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should
not be liable, because at the time of the donation he was not the priest of Victorias. We note the merit
of the above claim, and in order to put things in their proper light, this Court, in its Resolution of March
15, 1965, ordered the parties to show cause why the Head of the Diocese to which the parish of
Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing
that the Head of such Diocese is the real party in interest. The Solicitor General, in representation of
the Commissioner of Internal Revenue, interposed no objection to such a substitution. Counsel for the
petitioner did not also offer objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal
issues and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also
appeared as counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested
that it was submitting itself to the jurisdiction and orders of this Court and that it was presenting, by
reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the assessment at bar had been properly
made and the imposition of the tax is not a violation of the constitutional provision exempting
churches, parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to
which the parish Victorias Pertains, is liable for the payment thereof.

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it
is modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that the
Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the
said gift tax, without special, pronouncement as to costs.

SECOND DIVISION

JARABINI G. DEL ROSARIO, G.R. No. 187056

Petitioner,
Present:
CARPIO, J., Chairperson,
- versus - PERALTA,

BERSAMIN,*

ABAD, and

PEREZ,** JJ.

ASUNCION G. FERRER, substituted

by her heirs, VICENTE, PILAR,

ANGELITO, FELIXBERTO, JR.,

all surnamed G. FERRER, and Promulgated:

MIGUELA FERRER ALTEZA,

Respondents. September 20, 2010

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

DECISION

ABAD, J.:

This case pertains to a gift, otherwise denominated as a donation mortis causa, which in reality is a
donation inter vivos made effective upon its execution by the donors and acceptance thereof by the donees,
and immediately transmitting ownership of the donated property to the latter, thus precluding a subsequent
assignment thereof by one of the donors.

The Facts and the Case

On August 27, 1968 the spouses Leopoldo and Guadalupe Gonzales executed a document entitled
Donation Mortis Causa[1] in favor of their two children, Asuncion and Emiliano, and their granddaughter,
Jarabini (daughter of their predeceased son, Zoilo) covering the spouses 126-square meter lot and the house
on it in Pandacan, Manila[2] in equal shares. The deed of donation reads:

It is our will that this Donation Mortis Causa shall be irrevocable and shall be
respected by the surviving spouse.

It is our will that Jarabini Gonzales-del Rosario and Emiliano Gonzales will continue to
occupy the portions now occupied by them.

It is further our will that this DONATION MORTIS CAUSA shall not in any way affect
any other distribution of other properties belonging to any of us donors whether testate or
intestate and where ever situated.
 It is our further will that any one surviving spouse reserves the right, ownership,
possession and administration of this property herein donated and accepted and this
Disposition and Donation shall be operative and effective upon the death of the DONORS.[3]

Although denominated as a donation mortis causa, which in law is the equivalent of a will, the deed
had no attestation clause and was witnessed by only two persons. The named donees, however, signified their
acceptance of the donation on the face of the document.

Guadalupe, the donor wife, died in September 1968. A few months later or on December 19, 1968,
Leopoldo, the donor husband, executed a deed of assignment of his rights and interests in subject property to
their daughter Asuncion. Leopoldo died in June 1972.

In 1998 Jarabini filed a petition for the probate of the August 27, 1968 deed of donation mortis
causa before the Regional Trial Court (RTC) of Manila in Sp. Proc. 98-90589.[4] Asuncion opposed the petition,
invoking his father Leopoldos assignment of his rights and interests in the property to her.

After trial, the RTC rendered a decision dated June 20, 2003, [5] finding that the donation was in fact one
made inter vivos, the donors intention being to transfer title over the property to the donees during the
donors lifetime, given its irrevocability. Consequently, said the RTC, Leopoldos subsequent assignment of his
rights and interest in the property was void since he had nothing to assign. The RTC thus directed the
registration of the property in the name of the donees in equal shares.[6]

On Asuncions appeal to the Court of Appeals (CA), the latter rendered a decision on December 23,
2008,[7] reversing that of the RTC. The CA held that Jarabini cannot, through her petition for the probate of the
deed of donation mortis causa, collaterally attack Leopoldos deed of assignment in Asuncions favor. The CA
further held that, since no proceeding exists for the allowance of what Jarabini claimed was actually a
donation inter vivos, the RTC erred in deciding the case the way it did. Finally, the CA held that the donation,
being one given mortis causa, did not comply with the requirements of a notarial will, [8] rendering the same
void. Following the CAs denial of Jarabinis motion for reconsideration,[9] she filed the present petition with this
Court.

Issue Presented

The key issue in this case is whether or not the spouses Leopoldo and Guadalupes donation to
Asuncion, Emiliano, and Jarabini was a donation mortis causa, as it was denominated, or in fact a
donation inter vivos.
 The Courts Ruling

That the document in question in this case was captioned Donation Mortis Causa is not
controlling. This Court has held that, if a donation by its terms is inter vivos, this character is not altered by the
fact that the donor styles it mortis causa.[10]

In Austria-Magat v. Court of Appeals,[11] the Court held that irrevocability is a quality absolutely
incompatible with the idea of conveyances mortis causa, where revocability is precisely the essence of the
act. A donation mortis causa has the following characteristics:

1. It conveys no title or ownership to the transferee before the death of the

transferor; or, what amounts to the same thing, that the transferor should retain the
ownership (full or naked) and control of the property while alive;

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

3. That the transfer should be void if the transferor should survive the
transferee.[12] (Underscoring supplied)

The Court thus said in Austria-Magat that the express irrevocability of the donation is the distinctive
standard that identifies the document as a donation inter vivos. Here, the donors plainly said that it is our will
that this Donation Mortis Causa shall be irrevocable and shall be respected by the surviving spouse. The intent
to make the donation irrevocable becomes even clearer by the proviso that a surviving donor shall respect the
irrevocability of the donation. Consequently, the donation was in reality a donation inter vivos.

The donors in this case of course reserved the right, ownership, possession, and administration of the
property and made the donation operative upon their death. But this Court has consistently held that such
reservation (reddendum) in the context of an irrevocable donation simply means that the donors parted with
their naked title, maintaining only beneficial ownership of the donated property while they lived.[13]

Notably, the three donees signed their acceptance of the donation, which acceptance the deed
required.[14] This Court has held that an acceptance clause indicates that the donation is inter vivos, since
acceptance is a requirement only for such kind of donations. Donations mortis causa, being in the form of a
will, need not be accepted by the donee during the donors lifetime.[15]

Finally, as Justice J. B. L. Reyes said in Puig v. Peaflorida,[16] in case of doubt, the conveyance should be
deemed a donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the ownership of
the property subject of the deed.

Since the donation in this case was one made inter vivos, it was immediately operative and final. The
reason is that such kind of donation is deemed perfected from the moment the donor learned of the donees
acceptance of the donation. The acceptance makes the donee the absolute owner of the property donated.[17]

Given that the donation in this case was irrevocable or one given inter vivos, Leopoldos subsequent
assignment of his rights and interests in the property to Asuncionshould be regarded as void for, by then, he
had no more rights to assign. He could not give what he no longer had. Nemo dat quod non habet.[18]

The trial court cannot be faulted for passing upon, in a petition for probate of what was initially
supposed to be a donation mortis causa, the validity of the document as a donation inter vivos and the nullity
of one of the donors subsequent assignment of his rights and interests in the property. The Court has held
before that the rule on probate is not inflexible and absolute.[19] Moreover, in opposing the petition for
probate and in putting the validity of the deed of assignment squarely in issue, Asuncion or those who
substituted her may not now claim that the trial court improperly allowed a collateral attack on such
assignment.

WHEREFORE, the Court GRANTS the petition, SETS ASIDE the assailed December 23, 2008 Decision and
March 6, 2009 Resolution of the Court of Appeals in CA-G.R. CV 80549, and REINSTATES in toto the June 20,
2003 Decision of the Regional Trial Court of Manila, Branch 19, in Sp. Proc. 98-90589.

SO ORDERED.

SECOND DIVISION

[G.R. No. 106755. February 1, 2002]

APOLINARIA AUSTRIA-MAGAT, petitioner, vs. HON. COURT OF APPEALS and FLORENTINO
LUMUBOS, DOMINGO COMIA, TEODORA CARAMPOT, ERNESTO APOLO, SEGUNDA
SUMPELO, MAMERTO SUMPELO and RICARDO SUMPELO, respondents.

DECISION
DE LEON, JR., J.:

Before us is a petition for review of the Decision[1] of the Court of Appeals,[2] dated June 30,
1989 reversing the Decision,[3] dated August 15, 1986 of the Regional Trial Court (RTC) of Cavite,
Branch 17. The Decision of the RTC dismissed Civil Case No. 4426 which is an action for annulment
of title, reconveyance and damages.
The facts of the case are as follows:
Basilisa Comerciante is a mother of five (5) children, namely, Rosario Austria, Consolacion
Austria, herein petitioner Apolinaria Austria-Magat, Leonardo, and one of herein respondents,
Florentino Lumubos. Leonardo died in a Japanese concentration camp at Tarlac during World War II.
In 1953, Basilisa bought a parcel of residential land together with the improvement thereon
covered and described in Transfer Certificate of Title No. RT-4036 (T-3268) and known as Lot 1,
Block 1, Cavite Beach Subdivision, with an area of 150 square meters, located in Bagong Pook, San
Antonio, Cavite City.
On December 17, 1975, Basilisa executed a document designated as Kasulatan sa Kaloobpala
(Donation). The said document which was notarized by Atty. Carlos Viniegra, reads as follows:
KASULATANG SA KALOOBPALA
(DONATION)

TALASTASIN NG LAHAT AT SINUMAN:

Na ako, si BASELISA COMERCIANTE, may sapat na gulang, Filipina, balo, at naninirahan sa blg. 809 L.
Javier Bagong Pook, San Antonio, Lungsod ng Kabite, Filipinas, sa pamamagitan ng kasulatang itoy

NAGSASALAYSAY

Na alang-alang sa mabuting paglilingkod at pagtingin na iniukol sa akin ng apat kong mga tunay na anak na
sila:

ROSARIO AUSTRIA, Filipina, may sapat na gulang, balo, naninirahan sa 809 L. Javier, Bagong Pook, San
Antonio, Lungsod ng Kabite;

CONSOLACION AUSTRIA, Filipina, may sapat na gulang, balo naninirahan sa 809 L. Javier, Bagong
Pook, San Antonio, Lungsod ng Kabite;

APOLINARIA AUSTRIA, Filipina, may sapat na gulang, may asawa, naninirahan sa Pasong Kawayan, Hen.
Trias, Kabite;

FLORENTINO LUMUBOS, Filipino, may sapat na gulang, asawa ni Encarnacion Magsino, at naninirahan din
sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod ng Kabite; ay

Kusang loob na ibinibigay ko at ipinagkakaloob ng ganap at hindi na mababawi sa naulit ng apat na anak ko at
sa kanilang mga tagamagmana (sic), ang aking isang lupang residential o tirahan sampu ng aking bahay nahan
ng nakatirik doon na nasa Bagong Pook din, San Antonio, Lungsod ng Kabite, at nakikilala bilang Lote no. 7,
Block no.1, of Subdivision Plan Psd-12247; known as Cavite Beach Subdivision, being a portion of Lot No.
1055, of the Cadastral survey of Cavite, GLRO Cadastral Rec. no. 9539; may sukat na 150 metros cuadrados, at
nakatala sa pangalan ko sa Titulo Torrens bilang TCT-T-3268 (RT-4036) ng Lungsod ng Kabite;

Na ang Kaloob palang ito ay magkakabisa lamang simula sa araw na akoy pumanaw sa mundo, at sa ilalim ng
kondision na:

Magbubuhat o babawasin sa halaga ng nasabing lupa at bahay ang anumang magugul o gastos sa aking libing at
nicho at ang anumang matitira ay hahatiin ng APAT na parte, parepareho isang parte sa bawat anak kong
nasasabi sa itaas nito upang maliwanang (sic) at walang makakalamang sinoman sa kanila;
At kaming apat na anak na nakalagda o nakadiit sa kasulatang ito ay TINATANGGAP NAMIN ang kaloob-
palang ito ng aming magulang na si Basilisa Comerciante, at tuloy pinasasalamatan namin siya ng taos sa
(sic) puso dahil sa kagandahan look (sic) niyang ito sa amin.

SA KATUNAYAN, ay nilagdaan o diniitan namin ito sa Nobeleta, Kabite, ngayong ika-17 ng Disyembre taong
1975.

HER MARK HER MARK

BASELISA COMERCIANTE ROSARIO AUSTRIA

Tagakaloobpala

(Sgd.) APOLINARIA AUSTRIA HER MARK

Tagatanggap-pala CONSOLACION AUSTRIA

(Sgd.)FLORENTINO LUMUBOS

Tagatanggap-pala

(Acknowledgment signed by Notary Public C.T. Viniegra is omitted).[4]

Basilisa and her said children likewise executed another notarized document denominated as
Kasulatan which is attached to the deed of donation. The said document states that:

KASULATAN

TALASTASIN NG MADLA:

Na kaming mga nakalagda o nakadiit sa labak nito sila Basilisa Comerciante at ang kanyang mga anak na sila:

Rosario Austria, Consolacion Austria, Apolonio Austria, at Florentino Lumubos, pawang may mga sapat na
gulang, na lumagda o dumiit sa kasulatang kaloob pala, na sinangayunan namin sa harap ng Notario Publico,
Carlos T. Viniegra, ay nagpapahayag ng sumusunod:

Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng tirahan ng Bagong Pook
na nababanggit sa nasabing kasulatan, ay mananatili sa poder o possession ng Ina, na si Basilisa Comerciante
habang siya ay nabubuhay at

Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang nasabing
Basilisa Comerciante.

Sa katunayan ang nagsilagda kaming lahat sa labak nito sa harap ng abogado Carlos T. Viniegra at dalawang
saksi.

Nobeleta, Kabite. Ika-17 ng Disyembre, 1975.[5]

On February 6, 1979, Basilisa executed a Deed of Absolute Sale of the subject house and lot in
favor of herein petitioner Apolinaria Austria-Magat for Five Thousand Pesos (P5,000.00). As the
result of the registration of that sale, Transfer Certificate of Title (TCT for brevity) No. RT-4036 in the
name of the donor was cancelled and in lieu thereof TCT No. T-10434 was issued by the Register of
Deeds of Cavite City in favor of petitioner Apolinaria Austria-Magat on February 8, 1979.
On September 21, 1983, herein respondents Teodora Carampot, Domingo Comia, and Ernesto
Apolo (representing their deceased mother Consolacion Austria), Ricardo, Mamerto and Segunda, all
surnamed Sumpelo (representing their deceased mother Rosario Austria) and Florentino Lumubos
filed before the Regional Trial Court of Cavite an action, docketed as Civil Case No. 4426 against the
petitioner for annulment of TCT No. T-10434 and other relevant documents, and for reconveyance
and damages.
On August 15,1986, the trial court dismissed Civil Case No. 4426 per its Decision, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, this Court hereby renders judgment for defendant dismissing this case
and ordering plaintiffs to pay the amount of P3,000.00 as attorneys fees and the costs of suit.

SO ORDERED.[6]

According to the trial court, the donation is a donation mortis causa pursuant to Article 728 of the
New Civil Code inasmuch as the same expressly provides that it would take effect upon the death of
the donor; that the provision stating that the donor reserved the right to revoke the donation is a
feature of a donation mortis causa which must comply with the formalities of a will; and that inasmuch
as the donation did not follow the formalities pertaining to wills, the same is void and produced no
effect whatsoever. Hence, the sale by the donor of the said property was valid since she remained to
be the absolute owner thereof during the time of the said transaction.
On appeal, the decision of the trial court was reversed by the Court of Appeals in its subject
decision, the dispositive portion of which reads, to wit:

WHEREFORE, in view of the foregoing, the appealed decision is hereby SET ASIDE and a new one rendered:

1. declaring null and void the Deed of Sale of Registered Land (Annex B) and Transfer
Certificate of Title No. T-10434 of the Registry of Deeds of Cavite City (Annex E) and
ordering the cancellation thereof; and
2. declaring appellants and appellee co-owners of the house and lot in question in
accordance with the deed of donation executed by Basilisa Comerciante on December 17,
1975.

No pronouncement as to costs.

SO ORDERED.[7]

The appellate court declared in its decision that:

In the case at bar, the decisive proof that the deed is a donation inter vivos is in the provision that :

Ibinibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat na anak ko at sa

kanilang mga tagapagmana, ang aking lupang residential o tirahan sampu ng aking bahay nakatirik
doon xxx. (emphasis supplied)

This is a clear expression of the irrevocability of the conveyance. The irrevocability of the donation is a
characteristic of a donation inter vivos. By the words hindi mababawi, the donor expressly renounced the right
to freely dispose of the house and lot in question. The right to dispose of a property is a right essential to full
ownership. Hence, ownership of the house and lot was already with the donees even during the donors lifetime.
xxx

xxx xxx xxx

In the attached document to the deed of donation, the donor and her children stipulated that:

Gayon din ang nasabing titulo ay hindi mapapasangla o maipagbibili ang lupa habang may buhay ang nasabing
Basilisa Comerciante.

The stipulation is a reiteration of the irrevocability of the dispossession on the part of the donor. On the other
hand, the prohibition to encumber, alienate or sell the property during the lifetime of the donor is a recognition
of the ownership over the house and lot in issue of the donees for only in the concept of an owner can one
encumber or dispose a property.[8]

Hence this appeal grounded on the following assignment of errors:

I

THE RESPONDENT COURT OF APPEALS, WITH DUE RESPECT, IGNORED THE RULES OF
INTERPRETATION OF CONTRACTS WHEN IT CONSIDERED THE DONATION IN
QUESTION AS INTER VIVOS.
 II

THE RESPONDENT COURT OF APPEALS, AGAIN WITH DUE RESPECT, ERRED IN NOT
HOLDING THAT THE PRESENT ACTION HAS PRESCRIBED UNDER THE STATUTE OF
LIMITATIONS.[9]

Anent the first assignment of error, the petitioner argues that the Court of Appeals erred in ruling
that the donation was a donation inter vivos. She claims that in interpreting a document, the other
relevant provisions therein must be read in conjunction with the rest. While the document indeed
stated that the donation was irrevocable, that must be interpreted in the light of the provisions
providing that the donation cannot be encumbered, alienated or sold by anyone, that the property
donated shall remain in the possession of the donor while she is alive, and that the donation shall
take effect only when she dies. Also, the petitioner claims that the donation is mortis causa for the
reason that the contemporaneous and subsequent acts of the donor, Basilisa Comerciante, showed
such intention. Petitioner cites the testimony of Atty. Viniegra, who notarized the deed of donation,
that it was the intent of the donor to maintain control over the property while she was alive; that such
intent was shown when she actually sold the lot to herein petitioner.
We affirm the appellate courts decision.
The provisions in the subject deed of donation that are crucial for the determination of the class to
which the donation belongs are, as follows:
xxx xxx xxx

xxx(I)binibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat na anak ko at sa

kanilang mga tagapagmana, ang aking lupang residential o tirahan sampu ng aking bahay nakatirik doon na
nasa Bagong Pook din, San Antonio, Lungsod ng Kabite

xxx xxx xxx

Na ang Kaloob palang ito ay magkakabisa lamang simula sa araw na akoy pumanaw sa mundo, xxx.

xxx xxx xxx

Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng tirahan ng Bagong
Pook na nababanggit sa nasabing kasulatan, ay mananatili sa poder o possesion ng Ina, na si Basilisa
Comerciante habang siya ay nabubuhay at

Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang
nasabing Basilisa Comerciante xxx.

It has been held that whether the donation is inter vivos or mortis causa depends on whether the
donor intended to transfer ownership over the properties upon the execution of the
deed.[10] In Bonsato v. Court of Appeals,[11] this Court enumerated the characteristics of a
donation mortis causa, to wit:
(1) It conveys no title or ownership to the transferee before the death of the transferor; or,
what amounts to the same thing, that the transferor should retain the ownership (full or
naked) and control of the property while alive;
(2) That before his death, the transfer should be revocable by the transferor at will, ad nutum;
but revocability may be provided for indirectly by means of a reserved power in the donor
to dispose of the properties conveyed;
(3) That the transfer should be void if the transferor should survive the transferee.
Significant to the resolution of this issue is the irrevocable character of the donation in the case at
bar. In Cuevas v. Cuevas,[12] we ruled that when the deed of donation provides that the donor will not
dispose or take away the property donated (thus making the donation irrevocable), he in effect is
making a donation inter vivos. He parts away with his naked title but maintains beneficial ownership
while he lives. It remains to be a donation inter vivos despite an express provision that the donor
continues to be in possession and enjoyment of the donated property while he is alive. In
the Bonsato case, we held that:
(W)hat is most significant [in determining the type of donation] is the absence of stipulation that the donor
could revoke the donations; on the contrary, the deeds expressly declare them to be irrevocable, a quality
absolutely incompatible with the idea of conveyances mortis causa where revocability is of the essence of the
act, to the extent that a testator can not lawfully waive or restrict his right of revocation (Old Civil Code,
Art.737; New Civil Code, Art. 828).[13]

Construing together the provisions of the deed of donation, we find and so hold that in the case at
bar the donation is inter vivos. The express irrevocability of the same (hindi na mababawi) is the
distinctive standard that identifies that document as a donation inter vivos. The other provisions
therein which seemingly make the donation mortis causa do not go against the irrevocable character
of the subject donation. According to the petitioner, the provisions which state that the same will only
take effect upon the death of the donor and that there is a prohibition to alienate, encumber, dispose,
or sell the same, are proofs that the donation is mortis causa. We disagree. The said provisions
should be harmonized with its express irrevocability. In Bonsato where the donation per the deed of
donation would also take effect upon the death of the donor with reservation for the donor to enjoy the
fruits of the land, the Court held that the said statements only mean that after the donors death, the
donation will take effect so as to make the donees the absolute owners of the donated property, free
from all liens and encumbrances; for it must be remembered that the donor reserved for himself a
share of the fruits of the land donated.[14]
In Gestopa v. Court of Appeals,[15] this Court held that the prohibition to alienate does not
necessarily defeat the inter vivos character of the donation. It even highlights the fact that what
remains with the donor is the right of usufruct and not anymore the naked title of ownership over the
property donated. In the case at bar, the provision in the deed of donation that the donated property
will remain in the possession of the donor just goes to show that the donor has given up his naked
title of ownership thereto and has maintained only the right to use (jus utendi) and possess (jus
possidendi) the subject donated property.
Thus, we arrive at no other conclusion in that the petitioners cited provisions are only necessary
assurances that during the donors lifetime, the latter would still enjoy the right of possession over the
property; but, his naked title of ownership has been passed on to the donees; and that upon the
donors death, the donees would get all the rights of ownership over the same including the right to
use and possess the same.
Furthermore, it also appeared that the provision in the deed of donation regarding the prohibition
to alienate the subject property is couched in general terms such that even the donor is deemed
included in the said prohibition (Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili
ang lupa habang maybuhay ang nasabing Basilisa Comerciante). Both the donor and the donees
were prohibited from alienating and encumbering the property during the lifetime of the donor. If the
donor intended to maintain full ownership over the said property until her death, she could have
expressly stated therein a reservation of her right to dispose of the same. The prohibition on the
donor to alienate the said property during her lifetime is proof that naked ownership over the property
has been transferred to the donees. It also supports the irrevocable nature of the donation
considering that the donor has already divested herself of the right to dispose of the donated
property. On the other hand, the prohibition on the donees only meant that they may not mortgage or
dispose the donated property while the donor enjoys and possesses the property during her
lifetime. However, it is clear that the donees were already the owners of the subject property due to
the irrevocable character of the donation.
The petitioner argues that the subsequent and contemporaneous acts of the donor would show
that her intention was to maintain control over her properties while she was still living.We
disagree. Respondent Domingo Comia testified that sometime in 1977 or prior to the sale of the
subject house and lot, his grandmother, the donor in the case at bar, delivered the title of the said
property to him; and that the act of the donor was a manifestation that she was acknowledging the
ownership of the donees over the property donated.[16] Moreover, Atty. Viniegra testified that when
the donor sold the lot to the petitioner herein, she was not doing so in accordance with the agreement
and intent of the parties in the deed of donation; that she was disregarding the provision in the deed
of donation prohibiting the alienation of the subject property; and that she knew that the prohibition
covers her as well as the donees.[17]
Another indication in the deed of donation that the donation is inter vivos is the acceptance clause
therein of the donees. We have ruled that an acceptance clause is a mark that the donation is inter
vivos. Acceptance is a requirement for donations inter vivos. On the other hand, donations mortis
causa, being in the form of a will, are not required to be accepted by the donees during the donors
lifetime.[18]
We now rule on whether the donor validly revoked the donation when one of her daughters and
donees, Consolacion Austria, violated the prohibition to encumber the property. When
Consolacion Austria mortgaged the subject property to a certain Baby Santos, the donor, Basilisa
Comerciante, asked one of the respondents herein, Domingo Comia, to redeem the property,
which the latter did. After the petitioner in turn redeemed the property from respondent Domingo, the
donor, Basilisa, sold the property to the petitioner who is one of the donees.
The act of selling the subject property to the petitioner herein cannot be considered as a valid act
of revocation of the deed of donation for the reason that a formal case to revoke the donation must be
filed pursuant to Article 764 of the Civil Code[19] which speaks of an action that has a prescriptive
period of four (4) years from non-compliance with the condition stated in the deed of donation. The
rule that there can be automatic revocation without benefit of a court action does not apply to the
case at bar for the reason that the subject deed of donation is devoid of any provision providing for
automatic revocation in event of non-compliance with the any of the conditions set forth therein. Thus,
a court action is necessary to be filed within four (4) years from the non-compliance of the condition
violated. As regards the ground of estoppel, the donor, Basilisa, cannot invoke the violation of the
provision on the prohibition to encumber the subject property as a basis to revoke the donation
thereof inasmuch as she acknowledged the validity of the mortgage executed by the donee,
Consolacion Austria, when the said donor asked respondent Domingo Comia to redeem the same.
Thereafter, the donor, Basilisa likewise asked respondent Florentino Lumubos and the petitioner
herein to redeem the same.[20] Those acts implied that the donees have the right of control and naked
title of ownership over the property considering that the donor, Basilisa condoned and acknowledged
the validity of the mortgage executed by one of the donees, Consolacion Austria.
Anent the second issue, the petitioner asserts that the action, against the petitioner, for
annulment of TCT No. T-10434 and other relevant documents, for reconveyance and damages, filed
by the respondents on September 21, 1983 on the ground of fraud and/or implied trust has already
prescribed. The sale happened on February 6, 1979 and its registration was made on February 8,
1979 when TCT No. RT-4036 in the name of the donor was cancelled and in lieu thereof TCT No. T-
10434 in the name of the petitioner was issued. Thus, more than four (4) years have passed since the
sale of the subject real estate property was registered and the said new title thereto was issued to the
petitioner. The petitioner contends that an action for reconveyance of property on the ground of
alleged fraud must be filed within four (4) years from the discovery of fraud which is from the date of
registration of the deed of sale on February 8, 1979; and that the same prescriptive period also
applies to a suit predicated on a trust relationship that is rooted on fraud of breach of trust.
When ones property is registered in anothers name without the formers consent, an implied trust
is created by law in favor of the true owner. Article 1144 of the New Civil Code provides:

Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment. (n)

Thus, an action for reconveyance of the title to the rightful owner prescribes in ten (10) years from the
issuance of the title.[21] It is only when fraud has been committed that the action will be barred after
four (4) years.[22]
However, the four-year prescriptive period is not applicable to the case at bar for the reason that
there is no fraud in this case. The findings of fact of the appellate court which are entitled to great
respect, are devoid of any finding of fraud. The records do not show that the donor, Basilisa, and the
petitioner ever intended to defraud the respondents herein with respect to the sale and ownership of
the said property. On the other hand, the sale was grounded upon their honest but erroneous
interpretation of the deed of donation that it is mortis causa, not inter vivos; and that the donor still
had the rights to sell or dispose of the donated property and to revoke the donation.
There being no fraud in the trust relationship between the donor and the donees including the
herein petitioner, the action for reconveyance prescribes in ten (10) years. Considering that TCT No.
T-10434 in the name of the petitioner and covering the subject property was issued only on February
8, 1979, the filing of the complaint in the case at bar in 1983 was well within the ten-year prescriptive
period.
The Court of Appeals, therefore, committed no reversible error in its appealed Decision.
WHEREFORE, the appealed Decision dated June 30, 1989 of the Court of Appeals is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-15939 January 31, 1966

ANGELES UBALDE PUIG, ET AL., plaintiffs-appellants,

vs.
ESTELLA MAGBANUA PEÑAFLORIDA, ET AL., defendants-appellants.

Salonga and Ordonez for the plaintiffs-appellants.

Fulgencio Vega for the defendants-appellants.

RESOLUTION

(Main opinion was promulgated on November 29, 1965).

REYES, J.B.L., J.:

Defendants-appellants Estela Magbanua Peñaflorida, et al., insist that the reservation by the donor of
the right to dispose of the property during her lifetime in the deed of December 28, 1949 indicates that
title had passed to the donee in her lifetime, otherwise, it is argued, the reservation would be
superfluous, and they cite American authorities in support.

This thesis would be plausible if the reservation of the power to dispose were the only indication to be
considered in deciding whether the donation of December 28, 1949 was mortis causa or inter vivos.
But such is not the case. The Court in its decision took to account not only the foregoing
circumstance but also the fact that the deceased expressly and consistently declared her conveyance
to be one of donation mortis causa, and further forbade the registration of the deed until after her
death. All these features concordantly indicated that the conveyance was not intended to produce any
definitive effects, nor to finally pass any interest to the grantee, except from and after the death of the
grantor.

We see nothing in the deed itself to indicate that any right, title or interest in the properties described
was meant to be transferred to Doña Estela Magbanua prior to the death of the grantor, Carmen
Ubalde Vda. de Parcon. Not ownership, certainly, for the stipulation:

Que esta escritura de donacion mortis causa no se registrara en la oficina del Registrador de
Titulos de Iloilo sino despues del fallecimiento de la Donante

necessarily meant, according to section 50 of the Land Registration Act, that the deed in
question should not take effect as a conveyance nor bind the land until after the death of the "donor".

Neither did the document operate to vest possession upon Doña Estela Magbanua, in view of the
express condition that (paragraph 3) if at the date of her death the donor had not transferred, sold, or
conveyed one-half of lot 58 of the Pototan Cadastre to other persons or entities, the donee would be
bound to pay to Caridad Ubalde, married to Tomas Pedrola, the amount of P600.00, and such
payment was to be made on the date the donee took possession of Lot No. 58. As the obligation to
pay the legacy to Caridad Ubalde would not definitely arise until after the death of the donor, because
only by then would it become certain that the "donor" could not transfer the property to someone else,
and such payment must precede the taking possession of the property "donated", it necessarily
follows that the "donee's" taking of possession could not occur before the death of the donor.

It being thus clear that the disposition contained in the deed is one that produces no effect until the
death of the grantor, we are clearly faced by an act mortis causa of the Roman and Spanish law. We
thus see no need of resorting to American authorities as to the import of the reservation of the donor's
right to dispose of the donated property, for the Spanish authorities are very clear on this point:

Desde el momento en que la muerte del donante es la que determina la adquisicion o el

derecho a los bienes; desde el montento en que la disposicion puede ser revocada
voluntariamente, se salva la linea divisoria entre unos y otros actos: la donacion equivale a un
legado; mas aun que esto: es un legado en realidad. (5 Manresa, 5th Ed., p. 107)

Ahora bien: si el mal llamado donante no solo dilata la fecha de la ejecucion para el momento
de su muerte, sino que ademas se reserva la facultad de revocar a su arbitrio la disposicion,
entonces el acto no es valido bajo la forma de contrato; hay en realidad una disposicion mortis
causa que exige las solemnidades del testamento. (V Manresa, 5th Ed., p. 109) (Emphasis
supplied)

The presence of an acceptance is but a consequence of the erroneous concept of the true nature of
the juridical act, and does not indicate that in the same is a true donation inter vivos.

Appellant Magbanua further argues that the reserved power of the donor to convey the donated
property to other parties during her lifetime is but a resolutory condition (albeit a potestative one) that
confirms the passing of the title to the donee. In reality, this argument is a veritable petitio principii; it
takes for granted what has to be proved, i.e., that some proprietary right has passed under the terms
of the deed, which, as we have shown, is not true until thedonor has died.

It is highly illuminating to compare the condition imposed in the deed of donation of December 28,
1949 with that established in the contract dealt with in Taylor vs. Uy Tieng Piao & Tau Liuan, 43 Phil.
874, invoked by appellants.

In the alleged deed of donation of December 28, 1949, the late Doña Carmen Ubalde imposed
expressly that:

Que antes de su muerte, la Donante podra enajenar, vender, traspasar e hipotecar a

cualesquiera personas o entidades los bienes aqui donados a favor de la Donataria en
concepto de Donacion mortis causa.

In the Taylor vs. Uy Tieng Piao case, on the other hand, the condition read:

It is understood and agreed that should the machinery to be installed in said factory fail, for any
reason, to arrive, in the City of Manila within the period of six (6) months from date hereof, this
contract may be cancelled by the party of the second part at its option, such cancellation,
however, not to occur before the expiration of such six (6) months. (pp. 874-875, cas. cit.).

In the Uy Tieng Piao case the contract could only be cancelled after six months, so that there could
be no doubt that it was in force at least for that long, and the optional cancellation can be viewed as a
resolutory condition (or more properly, a non-retroactive revocatory one); but no such restriction
limited the power of the donor, Doña Carmen Ubalde, to set at naught the alleged conveyance in
favor of Doña Estela Magbanua by conveying the property to other parties at any time, even at the
very next instant after executing the donation, if she so chose. It requires no argument to demonstrate
that the power, as reserved in the deed, was a power to destroy the donation at any time, and that it
meant that the transfer is not binding on the grantor until her death made it impossible to channel the
property elsewhere. Which, in the last analysis, as held in our main decision, signifies that the
liberality is testamentary in nature, and must appear with the solemnities required of last wills and
testaments in order to be legally valid.

Wherefore, the motion to reconsider is denied.

SECOND DIVISION
 MARIO SIOCHI, G.R. No. 169900
Petitioner,

- versus -

ALFREDO GOZON,
WINIFRED GOZON, GIL TABIJE, INTER-
DIMENSIONAL REALTY, INC., and ELVIRA
GOZON,
Respondents.

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

INTER-DIMENSIONAL REALTY, G.R. NO. 169977

INC., Present:
Petitioner,
CARPIO, J., CHAIRPERSON,
BRION,
- versus- DEL CASTILLO,
ABAD, AND
PEREZ, JJ.
MARIO SIOCHI, ELVIRA GOZON,
ALFREDO GOZON, AND Promulgated:
WINIFRED GOZON, MARCH 18, 2010
Respondents.

X--------------------------------------------------X

RESOLUTION

CARPIO, J.:

This is a consolidation of two separate petitions for review,[1] assailing the 7 July 2005 Decision[2] and the 30
September 2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 74447.

THIS CASE INVOLVES A 30,000 SQ.M. PARCEL OF LAND (PROPERTY) COVERED BY TCT NO.
5357.[4] THE PROPERTY IS SITUATED IN MALABON, METRO MANILA AND IS REGISTERED IN
THE NAME OF ALFREDO GOZON (ALFREDO), MARRIED TO ELVIRA GOZON (ELVIRA).

ON 23 DECEMBER 1991, ELVIRA FILED WITH THE CAVITE CITY REGIONAL TRIAL COURT
(CAVITE RTC) A PETITION FOR LEGAL SEPARATION AGAINST HER HUSBAND ALFREDO. ON 2
JANUARY 1992, ELVIRA FILED A NOTICE OF LIS PENDENS, WHICH WAS THEN
ANNOTATED ON TCT NO. 5357.

ON 31 AUGUST 1993, WHILE THE LEGAL SEPARATION CASE WAS STILL PENDING, ALFREDO
AND MARIO SIOCHI (MARIO) ENTERED INTO AN AGREEMENT TO BUY AND
SELL[5] (AGREEMENT) INVOLVING THE PROPERTY FOR THE PRICE OF P18 MILLION. AMONG
THE STIPULATIONS IN THE AGREEMENT WERE THAT ALFREDO WOULD: (1) SECURE AN
AFFIDAVIT FROM ELVIRA THAT THE PROPERTY IS ALFREDOS EXCLUSIVE PROPERTY AND TO
ANNOTATE THE AGREEMENT AT THE BACK OF TCT NO. 5357; (2) SECURE THE APPROVAL OF
THE CAVITE RTC TO EXCLUDE THE PROPERTY FROM THE LEGAL SEPARATION CASE; AND (3)
SECURE THE REMOVAL OF THE NOTICE OF LIS PENDENS PERTAINING TO THE SAID CASE AND
ANNOTATED ON TCT NO. 5357. HOWEVER, DESPITE REPEATED DEMANDS FROM MARIO,
ALFREDO FAILED TO COMPLY WITH THESE STIPULATIONS. AFTER PAYING THE P5 MILLION
EARNEST MONEY AS PARTIAL PAYMENT OF THE PURCHASE PRICE, MARIO TOOK POSSESSION
OF THE PROPERTY IN SEPTEMBER 1993. ON 6 SEPTEMBER 1993, THE AGREEMENT WAS
ANNOTATED ON TCT NO. 5357.
Meanwhile, on 29 June 1994, the Cavite RTC rendered a decision[6] in the legal separation case,
the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered decreeing the legal separation between petitioner
and respondent. Accordingly, petitioner Elvira Robles Gozon is entitled to live separately from
respondent Alfredo Gozon without dissolution of their marriage bond. The conjugal partnership
of gains of the spouses is hereby declared DISSOLVED and LIQUIDATED. Being the offending
spouse, respondent is deprived of his share in the net profits and the same is awarded to their
child Winifred R. Gozon whose custody is awarded to petitioner.

FURTHERMORE, SAID PARTIES ARE REQUIRED TO MUTUALLY SUPPORT THEIR CHILD

WINIFRED R. GOZON AS HER NEEDS ARISES.

SO ORDERED.[7]

As regards the property, the Cavite RTC held that it is deemed conjugal property.

ON 22 AUGUST 1994, ALFREDO EXECUTED A DEED OF DONATION OVER THE PROPERTY IN

FAVOR OF THEIR DAUGHTER, WINIFRED GOZON (WINIFRED). THE REGISTER OF DEEDS OF
MALABON, GIL TABIJE, CANCELLED TCT NO. 5357 AND ISSUED TCT NO. M-10508[8] IN THE
NAME OF WINIFRED, WITHOUT ANNOTATING THE AGREEMENT AND THE NOTICE OF LIS
PENDENS ON TCT NO. M-10508.

ON 26 OCTOBER 1994, ALFREDO, BY VIRTUE OF A SPECIAL POWER OF ATTORNEY[9] EXECUTED

IN HIS FAVOR BY WINIFRED, SOLD THE PROPERTY TO INTER-DIMENSIONAL REALTY, INC.
(IDRI) FOR P18 MILLION.[10] IDRI PAID ALFREDO P18 MILLION, REPRESENTING FULL PAYMENT
FOR THE PROPERTY.[11] SUBSEQUENTLY, THE REGISTER OF DEEDS OF MALABON CANCELLED
TCT NO. M-10508 AND ISSUED TCT NO. M-10976[12] TO IDRI.

MARIO THEN FILED WITH THE MALABON REGIONAL TRIAL COURT (MALABON RTC) A
COMPLAINT FOR SPECIFIC PERFORMANCE AND DAMAGES, ANNULMENT OF DONATION AND
SALE, WITH PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION AND/OR
TEMPORARY RESTRAINING ORDER.

ON 3 APRIL 2001, THE MALABON RTC RENDERED A DECISION,[13] THE DISPOSITIVE PORTION OF
WHICH READS:
 WHEREFORE, PREMISES CONSIDERED, JUDGMENT IS HEREBY RENDERED AS
FOLLOWS:
01. On the preliminary mandatory and prohibitory injunction:
1.1 THE SAME IS HEREBY MADE PERMANENT BY:
1.1.1 ENJOINING DEFENDANTS ALFREDO GOZON, WINIFRED GOZON,
INTER-DIMENSIONAL REALTY, INC. AND GIL TABIJE, THEIR AGENTS,
REPRESENTATIVES AND ALL PERSONS ACTING IN THEIR BEHALF
FROM ANY ATTEMPT OF COMMISSION OR CONTINUANCE OF THEIR
WRONGFUL ACTS OF FURTHER ALIENATING OR DISPOSING OF THE
SUBJECT PROPERTY;
1.1.2. ENJOINING DEFENDANT INTER-DIMENSIONAL REALTY, INC. FROM ENTERING AND
FENCING THE PROPERTY;
1.1.3. ENJOINING DEFENDANTS ALFREDO GOZON, WINIFRED GOZON, INTER-DIMENSIONAL
REALTY, INC. TO RESPECT PLAINTIFFS POSSESSION OF THE PROPERTY.
02. THE AGREEMENT TO BUY AND SELL DATED 31 AUGUST 1993, BETWEEN
PLAINTIFF AND DEFENDANT ALFREDO GOZON IS HEREBY APPROVED,
EXCLUDING THE PROPERTY AND RIGHTS OF DEFENDANT ELVIRA ROBLES-
GOZON TO THE UNDIVIDED ONE-HALF SHARE IN THE CONJUGAL PROPERTY
SUBJECT OF THIS CASE.
03. THE DEED OF DONATION DATED 22 AUGUST 1994, ENTERED INTO BY AND BETWEEN
DEFENDANTS ALFREDO GOZON AND WINIFRED GOZON IS HEREBY NULLIFIED AND VOIDED.
04. THE DEED OF ABSOLUTE SALE DATED 26 OCTOBER 1994, EXECUTED BY DEFENDANT
WINIFRED GOZON, THROUGH DEFENDANT ALFREDO GOZON, IN FAVOR OF DEFENDANT
INTER-DIMENSIONAL REALTY, INC. IS HEREBY NULLIFIED AND VOIDED.
05. DEFENDANT INTER-DIMENSIONAL REALTY, INC. IS HEREBY ORDERED TO DELIVER ITS
TRANSFER CERTIFICATE OF TITLE NO. M-10976 TO THE REGISTER OF DEEDS OF MALABON,
METRO MANILA.
06. THE REGISTER OF DEEDS OF MALABON, METRO MANILA IS HEREBY ORDERED TO CANCEL
CERTIFICATE OF TITLE NOS. 10508 IN THE NAME OF WINIFRED GOZON AND M-10976 IN THE
NAME OF INTER-DIMENSIONAL REALTY, INC., AND TO RESTORE TRANSFER CERTIFICATE OF
TITLE NO. 5357 IN THE NAME OF ALFREDO GOZON, MARRIED TO ELVIRA ROBLES WITH THE
AGREEMENT TO BUY AND SELL DATED 31 AUGUST 1993 FULLY ANNOTATED THEREIN IS
HEREBY ORDERED.
07. DEFENDANT ALFREDO GOZON IS HEREBY ORDERED TO DELIVER A DEED OF ABSOLUTE
SALE IN FAVOR OF PLAINTIFF OVER HIS ONE-HALF UNDIVIDED SHARE IN THE SUBJECT
PROPERTY AND TO COMPLY WITH ALL THE REQUIREMENTS FOR REGISTERING SUCH DEED.
08. ORDERING DEFENDANT ELVIRA ROBLES-GOZON TO SIT WITH PLAINTIFF TO AGREE ON
THE SELLING PRICE OF HER UNDIVIDED ONE-HALF SHARE IN THE SUBJECT PROPERTY,
THEREAFTER, TO EXECUTE AND DELIVER A DEED OF ABSOLUTE SALE OVER THE SAME IN
FAVOR OF THE PLAINTIFF AND TO COMPLY WITH ALL THE REQUIREMENTS FOR REGISTERING
SUCH DEED, WITHIN FIFTEEN (15) DAYS FROM THE RECEIPT OF THIS DECISION.
09. THEREAFTER, PLAINTIFF IS HEREBY ORDERED TO PAY DEFENDANT ALFREDO GOZON THE
BALANCE OF FOUR MILLION PESOS (P4,000,000.00) IN HIS ONE-HALF UNDIVIDED SHARE IN THE
PROPERTY TO BE SET OFF BY THE AWARD OF DAMAGES IN PLAINTIFFS FAVOR.
10. PLAINTIFF IS HEREBY ORDERED TO PAY THE DEFENDANT ELVIRA ROBLES-GOZON THE
PRICE THEY HAD AGREED UPON FOR THE SALE OF HER ONE-HALF UNDIVIDED SHARE IN THE
SUBJECT PROPERTY.
11. DEFENDANTS ALFREDO GOZON, WINIFRED GOZON AND GIL TABIJE ARE HEREBY
ORDERED TO PAY THE PLAINTIFF, JOINTLY AND SEVERALLY, THE FOLLOWING:
11.1 TWO MILLION PESOS (P2,000,000.00) AS ACTUAL AND COMPENSATORY
DAMAGES;
11.2 ONE MILLION PESOS (P1,000,000.00) AS MORAL DAMAGES;
11.3 FIVE HUNDRED THOUSAND PESOS (P500,000.00) AS EXEMPLARY DAMAGES;
11.4 FOUR HUNDRED THOUSAND PESOS (P400,000.00) AS ATTORNEYS FEES; AND
11.5 ONE HUNDRED THOUSAND PESOS (P100,000.00) AS LITIGATION EXPENSES.
11.6 THE ABOVE AWARDS ARE SUBJECT TO SET OFF OF PLAINTIFFS OBLIGATION IN
PARAGRAPH 9 HEREOF.
12. DEFENDANTS ALFREDO GOZON AND WINIFRED GOZON ARE HEREBY
ORDERED TO PAY INTER-DIMENSIONAL REALTY, INC. JOINTLY AND SEVERALLY
THE FOLLOWING:
12.1 EIGHTEEN MILLION PESOS (P18,000,000.00) WHICH CONSTITUTE THE
AMOUNT THE FORMER RECEIVED FROM THE LATTER PURSUANT TO THEIR
 DEED OF ABSOLUTE SALE DATED 26 OCTOBER 1994, WITH LEGAL INTEREST
THEREFROM;
12.2 ONE MILLION PESOS (P1,000,000.00) AS MORAL DAMAGES;
12.3 FIVE HUNDRED THOUSAND PESOS (P500,000.00) AS EXEMPLARY DAMAGES; AND
12.4 ONE HUNDRED THOUSAND PESOS (P100,000.00) AS ATTORNEYS FEES.
13. DEFENDANTS ALFREDO GOZON AND WINIFRED GOZON ARE HEREBY
ORDERED TO PAY COSTS OF SUIT.

SO ORDERED.[14]

ON APPEAL, THE COURT OF APPEALS AFFIRMED THE MALABON RTCS DECISION WITH
MODIFICATION. THE DISPOSITIVE PORTION OF THE COURT OF APPEALS
DECISION DATED 7 JULY 2005 READS:
WHEREFORE, PREMISES CONSIDERED, THE ASSAILED DECISION DATED APRIL 3,
2001 OF THE RTC, BRANCH 74, MALABON IS HEREBY AFFIRMED WITH
MODIFICATIONS, AS FOLLOWS:

1. THE SALE OF THE SUBJECT LAND BY DEFENDANT ALFREDO GOZON TO PLAINTIFF-

APPELLANT SIOCHI IS DECLARED NULL AND VOID FOR THE FOLLOWING REASONS:
A) THE CONVEYANCE WAS DONE WITHOUT THE CONSENT OF DEFENDANT-APPELLEE ELVIRA
GOZON;
B) DEFENDANT ALFREDO GOZONS ONE-HALF () UNDIVIDED SHARE HAS BEEN FORFEITED IN
FAVOR OF HIS DAUGHTER, DEFENDANT WINIFRED GOZON, BY VIRTUE OF THE DECISION IN
THE LEGAL SEPARATION CASE RENDERED BY THE RTC, BRANCH 16, CAVITE;
2. DEFENDANT ALFREDO GOZON SHALL RETURN/DELIVER TO PLAINTIFF-APPELLANT SIOCHI
THE AMOUNT OF P5 MILLION WHICH THE LATTER PAID AS EARNEST MONEY IN
CONSIDERATION FOR THE SALE OF THE SUBJECT LAND;
3. DEFENDANTS ALFREDO GOZON, WINIFRED GOZON AND GIL TABIJE ARE HEREBY ORDERED
TO PAY PLAINTIFF-APPELLANT SIOCHI JOINTLY AND SEVERALLY, THE FOLLOWING:
A) P100,000.00 AS MORAL DAMAGES;
B) P100,000.00 AS EXEMPLARY DAMAGES;
C) P50,000.00 AS ATTORNEYS FEES;
D) P20,000.00 AS LITIGATION EXPENSES; AND
E) THE AWARDS OF ACTUAL AND COMPENSATORY DAMAGES ARE HEREBY
ORDERED DELETED FOR LACK OF BASIS.
4. DEFENDANTS ALFREDO GOZON AND WINIFRED GOZON ARE HEREBY
ORDERED TO PAY DEFENDANT-APPELLANT IDRI JOINTLY AND SEVERALLY THE
FOLLOWING:
A) P100,000.00 AS MORAL DAMAGES;
B) P100,000.00 AS EXEMPLARY DAMAGES; AND
C) P50,000.00 AS ATTORNEYS FEES.

DEFENDANT WINIFRED GOZON, WHOM THE UNDIVIDED ONE-HALF SHARE OF DEFENDANT

ALFREDO GOZON WAS AWARDED, IS HEREBY GIVEN THE OPTION WHETHER OR NOT TO
DISPOSE OF HER UNDIVIDED SHARE IN THE SUBJECT LAND.

THE REST OF THE DECISION NOT INCONSISTENT WITH THIS RULING STANDS.

SO ORDERED.[15]

Only Mario and IDRI appealed the decision of the Court of Appeals. In his petition, Mario alleges that the
Agreement should be treated as a continuing offer which may be perfected by the acceptance of the other
spouse before the offer is withdrawn. Since Elviras conduct signified her acquiescence to the sale, Mario prays
for the Court to direct Alfredo and Elvira to execute a Deed of Absolute Sale over the property upon his
payment of P9 million to Elvira.

ON THE OTHER HAND, IDRI ALLEGES THAT IT IS A BUYER IN GOOD FAITH AND FOR VALUE.
THUS, IDRI PRAYS THAT THE COURT SHOULD UPHOLD THE VALIDITY OF IDRIS TCT NO. M-
10976 OVER THE PROPERTY.

WE FIND THE PETITIONS WITHOUT MERIT.

THIS CASE INVOLVES THE CONJUGAL PROPERTY OF ALFREDO AND ELVIRA. SINCE THE
DISPOSITION OF THE PROPERTY OCCURRED AFTER THE EFFECTIVITY OF THE FAMILY CODE,
THE APPLICABLE LAW IS THE FAMILY CODE. ARTICLE 124 OF THE FAMILY CODE PROVIDES:

Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to
both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to the
recourse to the court by the wife for a proper remedy, which must be availed of within five years
from the date of the contract implementing such decision.

IN THE EVENT THAT ONE SPOUSE IS INCAPACITATED OR OTHERWISE UNABLE TO

PARTICIPATE IN THE ADMINISTRATION OF THE CONJUGAL PROPERTIES, THE OTHER
SPOUSE MAY ASSUME SOLE POWERS OF ADMINISTRATION. THESE POWERS DO NOT
INCLUDE THE POWERS OF DISPOSITION OR ENCUMBRANCE WHICH MUST HAVE THE
AUTHORITY OF THE COURT OR THE WRITTEN CONSENT OF THE OTHER SPOUSE. IN THE
ABSENCE OF SUCH AUTHORITY OR CONSENT, THE DISPOSITION OR ENCUMBRANCE
SHALL BE VOID. HOWEVER, THE TRANSACTION SHALL BE CONSTRUED AS A CONTINUING
OFFER ON THE PART OF THE CONSENTING SPOUSE AND THE THIRD PERSON, AND MAY BE
PERFECTED AS A BINDING CONTRACT UPON THE ACCEPTANCE BY THE OTHER SPOUSE OR
AUTHORIZATION BY THE COURT BEFORE THE OFFER IS WITHDRAWN BY EITHER OR BOTH
OFFERORS. (EMPHASIS SUPPLIED)

In this case, Alfredo was the sole administrator of the property because Elvira, with whom Alfredo was
separated in fact, was unable to participate in the administration of the conjugal property. However, as sole
administrator of the property, Alfredo still cannot sell the property without the written consent of Elvira or the
authority of the court. Without such consent or authority, the sale is void. [16] The absence of the consent of one
of the spouse renders the entire sale void, including the portion of the conjugal property pertaining to the spouse
who contracted the sale.[17] Even if the other spouse actively participated in negotiating for the sale of the
property, that other spouses written consent to the sale is still required by law for its validity. [18] The Agreement
entered into by Alfredo and Mario was without the written consent of Elvira. Thus, the Agreement is entirely
void. As regards Marios contention that the Agreement is a continuing offer which may be perfected by Elviras
acceptance before the offer is withdrawn, the fact that the property was subsequently donated by Alfredo to
Winifred and then sold to IDRI clearly indicates that the offer was already withdrawn.

However, we disagree with the finding of the Court of Appeals that the one-half undivided share of Alfredo in
the property was already forfeited in favor of his daughter Winifred, based on the ruling of the Cavite RTC in
the legal separation case. The Court of Appeals misconstrued the ruling of the Cavite RTC that Alfredo, being
the offending spouse, is deprived of his share in the net profits and the same is awarded to Winifred.

THE CAVITE RTC RULING FINDS SUPPORT IN THE FOLLOWING PROVISIONS OF THE FAMILY
CODE:

ART. 63. THE DECREE OF LEGAL SEPARATION SHALL HAVE THE FOLLOWING
EFFECTS:
(1) THE SPOUSES SHALL BE ENTITLED TO LIVE SEPARATELY FROM EACH
OTHER, BUT THE MARRIAGE BONDS SHALL NOT BE SEVERED;
(2) THE ABSOLUTE COMMUNITY OR THE CONJUGAL PARTNERSHIP
SHALL BE DISSOLVED AND LIQUIDATED BUT THE OFFENDING
 SPOUSE SHALL HAVE NO RIGHT TO ANY SHARE OF THE NET
PROFITS EARNED BY THE ABSOLUTE COMMUNITY OR THE
CONJUGAL PARTNERSHIP, WHICH SHALL BE FORFEITED IN
ACCORDANCE WITH THE PROVISIONS OF ARTICLE 43(2);
(3) THE CUSTODY OF THE MINOR CHILDREN SHALL BE AWARDED TO THE
INNOCENT SPOUSE, SUBJECT TO THE PROVISIONS OF ARTICLE 213 OF
THIS CODE; AND
THE OFFENDING SPOUSE SHALL BE DISQUALIFIED FROM INHERITING FROM THE INNOCENT
SPOUSE BY INTESTATE SUCCESSION. MOREOVER, PROVISIONS IN FAVOR OF THE OFFENDING
SPOUSE MADE IN THE WILL OF THE INNOCENT SPOUSE SHALL BE REVOKED BY OPERATION
OF LAW.

Art. 43. The termination of the subsequent marriage referred to in the preceding Article shall produce the
following effects:
XXX
(2) THE ABSOLUTE COMMUNITY OF PROPERTY OR THE CONJUGAL
PARTNERSHIP, AS THE CASE MAY BE, SHALL BE DISSOLVED AND LIQUIDATED,
BUT IF EITHER SPOUSE CONTRACTED SAID MARRIAGE IN BAD FAITH, HIS OR
HER SHARE OF THE NET PROFITS OF THE COMMUNITY PROPERTY OR
CONJUGAL PARTNERSHIP PROPERTY SHALL BE FORFEITED IN FAVOR OF
THE COMMON CHILDREN OR, IF THERE ARE NONE, THE CHILDREN OF THE
GUILTY SPOUSE BY A PREVIOUS MARRIAGE OR, IN DEFAULT OF CHILDREN, THE
INNOCENT SPOUSE; (EMPHASIS SUPPLIED)

Thus, among the effects of the decree of legal separation is that the conjugal partnership is dissolved and
liquidated and the offending spouse would have no right to any share of the net profits earned by the conjugal
partnership. It is only Alfredos share in the net profits which is forfeited in favor of Winifred. Article 102(4) of
the Family Code provides that [f]or purposes of computing the net profits subject to forfeiture in accordance
with Article 43, No. (2) and 63, No. (2), the said profits shall be the increase in value between the market value
of the community property at the time of the celebration of the marriage and the market value at the time of its
dissolution. Clearly, what is forfeited in favor of Winifred is not Alfredos share in the conjugal partnership
property but merely in the net profits of the conjugal partnership property.

WITH REGARD TO IDRI, WE AGREE WITH THE COURT OF APPEALS IN HOLDING THAT IDRI IS
NOT A BUYER IN GOOD FAITH. AS FOUND BY THE RTC MALABON AND THE COURT OF
APPEALS, IDRI HAD ACTUAL KNOWLEDGE OF FACTS AND CIRCUMSTANCES WHICH SHOULD
IMPEL A REASONABLY CAUTIOUS PERSON TO MAKE FURTHER INQUIRIES ABOUT THE
VENDORS TITLE TO THE PROPERTY. THE REPRESENTATIVE OF IDRI TESTIFIED THAT HE
KNEW ABOUT THE EXISTENCE OF THE NOTICE OF LIS PENDENS ON TCT NO. 5357 AND THE
LEGAL SEPARATION CASE FILED BEFORE THE CAVITE RTC. THUS, IDRI COULD NOT FEIGN
IGNORANCE OF THE CAVITE RTC DECISION DECLARING THE PROPERTY AS CONJUGAL.

Furthermore, if IDRI made further inquiries, it would have known that the cancellation of the notice
of lis pendens was highly irregular. Under Section 77 of Presidential Decree No. 1529,[19] the notice
of lis pendens may be cancelled (a) upon order of the court, or (b) by the Register of Deeds upon verified
petition of the party who caused the registration of the lis pendens. In this case, the lis pendens was cancelled
by the Register of Deeds upon the request of Alfredo. There was no court order for the cancellation of
the lispendens. Neither did Elvira, the party who caused the registration of the lis pendens, file a verified
petition for its cancellation.
Besides, had IDRI been more prudent before buying the property, it would have discovered that Alfredos
donation of the property to Winifred was without the consent of Elvira. Under Article 125[20] of the Family
Code, a conjugal property cannot be donated by one spouse without the consent of the other spouse. Clearly,
IDRI was not a buyer in good faith.

Nevertheless, we find it proper to reinstate the order of the Malabon RTC for the reimbursement of the P18
million paid by IDRI for the property, which was inadvertently omitted in the dispositive portion of the Court
of Appeals decision.
WHEREFORE, we DENY the petitions. We AFFIRM the 7 July 2005 Decision of the Court of Appeals in
CA-G.R. CV No. 74447 with the following MODIFICATIONS:

(1) We DELETE the portions regarding the forfeiture of Alfredo Gozons one-half undivided share in favor of
Winifred Gozon and the grant of option to Winifred Gozon whether or not to dispose of her undivided share in
the property; and

(2) We ORDER Alfredo Gozon and Winifred Gozon to pay Inter-Dimensional Realty, Inc. jointly and
severally the Eighteen Million Pesos (P18,000,000) which was the amount paid by Inter-Dimensional Realty,
Inc. for the property, with legal interest computed from the finality of this Decision.

SO ORDERED.