G.R. No.

L-43082

June 18, 1937

xxx

xxx

xxx

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

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley. The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead. During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated. In his appeal, plaintiff contends that the lower court erred: I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the moment of the death of the former, and that from the time, the latter became the owner thereof. II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the estate of said deceased. III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten years after which, according

to the testator's will, the property could be and was to be delivered to the instituted heir. IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from the decedent's estate. V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial. The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides: The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley. The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be touched upon in the course of this opinion. (a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest, giftmortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a person

are transmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of forced heirs; it does not even use the word "heir". It speaks of the rights of succession and the transmission thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised

Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow: SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed: (a) The merger of the usufruct in the owner of the naked title. (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. (c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference. SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid: (a) In the second and third cases of the next preceding section, before entrance into possession of the property. (b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per centum. A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance. It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. (b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testator's death. The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a reasonable value of only P5,787. This amount added to the value of the personal property left by the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge, would amount only to about P169.52. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.) Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate vests in possession or the contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and authorities that New York has varied and now requires the immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out of the corpus of

the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343). But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. (c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate proceedings, . . . ." A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees' commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the duties of his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed the desire that his real estate be handled and managed by his executors until the expiration of the period of ten years therein provided. Judicial expenses

are expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within the class or reason for exempting administration expenses. . . . Service rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to support the contention that such expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax." (d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only as required by the old law. Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. (e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. As stated by this court, "the mere failure to pay one's tax does not render one delinqent until and unless the entire period has eplased within which the taxpayer is authorized by law to make such payment without being subjected to the payment of penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.) The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of

subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate, and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil Procedure). P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for thecestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to hiscestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p. 542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period which does not offend the rule against petuities. The collection of the tax would then be left to the will of a private individual. The mere suggestion of this result is a sufficient warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government. That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this policy of the law. It held that "the fact that on account of riots directed against the Chinese on

October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.) ". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.) It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases. The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer. To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became liable for the payment of the surcharge. In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief. We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley inaccordance with the conclusions we have reached.

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

G.R. Nos. L-9456 and L-9481

January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the COURT OF TAX APPEALS, respondents. Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara. Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue. MONTEMAYOR, J.: These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller, from the decision of the Court of Tax Appeals of June 25, 1955, with the following dispositive part: WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the decedent Hugo H. Miller is hereby modified in accordance with the computation attached as Annex "A" of this decision. Petitioner is hereby ordered to pay the amount of P2,047.22 representing estate taxes due, together with the interests and other increments. In case of failure to pay the amount of P2,047.22 within thirty (30) days from the time this decision has become final, the 5 per cent surcharge and the corresponding interest due thereon shall be paid as a part of the tax. The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly stated as follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later as a division superintendent of schools, later retiring under the Osmeiia Retirement Act. After his retirement, Miller accepted an executive position in the local branch of Ginn & Co., book publishers with principal offices in New York and Boston, U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in the Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also China and Japan. His principal work was selling books specially written for Philippine schools. In or about the year 1922, Miller lived at the Manila Hotel. His wife remained at their home in BenLomond, Santa Cruz, California, but she used to come to the Philippines for brief visits with Miller, staying three or four months. Miller also used to visit his wife in California. He never lived in any residential house in the Philippines. After the death

of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11, 1944, and since then, nothing has been heard from him. At the time of his death in 1944, Miller owned the following properties: Real Property situated in Ben-Lomond, Santa Cruz, California valued at ...................................................................... P 5,000.00 Real property situated in Burlingame, San Mateo, California valued at ........................................................................................ 16,200.00 Tangible Personal worth............................................. property, 2,140.00

Cash in the banks in the United States.................................... 21,178.20 Accounts Receivable from various persons in the United States including notes ............................................................... 36,062.74 Stocks in U.S. Corporations and U.S. Savings Bonds, valued at ........................................................................................ 123,637.16 Shares of stock in Philippine Corporations, valued at .......... 51,906.45

Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court subsequently issued an order and decree of settlement of final account and final distribution, wherein it found that Miller was a "resident of the County of Santa Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary proceedings were filed by the executors of the will before the Court of First Instance of Manila, which court by order of November 21, 1946, admitted to probate the will of Miller was probated in the California court, also found that Miller was a resident of Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax return with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability of P269.43 for taxes

and P230.27 for inheritance taxes. After due investigation, the Collector assessed estate and inheritance taxes, which was received by the said executor on April 3, 1950. The estate of Miller protested the assessment of the liability for estate and inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals. In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his death. The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a "residence" in this country, and was a resident thereof at the time of his death, and consequently, his intangible personal properties situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator, however, equally maintains that for estate and inheritance tax purposes, the term "residence" is synonymous with the term domicile. We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that the two were used intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without distinction, the case involving the application of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of the Revised Administrative Code), and that consequently, it will be presumed that in using the term residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is reason to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122124, cited in I Dalupan, National Internal Revenue Code Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is interpreted as synonymous with domicile, and that The incidence of estate and succession has historically been determined by domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den (1928) 272 U.S.608).

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in Santa Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs, such as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time, . . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtainsprotection, benefit, and power over the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates at stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80). The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code, which provides as follows: . . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of

his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country. The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from the California inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates of non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of 1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows: SEC. 6. The following exemption from the tax are hereby allowed: xxx xxx xxx.

amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed under the Federal Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court observes--. . . . this exemption is allowed on all gross estate of non-residents of the United States, who are not citizens thereof, irrespective of whether there is a corresponding or similar exemption from transfer or death taxes of non-residents of the Philippines, who are citizens of the United States; and thirdly, because this exemption is allowed on all gross estates of nonresidents irrespective of whether it involves tangible or intangible, real or personal property; so that for these reasons petitioner cannot claim a reciprocity. . . Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under section 85 of the Tax Code, before it was amended, which in part provides as follows: SEC. 85. Rates of estate tax.There shall be levied, assessed, collected, and paid upon the transfer of the net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum of the following percentages of the value of the net estate determined as provided in sections 88 and 89: One per centrum of the amount by which the net estate exceeds three thousand pesos and does not exceed ten thousand pesos;. . . It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other increments. Said Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The provisions of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic Act was approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but was killed by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the interests and other increments provided in the appealed judgment should not be paid by his estate. With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it unnecessary to pass upon the other points raised in the appeal. No costs.

(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is a resident of a State or Territory of the United States or a foreign state or country which at the time of his death imposed a legacy, succession of death tax in respect of intangible personal property within the State or Territory or foreign state or country of residents of the States or Territory or foreign state or country of residence of the decedent at the time of his death contained a reciprocal provision under which non-residents were exempted from legacy or succession taxes or death taxes of every character in respect of intangible personal property providing the State or Territory or foreign state or country of residence of such non-residents allowed a similar exemption to residents of the State, Territory or foreign state or country of residence of such decedent. Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible personal property found in the Philippines. Incidentally, this exemption granted to nonresidents under the provision of Section 122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a decedent's intangible personal property to the inheritance tax, both in his place of residence and domicile and the place where those properties are found. As regards the exemption or reduction of P4,000 based on the reduction under the Federal Tax Law in the

[G.R. No. L-10128. November 13, 1956.] MAMERTO C. CORRE, Plaintiff-Appellant, vs. GUADALUPE TAN CORRE, DefendantAppellee.

DECISION BAUTISTA ANGELO, J.: Plaintiff brought this action in the Court of First Instance of Manila seeking his legal separation from Defendant, his wife, and the placing of their minor children under the care and custody of a reputable womens dormitory or institution as the court may recommend. Defendant moved to dismiss the complaint on the ground that the venue is improperly laid. She claims that since it appears in the complaint that neither the Plaintiff nor the Defendant is a resident of the City of Manila the court where the action was filed is not the proper court to take cognizance of the case. The court upheld the contention of Defendant and, accordingly, dismissed the case without pronouncement as to costs. This is an appeal from this decision. The pertinent portion of the complaint which refers to the residence of both Plaintiff and Defendant is as follows:chanroblesvirtuallawlibrary 1. That Plaintiff is an American citizen, 44 years of age, resident of 114 North Ist Street, Las Vegas, Nevada, United States of America, master sergeant in the U. S. Army with military service address of Ro-6739431, Army Section, Military Assistance Advisory Group (MAAG) Formosa, APO 63, San Francisco, California, and for the purpose of filing and maintaining this suit, temporarily resides at 576 Paltoc, Santa Mesa, Manila; 2. That Defendant is a Filipino, 40 years of age and resident of the municipality of Catbalogan, province of Samar, Philippines, where summons may be served; Section 1, Rule 5, of the Rules of Court provides that Civil actions in Courts of First Instance may be commenced and tried where the Defendant or any of the Defendants resides or may be found, or where the Plaintiff or any of the Plaintiffs resides, at the election of the Plaintiff. From this rule it may be inferred that Plaintiff can elect to file the action in the court he may choose if both the Plaintiff and the Defendant have their residence in the Philippines. Otherwise, the action can only be brought in the place where either one resides. It the present case, it clearly appears in the complaint that the Plaintiff is a resident of Las Vegas, Nevada, U. S. A. while the Defendant is a resident of the municipality of Catbalogan, province of Samar. Such being the case, Plaintiff has no choice other than to file the action in the court of first instance of the latter province. The

allegation that the Plaintiff for the purpose of filing and maintaining this suit, temporarily resides at 576 Paltoc, Santa Mesa, Manila cannot serve as basis for the purpose of determining the venue for that is not the residence contemplated by the rule. If that were allowed, we would create a situation where a person may have his residence in one province and, to suit his convenience, or to harass the Defendant, may bring the action in the court of any other province. That cannot be the intendment of the rule. Indeed, residence as used in said rule is synonymous with domicile. This is define as the permanent home, the place to which, whenever absent for business or pleasure, one intends to return, and depends on facts and circumstances, in the sense that they disclose intent (67 C.J., 123-124). This is what we said in the recent case of Evangelista vs. Santos, 86 Phil., 387:chanroblesvirtuallawlibrary The fact that Defendant was sojourning in Pasay at the time he was served with summons does not make him a resident of that place for purposes of venue. Residence is the permanent home, the place to which, whenever absent for business or pleasure, one intends to return cralaw. (67 C.J. pp. 123-124.) A man can have but one domicile at a time (Alcantara vs. Secretary of Interior, 61 Phil. 459), and residence is synonymous with domicile under section 1 of Rule 5 (Morans Comments, supra, p. 104). The case of Dela Rosa and Go Kee vs. De Borja, 53 Phil., 990, cited by Appellant to support his contention, is not controlling. In that case, the Defendant submitted to the jurisdiction of the court and did not raise the point of venue until after judgment had been rendered. And so it was held that Defendant was estopped to raise this point on appeal, although in passing the court insinuated that residence for purposes of venue need not be permanent. At any rate, this matter should now be regarded as modified by our decision in the aforesaid case of Evangelista. Wherefore, the decision appealed from is affirmed, with costs against Appellant. Paras, C.J., Padilla, Montemayor, Labrador, Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., Concur.

G.R. No. L-46720

June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee. De Witt, Perkins and Ponce Enrile for appellant. Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee. Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as amici curi. MORAN, J.: An appeal from a declaratory judgment rendered by the Court of First Instance of Manila. Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized and existing under the laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly admitted to probate in California where her estate was administered and settled. Petitioner-appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created by the said will. The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent Collector of Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to which petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower court, with the statement that, "if it should be held by a final declaratory judgment that the transfer of the aforesaid shares of stock is legally subject to the Philippine inheritance tax, the petitioner will pay such tax, interest and penalties (saving error in computation) without protest and will not file to recover the same; and the petitioner believes and t herefore alleges that it should be held that such transfer is not subject to said tax, the respondent will not proceed to assess and collect the same." The Court of First Instance of Manila rendered judgment, holding that the transmission by will of the said 35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner. Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible personal property of a non-resident decedent,

located in the Philippines, the Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident reason that, being a property situated in this country, its transfer is, in some way, defendant, for its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by death necessarily takes place under his domiciliary laws. Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to the tax therein provided. This provision has already been applied to shares of stock in a domestic corporation which were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid down by the United States Supreme Court in four cases (Farmers Loan & Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371; Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75 Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401), to the effect that an inheritance tax can be imposed with respect to intangibles only by the State where the decedent was domiciled at the time of his death, and that, under the due-process clause, the State in which a corporation has been incorporated has no power to impose such tax if the shares of stock in such corporation are owned by a non-resident decedent. It is to be observed, however, that in a later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the United States Supreme Court upheld the authority of the Federal Government to impose an inheritance tax on the transmission, by death of a nonresident, of stock in a domestic (America) corporation, irrespective of the situs of the corresponding certificates of stock. But it is contended that the doctrine in the foregoing case is not applicable, because the due-process clause is directed at the State and not at the Federal Government, and that the federal or national power of the United States is to be determined in relation to other countries and their subjects by applying the principles of jurisdiction recognized in international relations. Be that as it may, the truth is that the due-process clause is "directed at the protection of the individual and he is entitled to its immunity as much against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was predicated on a proper regard for the relation of the states of the American Union, which requires that property should be taxed in only one state and that jurisdiction to tax is restricted accordingly. In other words, the application to the states of the due-process rule springs from a proper distribution of their powers and spheres of activity as ordained by the United States Constitution, and such distribution is enforced and protected by not allowing one state to reach out and tax property in another. And these considerations do not

apply to the Philippines. Our status rests upon a wholly distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the Union with another or with the United States. The status of the Philippines has been aptly defined as one which, though a part of the United States in the international sense, is, nevertheless, foreign thereto in a domestic sense. (Downes vs. Bidwell, 182 U. S., 244, 341.) At any rate, we see nothing of consequence in drawing any distinct between the operation and effect of the due-process clause as it applies to the individual states and to the national government of the United States. The question here involved is essentially not one of due-process, but of the power of the Philippine Government to tax. If that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the law involved is challenged, which is not, on considerations repugnant to such guaranty of due process of that of the equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or discriminatory. Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs. Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of law, formulated for reasons of convenience, to the actualities of each case. An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as o intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. It is on the basis of the first consideration that the case of Burnet vs. Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of the Government to impose an inheritance tax upon transmission, by death of a non-resident, of shares of stock in a domestic (America) corporation, regardless of the situs of their corresponding certificates; and on the basis of the second consideration, the case of Cury vs. McCanless, supra.

In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax is precluded by the due-process clause of the Fifth Amendment, held: The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are embodied in the due-process clause for the protection of life, liberty, and property of all persons citizens and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473, 476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710; 52 A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S. Ct., 358. If in the instant case the Federal Government had jurisdiction to impose the tax, there is manifestly no ground for assailing it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747; MaGray vs. United States, 195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 U.S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312; Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; 414, Ann. Cas, 1917B, 713; United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.) And, in sustaining the power of the Federal Government to tax properties within its borders, wherever its owner may have been domiciled at the time of his death, the court ruled: . . . There does not appear, a priori, to be anything contrary to the principles of international law, or hurtful to the polity of nations, in a State's taxing property physically situated within its borders, wherever its owner may have been domiciled at the time of his death. . . . As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds the citizenship of the owner, his domicile, the source of income, the situs of the property efforts have been made to preclude multiple taxation through the negotiation of appropriate international conventions. These endeavors, however, have proceeded upon express or implied recognition, and not in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon any one of these grounds. . . . (See pages 396-397; 399.)

In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and Tennessee may each constitutionally impose death taxes upon the transfer of an interest in intangibles held in trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciles in Tennessee, sustained the power of each State to impose the tax. In arriving at this conclusion, the court made the following observations: In cases where the owner of intangibles confines his activity to the place of his domicile it has been found convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301 U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are taxed at their situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia sequuntur personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410, supra; Baldwin vs. Missouri, 281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303, supra, which means only that it is the identify owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the rule even workable substitute for the reasons may exist in any particular case to support the constitutional power of each state concerned to tax. Whether we regard the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over tangibles or over persons whose relationships are source of intangibles rights, or on the benefit and protection conferred by the taxing sovereignty, or both, it is undeniable that the state of domicile is not deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some or all of the taxpayer's intangibles. Shares or corporate stock be taxed at the domicile of the shareholder and also at that of the corporation which the taxing state has created and controls; and income may be taxed both by the state where it is earned and by the state of the recipient's domicile. protection, benefit, and power over the subject matter are not confined to either state. . . .(p. 1347-1349.) . . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere mechanical operation of locating at a single place, and there taxing, every legal interest growing out of all the complex

legal relationships which may be entered into between persons. This is the case because in point of actuality those interests may be too diverse in their relationships to various taxing jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and applied before the Fourteen Amendment was adopted, and still recognized by this Court as valid. (P. 1351.) We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here involved is controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. Judgment is affirmed, with costs against petitioner-appellant. Avancea, C.J., Imperial, Diaz and Concepcion, JJ., concur.

G.R. No. L-11622

January 28, 1961

Australia & China Total Gross Assets P130,792.85

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents. x---------------------------------------------------------x G.R. No. L-11668 January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner, vs. THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents. BARRERA, J.: This case relates to the determination and settlement of the hereditary estate left by the deceased Walter G. Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on August 9, 1874 of British parents and married in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson another British subject) died on February 22, 1951 in San Francisco, California, U.S.A. whereto he and his wife moved and established their permanent residence since May 10, 1945. In his will executed in San Francisco on May 22, 1947, and which was duly probated in the Superior Court of California on April 11, 1951, Stevenson instituted his wife Beatrice as his sole heiress to the following real and personal properties acquired by the spouses while residing in the Philippines, described and preliminary assessed as follows: Gross Estate Real Property 2 parcels of land in Baguio, covered by T.C.T. Nos. 378 and 379 P43,500.00 Personal Property (1) 177 shares of stock of Canacao Estate at P10.00 each 1,770.00 (2) 210,000 shares of stock of Mindanao Mother Lode Mines, Inc. at P0.38 per share 79,800.00 (3) Cash credit with Canacao Estate Inc. (4) Cash, with the Chartered Bank of India, 4,870.88 851.97

On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of Manila for the settlement of the estate in the Philippines. In due time Stevenson's will was duly admitted to probate by our court and Ian Murray Statt was appointed ancillary administrator of the estate, who on July 11, 1951, filed a preliminary estate and inheritance tax return with the reservation of having the properties declared therein finally appraised at their values six months after the death of Stevenson. Preliminary return was made by the ancillary administrator in order to secure the waiver of the Collector of Internal Revenue on the inheritance tax due on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in the United States. Acting upon said return, the Collector of Internal Revenue accepted the valuation of the personal properties declared therein, but increased the appraisal of the two parcels of land located in Baguio City by fixing their fair market value in the amount of P52.200.00, instead of P43,500.00. After allowing the deductions claimed by the ancillary administrator for funeral expenses in the amount of P2,000.00 and for judicial and administration expenses in the sum of P5,500.00, the Collector assessed the state the amount of P5,147.98 for estate tax and P10,875,26 or inheritance tax, or a total of P16,023.23. Both of these assessments were paid by the estate on June 6, 1952. On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return in pursuance f his reservation made at the time of filing of the preliminary return and for the purpose of availing of the right granted by section 91 of the National Internal Revenue Code. In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. was reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total valuation of P79,800.00 to P42,000.00. This change in price per share of stock was based by the ancillary administrator on the market notation of the stock obtaining at the San Francisco California) Stock Exchange six months from the death of Stevenson, that is, As of August 22, 1931. In addition, the ancillary administrator made claim for the following deductions: Funeral expenses ($1,04326) Judicial Expenses: (a) Administrator's Fee (b) Attorney's Fee P1,204.34 6.000.00 P2,086.52

(c) Judicial and Administration expenses 1,400.05

as of August 9, 1952 8,604.39 Real Estate Tax for 1951 on Baguio real properties (O.R. No. B-1 686836) Claims against ($5,000.00) P10,000.00 Sub-Total the estate: P10,000.00 22.47 10,022.47 P21,365.88 652.50

Plus: 4% int. p.a. from Feb. 2 to 22, 1951

personal property belonging to the estate of said Stevenson is exempt from inheritance tax, pursuant to the provision of section 122 of the National Internal Revenue Code in relation to the California Inheritance Tax Law but decedent's estate is not entitled to an exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of estate and inheritance taxation the Baguio real estate of the spouses should be valued at P52,200.00, and 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. should be appraised at P0.38 per share; and (d) the estate shall be entitled to a deduction of P2,000.00 for funeral expenses and judicial expenses of P8,604.39. From this decision, both parties appealed. The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly committed by the trial court, while the assignees, Douglas and Bettina Fisher hereinafter called respondents, made six assignments of error. Together, the assigned errors raise the following main issues for resolution by this Court: (1) Whether or not, in determining the taxable net estate of the decedent, one-half () of the net estate should be deducted therefrom as the share of tile surviving spouse in accordance with our law on conjugal partnership and in relation to section 89 (c) of the National Internal revenue Code; (2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the National Internal Revenue Code granting exemption from the payment of estate and inheritance taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc.; (3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S. Internal Revenue Code in relation to section 122 of the National Internal Revenue Code; (4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court; (5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and administration expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and P10,0,22.47 representing the amount of indebtedness allegedly incurred by the decedent during his lifetime; and

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests in the estate to the spouses, Douglas and Bettina Fisher, respondents herein. On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax return (Exh. "M-N"). This return declared the same assets of the estate stated in the amended return of September 22, 1952, except that it contained new claims for additional exemption and deduction to wit: (1) deduction in the amount of P4,000.00 from the gross estate of the decedent as provided for in Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary administrator averred was allowable by way of the reciprocity granted by Section 122 of the National Internal Revenue Code, as then held by the Board of Tax Appeals in case No. 71 entitled "Housman vs. Collector," August 14, 1952; and (2) exemption from the imposition of estate and inheritance taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the reciprocity proviso of Section 122 of the National Internal Revenue Code. In this last return, the estate claimed that it was liable only for the amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a consequence, it had overpaid the government. The refund of the amount of P15,259.83, allegedly overpaid, was accordingly requested by the estate. The Collector denied the claim. For this reason, action was commenced in the Court of First Instance of Manila by respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said amount. Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals which court, after hearing, rendered decision the dispositive portion of which reads as follows: In fine, we are of the opinion and so hold that: (a) the one-half () share of the surviving spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property should be deducted from the net estate of the deceased Walter G. Stevenson, pursuant to Section 89-C of the National Internal Revenue Code; (b) the intangible

(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have overpaid the government and to be refundable to it. In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the absence of any ante-nuptial agreement, the contracting parties are presumed to have adopted the system of conjugal partnership as to the properties acquired during their marriage. The application of this doctrine to the instant case is being disputed, however, by petitioner Collector of Internal Revenue, who contends that pursuant to Article 124 of the New Civil Code, the property relation of the spouses Stevensons ought not to be determined by the Philippine law, but by the national law of the decedent husband, in this case, the law of England. It is alleged by petitioner that English laws do not recognize legal partnership between spouses, and that what obtains in that jurisdiction is another regime of property relation, wherein all properties acquired during the marriage pertain and belong Exclusively to the husband. In further support of his stand, petitioner cites Article 16 of the New Civil Code (Art. 10 of the old) to the effect that in testate and intestate proceedings, the amount of successional rights, among others, is to be determined by the national law of the decedent. In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place in 1909, the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil Code which became effective only in 1950. It is true that both articles adhere to the so-called nationality theory of determining the property relation of spouses where one of them is a foreigner and they have made no prior agreement as to the administration disposition, and ownership of their conjugal properties. In such a case, the national law of the husband becomes the dominant law in determining the property relation of the spouses. There is, however, a difference between the two articles in that Article 1 124 of the new Civil Code expressly provides that it shall be applicable regardless of whether the marriage was celebrated in the Philippines or abroad while Article 2 1325 of the old Civil Code is limited to marriages contracted in a foreign land. It must be noted, however, that what has just been said refers to mixed marriages between a Filipino citizen and a foreigner. In the instant case, both spouses are 3 foreigners who married in the Philippines. Manresa, in his Commentaries, has this to say on this point: La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y entre espanoles. El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es espanol. En cuanto a la regla procedente cuando dos extranjeros se casan en Espana, o dos espanoles en el extranjero hay que atender en el primer caso a la legislacion de pais a

que aquellos pertenezean, y en el segundo, a las reglas generales consignadas en los articulos 9 y 10 de nuestro Codigo. (Emphasis supplied.) If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons, married in 1909, would be the English law even if the marriage was celebrated in the Philippines, both of them being foreigners. But, as correctly observed by the Tax Court, the pertinent English law that allegedly vests in the decedent husband full ownership of the properties acquired during the marriage has not been proven by petitioner. Except for a mere allegation in his answer, which is not sufficient, the record is bereft of any evidence as to what English law says on the matter. In the absence of proof, the Court is justified, therefore, in indulging in what Wharton calls "processual presumption," in presuming that the law of England 4 on this matter is the same as our law. Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code) to bolster his stand. A reading of Article 10 of the old Civil Code, which incidentally is the one applicable, shows that it does not encompass or contemplate to govern the question of property relation between spouses. Said article distinctly speaks of amount of successional rights and this term, in speaks in our opinion, properly refers to the extent or amount of property that each heir is legally entitled to inherit from the estate available for distribution. It needs to be pointed out that the property relation of spouses, as distinguished from their successional rights, is governed differently by the specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the old Civil Code.) We, therefore, find that the lower court correctly deducted the half of the conjugal property in determining the hereditary estate left by the deceased Stevenson. On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents from paying inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity proviso of Section 122 of the National Internal Revenue Code, in relation to Section 13851 of the California Revenue and Taxation Code, on the ground that: (1) the said proviso of the California Revenue and Taxation Code has not been duly proven by the respondents; (2) the reciprocity exemptions granted by section 122 of the National Internal Revenue Code can only be availed of by residents of foreign countries and not of residents of a state in the United States; and (3) there is no "total" reciprocity between the Philippines and the state of California in that while the former exempts payment of both estate and inheritance taxes on intangible personal properties, the latter only exempts the payment of inheritance tax.. To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified that as an active member of the California Bar since 1931, he is familiar with the revenue and taxation laws of the State of California. When asked

by the lower court to state the pertinent California law as regards exemption of intangible personal properties, the witness cited article 4, section 13851 (a) and (b) of the California Internal and Revenue Code as published in Derring's California Code, a publication of the Bancroft-Whitney Company inc. And as part of his testimony, a full quotation of the cited section was offered in evidence as Exhibits "V-2" by the respondents. It is well-settled that foreign laws do not prove themselves in our jurisdiction and 5 our courts are not authorized to take judicial notice of them. Like any other fact, 6 they must be alleged and proved. Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our tribunals. However, although we believe it desirable that these laws be proved in accordance with said rule, we held in the case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our Code of Civil Procedure (now section 41, Rule 123) will convince one that these sections do not exclude the presentation of other competent evidence to prove the existence of a foreign law." In that case, we considered the testimony of an attorney-at-law of San Francisco, California who quoted verbatim a section of California Civil Code and who stated that the same was in force at the time the obligations were contracted, as sufficient evidence to establish the existence of said law. In line with this view, we find no error, therefore, on the part of the Tax Court in considering the pertinent California law as proved by respondents' witness. We now take up the question of reciprocity in exemption from transfer or death taxes, between the State of California and the Philippines.F Section 122 of our National Internal Revenue Code, in pertinent part, provides: ... And, provided, further, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer of tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country." (Emphasis supplied). On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.

"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt from the tax imposed by this part if the decedent at the time of his death was a resident of a territory or another State of the United States or of a foreign state or country which then imposed a legacy, succession, or death tax in respect to intangible personal property of its own residents, but either:. (a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal property of residents of this State, or (b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident was exempt from legacy, succession, or death taxes of every character if the Territory or other State of the United States or foreign state or country in which the nonresident resided allowed a similar exemption in respect to intangible personal property of residents of the Territory or State of the United States or foreign state or country of residence of the decedent." (Id.) It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to transfer or death taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death taxes of any and every character, in the case of the California law. Therefore, if any of the two states collects or imposes and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work. This is the underlying principle of the reciprocity clauses in both laws. In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein, there are imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the laws of California, only inheritance tax is imposed. On the other hand, the Federal Internal Revenue Code imposes an estate 7 tax on non-residents not citizens of the United States, but does not provide for any exemption on the basis of reciprocity. Applying these laws in the manner the Court of Tax Appeals did in the instant case, we will have a situation where a Californian, who is non-resident in the Philippines but has intangible personal properties here, will the subject to the payment of an estate tax, although exempt from the payment of the inheritance tax. This being the case, will a Filipino, non-resident of California, but with intangible personal properties there, be entitled to the exemption clause of the California law, since the Californian has not been exempted from every character of legacy, succession, or death tax because he is, under our law, under obligation to pay an estate tax? Upon the other hand, if we exempt the Californian from paying the estate tax, we do not thereby entitle a Filipino to be exempt from a similar estate tax in California because under the Federal Law, which is equally enforceable in California he is bound to pay the same, there being no

reciprocity recognized in respect thereto. In both instances, the Filipino citizen is always at a disadvantage. We do not believe that our legislature has intended such an unfair situation to the detriment of our own government and people. We, therefore, find and declare that the lower court erred in exempting the estate in question from payment of the inheritance tax. We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller from payment of the inheritance tax imposed by the Collector of Internal Revenue. It will be noted, however, that the issue of reciprocity between the pertinent provisions of our tax law and that of the State of California was not there squarely raised, and the ruling therein cannot control the determination of the case at bar. Be that as it may, we now declare that in view of the express provisions of both the Philippine and California laws that the exemption would apply only if the law of the other grants an exemption from legacy, succession, or death taxes of every character, there could not be partial reciprocity. It would have to be total or none at all. With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S. Federal Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our ruling in the Lara case (supra) that the amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature of a deduction and not of an exemption regarding which reciprocity cannot be claimed under the provision of Section 122 of our National Internal Revenue Code. Nor is reciprocity authorized under the Federal Law. . On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is contended that their assessed values, as appearing in the tax rolls 6 months after the death of Stevenson, ought to have been considered by petitioner as their fair market value, pursuant to section 91 of the National Internal Revenue Code. It should be pointed out, however, that in accordance with said proviso the properties are required to be appraised at their fair market value and the assessed value thereof shall be considered as the fair market value only when evidence to the contrary has not been shown. After all review of the record, we are satisfied that such evidence exists to justify the valuation made by petitioner which was sustained by the tax court, for as the tax court aptly observed: "The two parcels of land containing 36,264 square meters were valued by the administrator of the estate in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the assessed value of said properties. On the other hand, defendant appraised the same at P52,200.00. It is of common knowledge, and this Court can take judicial notice of it, that assessments for real estate taxation purposes are very much lower than

the true and fair market value of the properties at a given time and place. In fact one year after decedent's death or in 1952 the said properties were sold for a price of P72,000.00 and there is no showing that special or extraordinary circumstances caused the sudden increase from the price of P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951. Even more, the counsel for plaintiffs himself admitted in open court that he was willing to purchase the said properties at P2.00 per square meter. In the light of these facts we believe and therefore hold that the valuation of P52,200.00 of the real estate in Baguio made by defendant is fair, reasonable and justified in the premises." (Decision, p. 19). In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a domestic corporation), respondents contend that their value should be fixed on the basis of the market quotation obtaining at the San Francisco (California) Stock Exchange, on the theory that the certificates of stocks were then held in that place and registered with the said stock exchange. We cannot agree with respondents' argument. The situs of the shares of stock, for purposes of taxation, being located here in the Philippines, as respondents themselves concede and considering that they are sought to be taxed in this jurisdiction, consistent with the exercise of our government's taxing authority, their fair market value should be taxed on the basis of the price prevailing in our country. Upon the other hand, we find merit in respondents' other contention that the said shares of stock commanded a lesser value at the Manila Stock Exchange six months after the death of Stevenson. Through Atty. Allison Gibbs, respondents have shown that at that time a share of said stock was bid for at only P.325 (p. 103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never been questioned nor refuted by petitioner either before this court or in the court below. In the absence of evidence to the contrary, we are, therefore, constrained to reverse the Tax Court on this point and to hold that the value of a share in the said mining company on August 22, 1951 in the Philippine market was P.325 as claimed by respondents.. It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis of the declaration made by the estate in its preliminary return. Patently, this should not have been the case, in view of the fact that the ancillary administrator had reserved and availed of his legal right to have the properties of the estate declared at their fair market value as of six months from the time the decedent died.. On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of which by the Tax Court, both petitioner and respondents have appealed..

Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the sum of P8,604.39 for the following expenses:. 1) Administrator's fee 2) Attorney's fee 3) Judicial and Administrative expenses Total Deductions P1,204.34 6,000.00 2,052.55 P8,604.39

allowed by the Tax Court as deductions, and the P8,604.39 as found by the probate court, which is P652.50, the same amount allowed for realty taxes. An evident oversight has involuntarily been made in omitting the P2,000.00 for funeral expenses in the final computation. This amount has been expressly allowed by the lower court and there is no reason why it should not be. . We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section 89(a) (1) (E) and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should have been allowed the estate as a deduction, because it represented an indebtedness of the decedent incurred during his lifetime. In support thereof, they offered in evidence a duly certified claim, presented to the probate court in California by the Bank of California National Association, which it would appear, that while still living, Walter G. Stevenson obtained a loan of $5,000.00 secured by pledge on 140,000 of his shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59, record). The Tax Court disallowed this item on the ground that the local probate court had not approved the same as a valid claim against the estate and because it constituted an indebtedness in respect to intangible personal property which the Tax Court held to be exempt from inheritance tax. For two reasons, we uphold the action of the lower court in disallowing the deduction. Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of the decedent is necessary. This is so although the same, it is averred has been already admitted and approved by the corresponding probate court in California, situs of the principal or domiciliary administration. It is true that we have here in the Philippines only an ancillary administration in this case, but, it has been held, the distinction between domiciliary or principal administration and ancillary administration serves only to distinguish one administration from the 8 other, for the two proceedings are separate and independent. The reason for the ancillary administration is that, a grant of administration does not ex proprio vigore, have any effect beyond the limits of the country in which it was granted. Hence, we have the requirement that before a will duly probated outside of the Philippines can have effect here, it must first be proved and allowed before our courts, in much 9 the same manner as wills originally presented for allowance therein. And the estate shall be administered under letters testamentary, or letters of administration granted by the court, and disposed of according to the will as probated, after 10 payment of just debts and expenses of administration. In other words, there is a regular administration under the control of the court, where claims must be presented and approved, and expenses of administration allowed before deductions from the estate can be authorized. Otherwise, we would have the actuations of our own probate court, in the settlement and distribution of the

An examination of the record discloses, however, that the foregoing items were considered deductible by the Tax Court on the basis of their approval by the probate court to which said expenses, we may presume, had also been presented for consideration. It is to be supposed that the probate court would not have approved said items were they not supported by evidence presented by the estate. In allowing the items in question, the Tax Court had before it the pertinent order of the probate court which was submitted in evidence by respondents. (Exh. "AA-2", p. 100, record). As the Tax Court said, it found no basis for departing from the findings of the probate court, as it must have been satisfied that those expenses were actually incurred. Under the circumstances, we see no ground to reverse this finding of fact which, under Republic Act of California National Association, which it would appear, that while still living, Walter G. Stevenson obtained we are not inclined to pass upon the claim of respondents in respect to the additional amount of P86.52 for funeral expenses which was disapproved by the court a quo for lack of evidence. In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on the decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the Tax Court, we find that this claim has in fact been allowed. What happened here, which a careful review of the record will reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz: 1) Administrator's fee 2) Attorney's fee 3) Judicial and Administration expenses as of August 9, 1952 Total P1,204.34 6,000.00 2,052.55 P9,256.89

added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and administration expenses approved by the court, making a total of P2,052.55, exactly the same figure which was arrived at by the Tax Court for judicial and administration expenses. Hence, the difference between the total of P9,256.98

estate situated here, subject to the proceedings before the foreign court over which our courts have no control. We do not believe such a procedure is countenanced or contemplated in the Rules of Court. Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of Section 89, letter (d), number (1), of the National Internal Revenue Code which reads: (d) Miscellaneous provisions (1) No deductions shall be allowed in the case of a non-resident not a citizen of the Philippines unless the executor, administrator or anyone of the heirs, as the case may be, includes in the return required to be filed under section ninety-three the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines." In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in the Philippines appears in the three returns submitted to the court or to the office of the petitioner Collector of Internal Revenue. The purpose of this requirement is to enable the revenue officer to determine how much of the indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of the Internal Revenue Code which provides: (b) Deductions allowed to non-resident estates. In the case of a nonresident not a citizen of the Philippines, by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines (1) Expenses, losses, indebtedness, and taxes. That proportion of the 11 deductions specified in paragraph (1) of subjection (a) of this section which the value of such part bears the value of his entire gross estate wherever situated;" In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is equivalent to the proportion that the estate in the Philippines bears to the total estate wherever situated. Stated differently, if the properties in the Philippines constitute but 1/5 of the entire assets wherever situated, then only 1/5 of the indebtedness may be deducted. But since, as heretofore adverted to, there is no statement of the value of the estate situated outside the Philippines, no part of the indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d), number (1) of the Internal Revenue Code.

For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the alleged indebtedness in the sum of P10,022.47. In recapitulation, we hold and declare that: (a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership property constitutes his hereditary estate subject to the estate and inheritance taxes; (b) the intangible personal property is not exempt from inheritance tax, there existing no complete total reciprocity as required in section 122 of the National Internal Revenue Code, nor is the decedent's estate entitled to an exemption of P4,000.00 in the computation of the estate tax; (c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and (d) the P2,000.00 for funeral expenses should be deducted in the determination of the net asset of the deceased Stevenson. In all other respects, the decision of the Court of Tax Appeals is affirmed. Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a recomputation on the basis of this decision is hereby denied in line with our recent decision in Collector of Internal Revenue v. St. Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the absence of a statutory provision clearly or expressly directing or authorizing such payment, and none has been cited by respondents, the National Government cannot be required to pay interest." WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is hereby affirmed in all other respects not inconsistent herewith. No costs. So ordered. Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Gutierrez David, Paredes and Dizon, JJ., concur.

G.R. No. L-13250 October 29, 1971 THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. ANTONIO CAMPOS RUEDA, respondent.. Assistant Solicitor General Jose P. Alejandro and Special Attorney Jose G. Azurin, (O.S.G.) for petitioner. Ramirez and Ortigas for respondent. FERNANDO, J.: The basic issue posed by petitioner Collector of Internal Revenue in this appeal from a decision of the Court of Tax Appeals as to whether or not the requisites of statehood, or at least so much thereof as may be necessary for the acquisition of an international personality, must be satisfied for a "foreign country" to fall within the 1 exemption of Section 122 of the National Internal Revenue Code is now ripe for adjudication. The Court of Tax Appeals answered the question in the negative, and thus reversed the action taken by petitioner Collector, who would hold respondent Antonio Campos Rueda, as administrator of the estate of the late Estrella Soriano Vda. de Cerdeira, liable for the sum of P161,874.95 as deficiency estate and inheritance taxes for the transfer of intangible personal properties in the Philippines, the deceased, a Spanish national having been a resident of Tangier, Morocco from 1931 up to the time of her death in 1955. In an earlier resolution promulgated May 30, 1962, this Court on the assumption that the need for resolving the principal question would be obviated, referred the matter back to the Court of Tax Appeals to determine whether the alleged law of Tangier did grant the reciprocal tax exemption required by the aforesaid Section 122. Then came an order from the Court of Tax Appeals submitting copies of legislation of Tangier that would manifest that the element of reciprocity was not lacking. It was not until July 29, 1969 that the case was deemed submitted for decision. When the petition for review was filed on January 2, 1958, the basic issue raised was impressed with an element of novelty. Four days thereafter, however, on January 6, 1958, it was held by this Court that the aforesaid provision does not require that the "foreign 2 country" possess an international personality to come within its terms. Accordingly, we have to affirm. The decision of the Court of Tax Appeals, now under review, sets forth the background facts as follows: "This is an appeal interposed by petitioner Antonio Campos Rueda as administrator of the estate of the deceased Doa Maria de la Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector of

Internal Revenue, assessing against and demanding from the former the sum P161,874.95 as deficiency estate and inheritance taxes, including interest and penalties, on the transfer of intangible personal properties situated in the Philippines and belonging to said Maria de la Estrella Soriano Vda. de Cerdeira. Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish national, by reason of her marriage to a Spanish citizen and was a resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At the time of her 3 demise she left, among others, intangible personal properties in the Philippines." Then came this portion: "On September 29, 1955, petitioner filed a provisional estate and inheritance tax return on all the properties of the late Maria Cerdeira. On the same date, respondent, pending investigation, issued an assessment for state and inheritance taxes in the respective amounts of P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities were paid by petitioner ... . On November 17, 1955, an amended return was filed ... wherein intangible personal properties with the value of P396,308.90 were claimed as exempted from taxes. On November 23, 1955, respondent, pending investigation, issued another assessment for estate and inheritance taxes in the amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 ... . In a letter dated January 11, 1956, respondent denied the request for exemption on the ground that the law of Tangier is not reciprocal to Section 122 of the National Internal Revenue Code. Hence, respondent demanded the payment of the sums of P239,439.49 representing deficiency estate and inheritance taxes including ad valorem penalties, surcharges, interests and compromise penalties ... . In a letter dated February 8, 1956, and received by respondent on the following day, petitioner requested for the reconsideration of the decision denying the claim for tax exemption of the intangible personal properties and the imposition of the 25% and 5% ad valorem penalties ... . However, respondent denied request, in his letter dated May 5, 1956 ... and received by petitioner on May 21, 1956. Respondent premised the denial on the grounds that there was no reciprocity [with Tangier, which was moreover] a mere principality, not a foreign country. Consequently, respondent demanded the payment of the sums of P73,851.21 and P88,023.74 respectively, or a total of P161,874.95 as deficiency estate and inheritance taxes including surcharges, 4 interests and compromise penalties." The matter was then elevated to the Court of Tax Appeals. As there was no dispute between the parties regarding the values of the properties and the mathematical correctness of the deficiency assessments, the principal question as noted dealt with the reciprocity aspect as well as the insisting by the Collector of Internal Revenue that Tangier was not a foreign country within the meaning of Section 122. In ruling against the contention of the Collector of Internal Revenue, the appealed decision states: "In fine, we believe, and so hold, that the expression "foreign country", used in the last proviso of Section 122 of the National Internal Revenue Code, refers to a government of that foreign power which, although not an

international person in the sense of international law, does not impose transfer or death upon intangible person properties of our citizens not residing therein, or whose law allows a similar exemption from such taxes. It is, therefore, not necessary that Tangier should have been recognized by our Government order to entitle the petitioner to the exemption benefits of the proviso of Section 122 of our 5 Tax. Code." Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as above indicated, instead of ruling definitely on the question, this Court, on May 30, 1962, resolve to inquire further into the question of reciprocity and sent back the case to the Court of Tax Appeals for the motion of evidence thereon. The dispositive portion of such resolution reads as follows: "While section 122 of the Philippine Tax Code aforequoted speaks of 'intangible personal property' in both subdivisions (a) and (b); the alleged laws of Tangier refer to 'bienes muebles situados en Tanger', 'bienes muebles radicantes en Tanger', 'movables' and 'movable property'. In order that this Court may be able to determine whether the alleged laws of Tangier grant the reciprocal tax exemptions required by Section 122 of the Tax Code, and without, for the time being, going into the merits of the issues raised by the petitioner-appellant, the case is [remanded] to the Court of Tax Appeals for the reception of evidence or proof on whether or not the words `bienes muebles', 'movables' and 'movable properties as used in the Tangier laws, include 6 or embrace 'intangible person property', as used in the Tax Code." In line with the above resolution, the Court of Tax Appeals admitted evidence submitted by the administrator petitioner Antonio Campos Rueda, consisting of exhibits of laws of Tangier to the effect that "the transfers by reason of death of movable properties, corporeal or incorporeal, including furniture and personal effects as well as of securities, bonds, shares, ..., were not subject, on that date and in said zone, to the payment of any death tax, whatever might have been the nationality of the deceased or his heirs and legatees." It was further noted in an order of such Court referring the matter back to us that such were duly admitted in evidence during the 7 hearing of the case on September 9, 1963. Respondent presented no evidence." The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue Code. It reads thus: "That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible person property of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not 8 residing in that foreign country." The only obstacle therefore to a definitive ruling is whether or not as vigorously insisted upon by petitioner the acquisition of

internal personality is a condition sine qua non to Tangier being considered a "foreign country". Deference to the De Lara ruling, as was made clear in the opening paragraph of this opinion, calls for an affirmance of the decision of the Court of Tax Appeals. It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line with Pound's formulation that it be a politically organized sovereign community independent of outside control bound by penalties of nationhood, legally supreme within its territory, acting through a government functioning under a regime of 9 law. It is thus a sovereign person with the people composing it viewed as an organized corporate society under a government with the legal competence to 10 exact obedience to its commands. It has been referred to as a body-politic organized by common consent for mutual defense and mutual safety and to 11 promote the general welfare. Correctly has it been described by Esmein as "the 12 juridical personification of the nation." This is to view it in the light of its historical development. The stress is on its being a nation, its people occupying a definite territory, politically organized, exercising by means of its government its sovereign will over the individuals within it and maintaining its separate international personality. Laski could speak of it then as a territorial society divided into government and subjects, claiming within its allotted area a supremacy over all 13 other institutions. McIver similarly would point to the power entrusted to its government to maintain within its territory the conditions of a legal order and to 14 enter into international relations. With the latter requisite satisfied, international 15 law do not exact independence as a condition of statehood. So Hyde did opine. Even on the assumption then that Tangier is bereft of international personality, petitioner has not successfully made out a case. It bears repeating that four days after the filing of this petition on January 6, 1958 in Collector of Internal Revenue v. 16 De Lara, it was specifically held by us: "Considering the State of California as a foreign country in relation to section 122 of our Tax Code we believe and hold, as did the Tax Court, that the Ancilliary Administrator is entitled the exemption from 17 the inheritance tax on the intangible personal property found in the Philippines." There can be no doubt that California as a state in the American Union was in the alleged requisite of international personality. Nonetheless, it was held to be a foreign country within the meaning of Section 122 of the National Internal Revenue 18 Code. What is undeniable is that even prior to the De Lara ruling, this Court did commit itself to the doctrine that even a tiny principality, that of Liechtenstein, hardly an international personality in the sense, did fall under this exempt category. So it appears in an opinion of the Court by the then Acting Chief Justicem Bengson who thereafter assumed that position in a permanent capacity, in Kiene v. Collector of

Internal Revenue. As was therein noted: 'The Board found from the documents submitted to it proof of the laws of Liechtenstein that said country does not impose estate, inheritance and gift taxes on intangible property of Filipino citizens not residing in that country. Wherefore, the Board declared that pursuant to the exemption above established, no estate or inheritance taxes were collectible, 20 Ludwig Kiene being a resident of Liechtestein when he passed away." Then came this definitive ruling: "The Collector hereafter named the respondent cites decisions of the United States Supreme Court and of this Court, holding that intangible personal property in the Philippines belonging to a non-resident foreigner, who died outside of this country is subject to the estate tax, in disregard of the principle 'mobilia sequuntur personam'. Such property is admittedly taxable here. Without the proviso above quoted, the shares of stock owned here by the Ludwig Kiene would be concededly subject to estate and inheritance taxes. Nevertheless our Congress chose to make an exemption where conditions are such 21 that demand reciprocity as in this case. And the exemption must be honored." WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is affirmed. Without pronouncement as to costs. Concepcion, C.J., Makalintal, Zaldivar, Castro, Villamor and Makasiar, JJ., concur. Reyes, J.B.L., J., concurs in the result. Teehankee and Barredo, JJ., took no part.

19

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.: Assailed in this petition for review on certiorari is the December 21, 1995 Decision 2 of the Court of Appeals 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.
1

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, 3 be returned to the heirs. 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 4 erroneously paid estate tax. 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 5 tax for the year 1988. 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 6 No. 1254 for guardianship. On June 15, 1993, the Commissioner of Internal Revenue filed a motion for 7 reconsideration 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 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 9 December 21, 1995, the Court of Appeals denied the Commissioner's petition. 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 11 Internal Revenue Code (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
8

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.

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. 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. . . . 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. 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 12 gross estate of the decedent. 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 13 and the compromise penalty excluded. 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. ] 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 state 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. In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that:

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. 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. . . . xxx xxx xxx

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

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. 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 16 Internal Revenue Code of 1939, 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 17 the federal tax laws of the United States. 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. Judicial 19 expenses are expenses of administration. Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed by the federal and state courts of the United States to include all expenses "essential to the collection of the assets, 20 payment of debts or the distribution of the property to the persons entitled to it." In other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for the individual benefit of the heirs, devisees or 21 legatees are not deductible. This distinction has been carried over to our 22 jurisdiction. Thus, in Lorenzo v. Posadas 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 23 office, and not necessary in the settlement of the estate. Neither may attorney's fees incident to litigation incurred by the heirs in asserting their respective rights be 24 claimed as a deduction from the gross estate. 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.1wphi1.nt SO ORDERED. Melo, Vitug, Panganiban and Purisima, JJ., concur.

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. 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 1 process of law. Specifically, the petition assails the Decision 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 forcertiorari 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 2 Decision 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 forCertiorari 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-1-86-91002451 (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 certiorariand 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, 3 which is the promotion of the common good, may be achieved.

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 4 estate of the deceased. The case of Domingo vs. Garlitos 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 5 heirs before final adjudication; to determine who are the heirs of the 6 7 decedent; the recognition of a natural child; the status of a woman claiming to 8 be the legal wife of the decedent; the legality of disinheritance of an heir by the 9 10 testator; and to pass upon the validity of a waiver of hereditary rights. 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 11 proceeding has been held to be necessarily a proceeding in rem. 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 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.
12

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 13 heirs shall be liable therefor, in proportion to their share in the inheritance. 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 14 collection without regard to the clear provision of law." 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 O 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 15 effect. 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 xxx 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 xxx 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 illgotten 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 16 Internal Revenue, whose determinations and assessments are presumed correct 17 and made in good faith. 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 18 justify the judicial affirmance of said assessment. 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 19 remedy. 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) 20 via this instant petition forcertiorari. 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 xxx 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 xxx 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 21 Batasang Pambansa. 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.

G.R. No. L-33849 August 18, 1977 TEODORICO ALEJANDRO, IRENEO POLICARPIO, VIRGINIA ALEJANDRO, MARIA ALEJANDRO, SALUD ALEJANDRO, EMILIA ALEJANDRO, FLORENCIO ALEJANDRO and DIONISIA ALEJANDRO, petitioners, vs. HON. AMBROSIO M. GERALDEZ, Presiding Judge, Court of First Instance of Bulacan, Branch V, Sta. Maria, ANDREA DIAZ and ANGEL DIAZ, respondents. G.R. No. L-33968 August 18, 1977 ANDREA DIAZ, petitioner, vs. HON. AMBROSIO M. GERALDEZ, in his capacity as Presiding Judge of the Court of First Instance of Bulacan, Branch V, TEODORICO ALEJANDRO, IRENEO POLICARPIO, VIRGINIA ALEJANDRO, MARIA ALEJANDRO, EMILIA ALEJANDRO, FLORENCIO ALEJANDRO and DIONISIA ALEJANDRO, respondents. Ponciano G. Hernandez for Teodorico Alejandro, et al. Porfirio Villaroman for Andrea Diaz and Angel Diaz. AQUINO. J. This is a case about donations inter vivos and mortis causa . The bone of contention is Lot No. 2502 of the Lolomboy Friar Lands Estate with an area of 5,678 square meters, situated in Sta. Maria, Bulacan and covered by Transfer Certificate of Title No. 7336. The facts are as follows: On January 20, 1949 the spouses Gabino (Gavino) Diaz and Severa Mendoza, their daughter-in-law Regina Fernando and their three children, Olimpia Diaz, Angel Diaz and Andrea Diaz, executed a deed of donation covering eight lots of the Lolomboy Friar Lands Estate, owned by the Diaz spouses, located at Barrio Parada, Sta. Maria, Bulacan. The deed reads as follows: KASULATAN NG PAGKAKALOOB (A DEED OF DONATION) ALAMIN NG LAHAT NG MAKATUTUNGHAY NITO: Ang pagkakaloob (donation) na ito, ginawa at pinagtibay dito sa municipio ng Sta. Maria, lalawigan ng Bulacan, Pilipinas, ngayong

ika 20 ng Enero, 1949, ng mag-asawang GABINO DIAZ at SEVERA MENDOZA, filipinos, may mga sapat na gulang, naninirahan sa nayon ng Parada, Sta. Maria, Bulacan na dito'y kinikilalang NAGKALOOB (DONORS), sa kapakanan nila REGINA FERNANDO, filipina, may sapat na gulang, viuda; OLIMPIA DIAZ, filipina, may sapat na gulang, kasal kay Teodorico Alejandro, ANGEL DIAZ, filipino, may sapat na gulang, kasal kay Catalina Marcelo, at ANDREA DIAZ, filipina, may sapat na gulang, kasal kay Perfecto Marcelo, mga naninirahan sa nayon ng Parada, Sta. Maria, Bulacan, na dito'y kinikilalang PINAGKALOOBAN (DONEES). PAGPAPATUNAY: Na ang Nagkaloob (DONORS) ay siyang mayari, at kamayari at namomosision sa kasalukuyan ng mga parcelang lupa kasama ang mga kagalingan na nasa lugar ng Parada, Sta. Maria, Bulacan, mapagkikilala sa paraang mga sumusunod (description and statements as to registration are omitted): 1. TCT No. 7336, Lot No. 2502, 5,678 square meters. 2. TCT No. 10998, Lot No. 2485, 640 square meters. 3. TCT No. 10840, Lot No. 2377,16,600 square meters. 4. TCT No. 10997, Lot No. 2448,12,478 square meters. 5. TCT No. 2051, Lot No. 4168, 1,522 square meters. 6. TCT No. 17960, Lot No. 2522, 3,418 square meters. 7. TCT No. 17961, Lot No. 2521, 715 square meters. 8. TCT No. 21453, Lot No. 2634, 8,162 square meters. Na dahil at alang-alang sa pagmamahal at masuyong pagtingin na taglay ng NAGKAKALOOB (DONORS) sa Pinagkakalooban (DONEES) gayun din sa tapat at mahalagang paglilingkod noong mga lumipas na panahon na ginawa ng huli sa una, ang nabanggit na nagkakaloob sa pamamagitan ng kasulatang ito ng pagkakaloob (Donation) ay buong pusong inililipat at lubos na ibinibigay sa nasabing pinagkakalooban ang lupang binabanggit at

makikilala sa unahan nito, laya sa ano mang sagutin at pagkakautang, katulad nito: (a) Na ang lupang sinasaysay sa Lote No. 2502 o Titulo No. 7336, (No. 1) sa unahan nito ay hinati sa dalawang parte ang unang parte (1/2) na nasa bandang Kanluran (West) ay ipinagkakaloob ng mag-asawang Gabino Diaz at Severa Mendoza sa kanilang anak na si Angel Diaz, kasal kay Catalina Marcelo; at ang ikalawang parte (1/2) na nasa 'bandang silangan (East) ay ipinagkakaloob ng mag-asawang Gabino Diaz at Severa Mendoza sa kanilang anak na si Andrea Diaz, kasal kay Perfecto Marcelo." (Note Some dispositions are not reproduced verbatim but are merely summarized because they are not involved in this case. Paragraph (a) above is the one involved herein). (b) Lot No. 2485, TCT No.10998, to Regina Fernando (daughterin-law of the donors and widow of their deceased son, Miguel Diaz) and Olimpia Diaz in equal shares. (c) Lot No. 2377, TCT No. 10840, 1/3 to Angel Diaz, 1/3 to Andrea Diaz, and 1/3 "ay inilalaan o inihahanda ng mag-asawang Gabino Diaz at Severa Mendoza sa kanilang sariling kapakanan o mga gastos nila. (d) Lot No. 2448, TCT No. 10997 to Olimpia Diaz sa condicion na pagkakalooban ni Olimpia Diaz si Crisanta de la Cruz, asawa ni Alejandro - - - - - (sic) sakaling si Crisanta ay mamatay ng halagang isang daang piso (P100), bilang gastos sa libing." (e) Na ang lupang-solar na sinasaysay sa Lote No. 4168 o Titulo No. 2051 (No. 5); lupang-bukid na sinasaysay sa Lote No. 25?2 o Titulo No. 17960 (No. 6); at lupang-bukid na sinasaysay sa Lote No. 2521 o Titulo No. 17961 (No. 7) sa unahan nito ay inilalaan o inihahanda ng mag-asawang Gabino Diaz at Severa Mendoza sa kanilang sariling kapakanan o mga gastos nila. (f) Lot No. 2643, TCT No. 21453, to Regina Fernando and her children with the deceased Miguel Diaz in whose name the said Lot was already registered.

Na kaming mga pinagkakalooban (DONEES) na sila Regina Fernando, Olimpia Diaz, Angel Diaz at Andrea Diaz ay tinatanggap namin ng buong kasiyahang loob ang pagkakaloob (Donation.) na ito, at sa pamamagitan nito ay kinikilala, pinahahalagahan, at lubos na pinasasalamatan namin ang kagandahang loob at paglingap na ipinakita at ginawa ng nagkakaloob (Donors). AT SA WAKAS, ang pagkakaloob na ito (DONATION), ay sumasailalim sa paraang mga sumusunod: 1. Ang mga Pinagkakalooban (Donatarios) na sila Regina Fernando, Olimpia Diaz, Angel Diaz, at Andrea Diaz, siyang nakaaalam sa mga gastos sa pagkakasakit at sa libing ng NAGKALOOB (DONANTE); 2. Na ang mga Pinagkalooban (DONATARIOS) ay hindi maaaring makapagbili sa pangatlong tao ng nasabing mga pagaari samantalang ang nagkaloob (Donante) ay buhay Datapwa't kung ang pagbibiling gagawin ay upang malunasan ang mga gastos at menitencion ng Nagkaloob (Donante) samakatuwid ang nasabing pagbibili ay matuwid; 3. Gayun din, samantalang kaming mag-asawang Gabino Diaz at Severa Mendoza ay buhay, patuloy ang aming pamamahala, karapatan, at pagkamay-ari sa mga nasabing pagaari na sinasaysay sa unahan nito na pag-aari namin; ngunit sakaling kami ay bawian ng buhay ng Panginoong Dios at mamatay na ang mga karapatan at pagkamay-ari ng bawa't Pinagkalooban (Donatarios) sa bawa't pag-aari na nauukol sa bawa't isa ay may lubos na kapangyarihan." SA KATUNAYAN NG LAHAT, linagdaan namin ang kasulatang ito, dito sa Sta. Maria, Bulacan, ngayon ika 20 ng Enero, 1949, sa patibay ng dalawang sacsing kaharap. Signature Thumbmark Signature GABINO DIAZ SEVERA MENDOZA REGINA FERNANDO Thumbmark Signature Signature OLIMPIA DIAZ ANGEL DIAZ ANDREA DIAZ (Acknowledgment signed by Notary Celedonio Reyes is omitted) Gabino Diaz died in 1962. On October 20, 1964 Severa Mendoza and her two children, Andrea Diaz and Angel Diaz, executed a deed of donation denominated as

"Kasulatan ng Pagbibigay na Magkakabisa Pagkamatay (Donation Mortis causa )" over one-half of Lot No. 2377-A, which is a portion of Lot No. 2377 of the Lolomboy Friar Lands Estate (which in turn is item 3 or [c] in the 1949 deed of donation already mentioned). In that deed of donation, Severa Mendoza donated to Andrea Diaz her one-half share in Lot 2377-A, which one-half share is Identified as Lot 2377-A-1, on condition that Andrea Diaz would bear the funeral expenses to be incurred after the donor's death. She died in 1964. It should be noted that the other one-half share in Lot 2377-A or Lot No. 2377-A-2 was previously adjudicated to Angel Diaz because he defrayed the funeral expenses on the occasion of the death of Gabino Diaz. On May 12, 1970 Andrea Diaz sued her brother, Angel Diaz, in the Court of First Instance of Bulacan, Sta. Maria Branch V for the partition of Lots Nos. 2377-A and 2502 (Civil Case No. SM-357). Teodorico Alejandro, the surviving spouse of Olimpia Diaz, and their children intervened in the said case. They claimed one-third of Lot No. 2502. Angel Diaz alleged in his answer that he had. been occupying his share of Lot No. 2502 "for more than twenty years". The intervenors claimed that the 1949 donation was a void mortis causa disposition. On March 15, 1971 the lower court rendered a partial decision with respect to Lot No. 2377-A. The case was continued with respect to Lot No. 2502 which is item No. 1 or (a) in the 1949 deed of donation. The record does not show what happened to the other six lots mentioned in the deed of donation. The trial court in its decision of June 30, 1971 held that the said deed of donation was a donation mortis causa because the ownership of the properties donated did not pass to the donees during the donors' lifetime but was transmitted to the donees only "upon the death of the donors". However, it sustained the division of Lot No. 2502 into two equal parts between Angel Diaz and Andrea Diaz on the theory that the said deed of donation was effective "as an extra-judicial partition among the parents and their children. Consequently, the Alejandro intervenors were not given any share in Lot No. 2502. Angel Diaz and the intervenors were ordered to pay Andrea Diaz "attorney's fees of P1,000 each or a total of P2,000". The Alejandro intervenors filed a motion for reconsideration, On July 16, 1971 the trial court denied that motion but eliminated the attorney's fees.

Andrea Diaz and the Alejandro intervenors filed separate appeals to this Court under Republic Act No. 5440. Andrea Diaz contends that the 1949 deed of donation is a valid donation inter vivos and that the trial court erred in deleting the award for attorney's fees. The Alejandro intervenors contend that the said donation is mortis causa ; that they are entitled to a one-third share in Lot No, 2502, and that the trial court erred in characterizing the deed as a valid partition. In the ultimate analysis, the appeal involves the issue of whether the Alejandro intervenors should be awarded one-third of Lot No. 2502, or 1,892 square meters thereof, as intestate heirs of the Diaz spouses. To resolve that issue, it is necessary to determine whether the deed of donation is inter vivos or mortis causa. A brief exposition on the nature of donation inter vivos and mortis causa may facilitate the resolution of that issue. Many legal battles have been fought on the question of whether a particular deed is an inter vivos or mortis causa donation. The copious jurisprudence on that point sheds light on that vexed question. The Civil Code provides: ART. 728. Donations which are to take effect upon the death of the donor partake of the nature of testamentary provisions, and shall be governed by the rules established in the Title on Succession. (620). ART. 729. When the donor intends that the donation shall take effect during the lifetime of the donor, though the property shall not be delivered till after the donor's death, this shall be a donation inter vivos. The fruits of the property from the time of the acceptance of the donation, shall pertain to the donee, unless the donor provides otherwise. (n) ART. 730. The fixing of an event or the imposition of a suspensive condition, which may take place beyond the natural expectation of life of the donor, does not destroy the nature of the act as a donation inter vivos unless a contrary intention appears. (n) ART. 731. When a person donates something subject to the resolutory condition of the donor's survival, there is a donation inter vivos. (n) ART. 732. Donations which are to take effect inter vivos shall be governed by the general provisions on contracts and obligations in all that is not determined in this Title. (621)."

Nature of donations inter vivos and mortis causa transfers. Before tackling the issues raised in this appeal, it is necessary to have some familiarization with the distinctions between donations inter vivos and mortis causa because the Code prescribes different formalities for the two kinds of donations. An utter vivos donation of real property must be evidenced by a public document and should be accepted by the donee in the same deed of donation or in a separate instrument. In the latter case, the donor should be notified of the acceptance in an authentic form and that step should be noted in both instruments. (Art. 749, Civil Code. As to inter vivos donation of personal property, see art. 748). On the other hand, a transfer mortis causa should be embodied in a last will and testament (Art. 728, supra). It should not be called donation mortis causa . It is in reality a legacy (5 Manresa, Codigo Civil, 6th Ed., p. 107). If not embodied in a valid will, the donation is void (Narag vs. Cecilio, 109 Phil. 299; Aznar vs. Sucilla 102 Phil. 902; Tuazon vs. Posadas, 54 Phil. 289; Serrano vs. Solomon, 105 Phil. 998, 1002). This Court advised notaries to apprise donors of the necessity of clearly specifying whether, notwithstanding the donation, they wish to retain the right to control and dispose at will of the property before their death, without the consent or intervention of the beneficiary, since the reservation of such right would be a conclusive indication that the transfer' would be effective only at the donor's death, and, therefore, the formalities of testaments should be observed; while, a converso, the express waiver of the right of free disposition would place the inter vivos character of the donation beyond dispute (Cuevas vs. Cuevas, 98 Phil. 68,72). From the aforequoted articles 728 to 732, it is evident that it is the time of effectivity (aside from the form) which distinguishes a donation inter vivos from a donation mortis causa . And the effectivity is determined by the time when the full or naked ownership (dominum plenum or dominium directum) of the donated properties is transmitted to the donees. (See Lopez vs. Olbes, 15 Phil. 540; Gonzales and Fuster Fabra vs. Gonzales Mondragon, 35 Phil. 105). The execution of a public instrument is a mode of delivery or tradition (Ortiz vs. Court of Appeals, 97 Phil. 46). If the donation is made in contemplation of the donor's death, meaning that the full or naked ownership of the donated properties will pass to the donee only because of the donor's death, then it is at that time that the donation takes effect, and it is a donation mortis causa which should be embodied in a last will and testament (Bonsato vs. Court of Appeals, 95 Phil. 481). But if the donation takes effect during the donor's lifetime or independently of the donor's death, meaning that the full or naked ownership (nuda proprietas) ) of the donated properties passes to the donee during the donor's lifetime, not by reason

of his death but because of the deed of donation, then the donation is inter vivos (Castro vs. Court of Appeals, L-20122, April 28, 1969, 27 SCRA 1076). The effectivity of the donation should be ascertained from the deed of donation and the circumstances surrounding its execution. Where, for example, it is apparent from the document of trust that the donee's acquisition of the property or right accrued immediately upon the effectivity of the instrument and not upon the donor's death, the donation is inter vivos (Kiene vs. Collector of Internal Revenue, 97 Phil. 352). There used to be a prevailing notion, spawned by a study of Roman Law, that the Civil Code recognizes a donation mortis as a juridical act in contraposition to a donation inter vivos. That impression persisted because the implications of article 620 of the Spanish Civil Code, now article 728, that "las donaciones que hayan de producir sus efectos pro muerte del donante participan de la naturaleza de las disposiciones de ultima voluntad, y se regiran por las reglas establecidas en el capitulo de la sucesion testamentaria" had not been fully expounded in the law schools. Notaries assumed that the donation mortis causa of the Roman Law was incorporated into the Civil Code. As explained by Justice J. B. L. Reyes in the Bonsato case, supra, article 620 broke away from the Roman Law tradition and followed the French doctrine that no one may both donate and retain. Article 620 merged donations mortis causa with testamentary dispositions and thus suppressed the said donations as an independent legal concept. Castan Tobenas says: (b) Subsisten hoy en nuestro Derecho las donaciones mortis causa ? De lo que acabamos de decir se desprende que las donaciones mortis causa han perdido en el Codigo civil su caracter distintivo y su naturaleza, y hay que considerarlas hoy como una institucion suspirimida, refundida en la del legado. ... La tesis de la desaparicion de las donaciones mortis causa en nuestro Codigo Civil, acusada ya precedentemente por el projecto de 1851, puede decirse que constituye una communis opinio entre nuestros expositores, incluso los mas recientes. ... Garcia Goyena, comentando dicho proyecto, decia que la Comision se habia adherido al acuerdo de suprimir las donaciones mortis causa , seguido por casi todos los Codigos modernos. Las donaciones mortis causa a;adia-eran una especie de montsruo entre los contratos y ultimas voluntades; las algarabia del Derecho

romano y patrio sobre los puntos de semenjanza y disparidad de estas donaciones con los pactos y legados no podia producir sino dudas, confusion y pleitos en los rarisimos casos que ocurriesen por la dificuldad de apreciar y fijar sus verdaderos caracteres' "(4 Derecho Civil Espanol, Comun y Foral, 8th Ed., 1956, pp. 182-3). Manresa is more explicit. He says that "la disposicion del articulo 620 significa, por lo tanto: (1) que han desaperacido las llamadas antes donaciones mortis causa , por lo que el Codigo no se ocupa de ellas en absoluto; (2) que toda disposicion de bienes para despues de la muerte sigue las reglas establecidas para la sucesion testamentaria" (5 Comentarios al Codigo Civil Espanol, 6th Ed., p.107). Note that the Civil Code does not use the term donation mortis causa . ( Section 1536 of the Revised Administrative Code in imposing the inheritance tax uses the term "gift mortis causa ").lwphl@it What are the distinguishing characteristics of a donation mortis causa? Justice Reyes in the Bonsato case says that in a disposition post mortem (1) the transfer conveys no title or ownership to the transferee before the death of the tansferor, or the transferor (meaning testator) retains the ownership, full or naked (domino absoluto or nuda proprietas) (Vidal vs. Posadas, 58 Phil. 108; De Guzman vs. Ibea, 67 Phil. 633; (2) the transfer is revocable before the transferor's death and revocabllity may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed (Bautista vs. Sabiniano, 92 Phil. 244), and (3) the transfer would be void if the transferor survived the transferee. In other words, in a donation mortis causa it is the donor's death that determines that acquisition of, or the right to, the property donated, and the donation is revocable at the donor's will, Where the donation took effect immediately upon the donee's acceptance thereof and it was subject to the resolutory condition that the donation would be revoked if the donee did not give the donor a certain quantity of rice or a sum of money, the donation is inter vivos (Zapanta vs. Posadas, Jr., 52 Phil. 557). Justice Reyes in the subsequent cast of Puig vs. Penaflorida, L-15939, November 29, 1965, 15 SCRA 276, synthesized the rules as follows: 1. That the Civil Code recognizes only gratuitous transfers of property which are effected by means of donations inter vivos or by last will and testament executed with the requisite legal formalities.

2. That in inter vivos donations the act is immediately operative even if the material or physical deliver (execution) of the property may be deferred until the donor's death, whereas, in a testamentary disposition, nothing is conveyed to the grantee and nothing is acquired by him until the death of the grantortestator. The disposition is ambulatory and not final. 3. That in a mortis causa disposition the conveyance or alienation should be (expressly or by necessary implication) revocable ad nutum or at the discretion of the grantor or so called donor if he changes his mind (Bautista vs. Saniniano, 92 Phil. 244). 4. That, consequently, the specification in the deed of the cases whereby the act may be revoked by the donor indicates that the donation is inter vivos and not a mortis causa disposition (Zapanta vs. Posadas, 52 Phil. 557). 5. That the designation of the donation as mortis causa , or a provision in the deed to the effect the donation "is to take effect at the death of the donor", is not a controlling criterion because those statements are to be construed together with the rest of the instrument in order to give effect to the real intent of the transferor (Laureta vs. Mata and Mango, 44 Phil. 668; Concepcion vs. Concepcion, 91 Phil. 823; Cuevas vs. Cuevas, 98 Phil. 68). 6. That a conveyance for an onerous consideration is governed by the rules of contracts and not by those of donations or testaments (Carlos vs. Ramil, 20 Phil. 183; Manalo vs. De Mesa, 29 Phil. 495). 7. That 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. It may be added that the fact that the donation is given in consideration of love and affection or past or future services is not a characteristic of donations inter vivos because transfers mortis causa may be made also for those reasons. There is difficulty in applying the distinctions to controversial cases because it is not easy sometimes to ascertain when the donation takes effect or when the full or naked title passes to the transferee. As Manresa observes, "when the time fixed for the commencement of the enjoyment of the property donated be at the death of the

donor, or when the suspensive condition is related to his death, confusion might arise" (5 Codigo Civil, 6th Ed., p. 108). The existence in the deed of donation of conflicting stipulations as to its effectivity may generate doubt as to the donor's intention and as to the nature of the donation (Concepcion vs. Concepcion, 91 Phil. 823). Where the donor declared in the deed that the conveyance was mortis causa and forbade the registration of the deed before her death, the clear inference is that the conveyance was not intended to produce any definitive effect nor to pass any interest to the grantee except after her death. In such a case, the grantor's reservation of the right to dispose of the property during her lifetime means that the transfer is not binding on her until she dies. It does not mean that the title passed to the grantee during her lifetime. (Ubalde Puig vs. Magbanua Penaflorida, L-15939, Resolution of January 31, 1966, 16 SCRA 136). In the following cases, the conveyance was considered a void mortis causa transfer because it was not cast in the form of a last will and testament as required in article 728, formerly article 620: (a) Where it was stated in the deed of donation that the donor wanted to give the donee something "to take effect after his death" and that "this donation shall produce effect only by and because of the death of the donor, the property herein donated to pass title after the donor's death" (Howard vs. Padilla, 96 Phil. 983). In the Padilla case the donation was regarded as mortis causa although the donated property was delivered to the donee upon the execution of the deed and although the donation was accepted in the same deed. (b) Where it was provided that the donated properties would be given to the donees after the expiration of thirty days from the donor's death, the grant was made in the future tense, and the word "inherit" was used (Carino vs. Abaya, 70 Phil. 182). (c) Where the donor has the right to dispose of all the donated properties and the products thereof. Such reservation is tantamount to a reservation of the right to revoke the donation (Bautista vs. Sabiniano 92 Phil. 244). (d) Where the circumstances surrounding the execution of the deed of donation reveal that the donation could not have taken effect before the donor's death and the rights to dispose of the donated properties and to enjoy the fruits remained with the donor during her lifetime (David vs. Sison, 76 Phil. 418).

But if the deed of donation makes an actual conveyance of the property to the donee, subject to a life estate in the donors, the donation is is inter vivos (Guarin vs. De Vera, 100 Phil. 1100). Articles 729, 730 and 731 have to some extent dissipated the confusion surrounding the two kinds of donation. The rule in article 729 is a crystallization of the doctrine announced in decided cases. A clear instance where the donor made an inter vivos donation is found in De Guzman vs. Ibea 67 Phil. 633. In that case, it was provided in the deed that the donor donated to the donee certain properties so that the donee "may hold the same as her own and always" and that the donee would administer the lands donated and deliver the fruits thereof to the donor, as long as the donor was alive, but upon the donor's death the said fruits would belong to the donee. It was held that the naked ownership was conveyed to the donee upon the execution of the deed of donation and, therefore, the donation became effective during the donor's lifetime. In Sambaan vs. Villanueva, 71 Phil. 303, the deed of donation, as in Balaqui vs. Dongso, 53 Phil. 673, contained conflicting provision. It was provided in the deed that the donation was made "en consideracion al afecto y carino" of the donor for the donee but that the donation "surtira efectos despues de ocurrida mi muerte (donor's death). That donation was held to be inter vivos because death was not the consideration for the donation but rather the donor's love and affection for the donee. The stipulation that the properties would be delivered only after the donor's death was regarded as a mere modality of the contract which did not change its inter vivos character. The donor had stated in the deed that he was donating, ceding and transferring the donated properties to the donee. (See Joya vs. Tiongco, 71 Phil. 379). In Laureta vs. Mata and Magno, 44 Phil. 668 the deed of donation provided that the donor was donating mortis causa certain properties as a reward for the donee's services to the donor and as a token of the donor's affection for him. The donation was made under the condition that "the donee cannot take possession of the properties donated before the death of the donor"; that the ' donee should cause to be held annually masses for the repose of the donor's soul, and that he should defray the expenses for the donor's funeral. It was held that the said donation was inter vivos despite the statement in the deed that it was mortis causa . The donation was construed as a conveyance in praesenti

("a present grant of a future interest") because it conveyed to the donee the title to the properties donated "subject only to the life estate of the donor" and because the conveyance took effect upon the making and delivery of the deed. The acceptance of the donation was a circumstance which was taken into account in characterizing the donation as inter vivos. In Balacui vs. Dongso, supra, the deed of donation involved was more confusing than that found in the Laureta case. In the Balaqui case, it was provided in the deed that the donation was made in consideration of the services rendered to the donor by the donee; that "title" to the donated properties would not pass to the donee during the donor's lifetime, and that it would be only upon the donor's death that the donee would become the "true owner" of the donated properties. However, there was the stipulation that the donor bound herself to answer to the donee for the property donated and that she warranted that nobody would disturb or question the donee's right. Notwithstanding the provision in the deed that it was only after the donor's death when the 'title' to the donated properties would pass to the donee and when the donee would become the owner thereof, it was held in the Balaqui case that the donation was inter vivos. It was noted in that case that the donor, in making a warranty, implied that the title had already been conveyed to the donee upon the execution of the deed and that the donor merely reserved to herself the "possesion and usufruct" of the donated properties. In Concepcion vs. Concepcion, 91 Phil. 823, it was provided in the deed of donation, which was also styled as mortis causa , that the donation was made in consideration of the services rendered by the donee to the donor and of the donor's affection for the donee; that the donor had reserved what was necessary for his maintenance, and that the donation "ha de producir efectos solamente por muerte de la donante". It was ruled that the donation was inter vivos because the stipulation that the donation would take effect only after the donor's death "simply meant that the possession and enjoyment, of the fruits of the properties donated' should take effect only after the donor's death and not before". Resolution of the instant case. The donation in the instant case is inter vivos because it took effect during the lifetime of the donors. It was already effective during the donors' lifetime, or immediately after the execution of the deed, as shown by the granting, habendum and warranty clause of the deed (quoted below).

In that clause it is stated that, in consideration of the affection and esteem of the donors for the donees and the valuable services rendered by the donees to the donors, the latter, by means of the deed of donation, wholeheartedly transfer and unconditionally give to the donees the lots mentioned and described in the early part of the deed, free from any kind of liens and debts: Na dahil at alang-alang sa pagmamahal at masuyong pagtingin na taglay ng NAGKAKALOOB (DONORS) sa Pinagkakalooban (DONEES) gayun din sa tapat at mahalagang paglilingkod noong mga lumipas na panahon na ginawa ng huli sa una ang nabanggit na nagkakaloob sa pamagitan ng kasulatang ito ng pagkakaloob (Donation) ay buong pusong inililipat at lubos na ibinibigay sa nasabing pinagkakalooban ang lupang binabanggit at makikilala sa unahan nito, laya sa ano mang sagutin at pagkakautang, katulad nito: Following the above-ousted granting, habendum and warranty clause is the donors' declaration that they donate (ipinagkakaloob) Lot No. 2502, the property in litigation, in equal shares to their children Angel Diaz and Andrea Diaz, the western part to Angel and the eastern part to Andrea. The acceptance clause is another indication that the donation is inter vivos. Donations mortis causa , being in the form of a will, are never accepted by the donees during the donors' lifetime. Acceptance is a requirement for donations inter vivos. In the acceptance clause herein, the donees declare that they accept the donation to their entire satisfaction and, by means of the deed, they acknowledge and give importance to the generosity and solicitude shown by the donors and sincerely thank them. In the reddendum or reservation clause of the deed of donation, it is stipulated that the donees would shoulder the expenses for the illness and the funeral of the donors and that the donees cannot sell to a third person the donated properties during the donors' lifetime but if the sale is necessary to defray the expenses and support of the donors, then the sale is valid. The limited right to dispose of the donated lots, which the deed gives to the donees, implies that ownership had passed to them by means of' the donation and

that, therefore, the donation was already effective during the donors' lifetime. That is a characteristic of a donation inter vivos. However, paragraph 3 of the reddendum in or reservation clause provides that "also, while we, the spouses Gabino Diaz and Severa Mendoza, are alive, our administration, right, and ownership of the lots mentioned earlier as our properties shall continue but, upon our death, the right and ownership of the donees to each of the properties allocated to each of them shall be fully effective." The foregoing is the translation of the last paragraph of the deed of donation which reads: (3) Gayun din samantalang kaming mag-asawang Gabino Diaz at Severa Mendoza ay buhay, patuloy and aming pamamahala, karapatan, at pagkamayari sa mga nasabing pagaari na sinasaysay sa unahan nito na pagaari namin; ngunit sakaling kami ay bawian ng buhay ng Panginoong Dios at mamatay na, ang mga karapatan at pagkamayari ng bawa't pinagkalooban (Donatorios) sa bawa't pagaari nauukol sa bawa't isa ay may lubos na kapangyarihan. Evidently, the draftsman of the deed did not realize the discordant and ambivalent provisions thereof. The habendum clause indicates the transfer of the ownership over the donated properties to the donees upon the execution of the deed. But the reddendum clause seems to imply that the ownership was retained by the donors and would be transferred to the donees only after their death. We have reflected on the meaning of the said contradictory clauses. All the provisions of the deed, like those of a statute and testament, should be construed together in order to ascertain the intention of the parties. That task would have been rendered easier if the record shows the conduct of the donors and the donees after the execution of the deed of donation. But the record is silent on that point, except for the allegation of Angel Diaz in his answer (already mentioned) that he received his share of the disputed lot long before the donors' death and that he had been "openly and adversely occupying" his share "for more than twenty years". (Andrea Diaz on page 17 of her brief in L33849 states that the donees took possession of their respective shares as stipulated in the deed of donation. Pages 3,4,18 and 19, tsn March, 1971). Our conclusion is that the aforequoted paragraph 3 of the reddendum or reservation clause refers to the beneficial ownership (dominium utile) and not to the naked title and that what the donors reserved to themselves, by means of that clause, was the management of the donated lots and the fruits thereof. But, notwithstanding that reservation, the donation, as shown in the habendum clause,

was already effective during their lifetime and was not made in contemplation of their death because the deed transferred to the donees the naked ownership of the donated properties. That conclusion is further supported by the fact that in the deed of donation, out of the eight lots owned by the donors, only five were donated. Three lots, Lots Nos. 4168, 2522 and 2521 were superflously reserved for the spouses or donors in addition to one- third of Lot No. 2377. If the deed of donation in question was intended to be a mortis causa disposition, then all the eight lots would have been donated or devised to the three children and daughter-in-law of the donors. The trial court's conclusion that the said deed of donation, although void as a donation inter vivos is valid "as an extrajudicial partition among the parents and their children" is not well-taken. Article 1080 of the Civil Code provides that 46 should a person make a partition of his estate by an act inter vivos or by will, such partition shall be respected, insofar as it does not prejudice the legitime of the compulsory heirs." We have already observed that the said donation was not a partition of the entire estate of the Diaz spouses since, actually, only five of the eight lots, constituting their estate, were partitioned. Hence, that partition is not the one contemplated in article 1080. There is another circumstance which strengthens ' the view that the 1949 deed of donation in question took effect during the donors' lifetime. It may he noted that in that deed Lot No. 2377 (items 3 and [c]) was divided into three equal parts: onethird was donated to Andrea Diaz and one-third to Angel Diaz. The remaining onethird was reserved and retained by the donors, the spouses Gabino Diaz and Severo Mendoza, for their support. That reserved one-third portion came to be known as Lot No. 2377-A. In 1964 or after the death of Gabino Diaz, his surviving spouse Severa Mendoza executed a donation mortis causa wherein she conveyed to her daughter, Andrea Diaz (plaintiff-appellant herein), her one-half share in Lot No. 2377-A, which onehalf share is known as Lot No. 2377-A-1, the other half or Lot No. 2377-A-2 having been already conveyed to Angel Diaz. That disposition of Lot No. 2377-A-2 clearly implies that the conveyance in the 1949 deed of donation as to Lot No. 2377 took effect during the lifetime of the donors, Gabino Diaz and Severa Mendoza, and proves that the 1949 donation was inter vivos.

The instant case has a close similarity to the pre-war cases already cited and to three post-liberation cases. In the Bonsato case, the deed of donation also contained contradictory dispositions which rendered the deed susceptible of being construed as a donation inter vivos or as a donation causa. It was stated in one part of the deed that the donor was executing "una donacion perfects e irrevocable consumada" in favor of the donee in consideration of his past services to the donor; that at the time of the execution of the deed, the donor "ha entregado" to the donee "dichos terrenos donados'; that while the donor was alive, he would receive the share of the fruits corresponding to the owner; and "que en vista de la vejez del donante, el donatario Felipe Bonsato tomara posesion inmediatamente de dichos terrenos a su favor". These provisions indicate that the donation in question was inter vivos However, in the last clause of the deed in the Bonsato case (as in the instant case), it was provided 'que despues de la muerte del donante entrara en vigor dicha donacion y el donatario Felipe Bonsato tendra todos log derechos de dichos terrernos en concepto de dueno absolute de la propriedad libre de toda responsabilidad y gravemen y pueda ejercitar su derecho que crea conveniente". These provisions would seem to show that the donation was mortis causa . Nevertheless, it was held in the Bonsato case that the donation was inter vivos because (1) the ownership of the things donated passed to the donee; (2) it was not provided that the transfer was revocable before the donor's death, and (3) it was not stated that the transfer would be void if the transferor should survive the transferee. It was further held in the Bonsato case that the stipulation "que despues de la muerte del donante entrara en vigor dicha donacion", should be interpreted together with the prior provision regarding its irrevocable and consummated character, and that would mean that the charge or condition as to the donor's share of the fruits would be terminated upon the donor's death. The Puig case, supra, is even more doubtful and controversial than the instant case. In the Puig case, the donor, Carmen Ubalde Vda. de Parcon, in a deed entitled "Donacion Mortis causa dated November 24, 1948 cede y transfiere en concepto de donacion mortis causa to the donee, Estela Magbanua Penaflorida three parcels of land in consideration of the donee's past services and the donor's love and affection for the latter. It was stipulated in the deed that the donor could alienate or mortgage the donated properties "cuando y si necesita fondos para satisfacer sus proprias necesidades sin

que para ello tega que intervener la Donataria, pues su consentimiento se sobre entiende aqui parte de que la donacion que aqui se hace es mortis causa , es decir que la donacion surtira sus efectos a la muerte de la donante". It was repeated in another clause of the deed "que lacesion y transferencia aqui provista surtira efecto al fallecer la Donante". It was further stipulated that the donee would defray the medical and funeral expen of the donor unless the donor had funds in the bank or "haya cosecho levantada or recogida en cual caso dichos recursos responderan portales gastos a disposicion y direccion de la donataria". Another provision of the deed was that it would be registered only after the donor's death. In the same deed the donee accepted the donation. In the Puig case the donor in another deed entitled Escritura de Donacion mortis causa " dated December 28, 1949 donated to the same donee, Estela Magbanua Penaflorida three parcels of land en concepto de una donacion mortis causa " in consideration of past services. It was provided in the deed "que antes de su nuerte la donante, podra enajenar vender traspasar o hipotecar a cualesquiera persona o entidades los bienes aqui donados a favor de la donataria en concepto de una donacion mortis causa ". The donee accepted the donation in the same deed. After the donor's death both deeds were recorded in the registry of deeds. In the donor's will dated March 26, 1951, which was duly probated, the donation of a parcel of land in the second deed of donation was confirmed. Under these facts, it was held that the 1948 deed of donation mortis causa was inter vivos in character in spite of repeated expressions therein that it was a mortis causa donation and that it would take effect only upon the donor's death. Those expressions were not regarded as controlling because they were contradicted by the provisions that the donee would defray the donor's expenses even if not connected with her illness and that the donee's husband would assume her obligations under the deed, should the donee predecease the donor. Moreover, the donor did not reserve in the deed the absolute right to revoke the donation. But the 1949 deed of donation was declared void because it was a true conveyance mortis causa which was not embodied in a last will and testament. The mortis causa character of the disposition is shown by the donor's reservation of the right to alienate or encumber the donated properties to any person or entity. In the Cuevas case, supra, one Antonina Cuevas executed on September 18, 1950 a notarial conveyance styled as "Donacion Mortis causa " where she ceded to her nephew Crispulo Cuevas a parcel of unregistered land. Crispulo accepted the

donation in the same instrument. Subsequently, or on May 26, 1952, the donor revoked the donation. The deed of donation in the Cuevas case contained the following provisions which, as in similar cases, are susceptible of being construed as making the conveyance an inter vivos or a mortis causa transfer: "Dapat maalaman ni Crispulo Cuevas na samantalang ako ay nabubuhay, ang lupa na ipinagkakaloob ko sa kaniya ay ako pa rin ang patuloy na mamomosecion, makapagpapatrabajo, makikinabang at ang iba pang karapatan sa pagmamayari ay sa akin pa rin hanggang hindi ako binabawian ng buhay ng Maykapal at ito naman ay hindi ko nga iyaalis pagkat kung ako ay mamatay na ay inilalaan ko sa kaniya." Translation "Crispulo Cuevas should know that while I am alive, the land which I donated to him will still be under my continued possession; I will be the one to have it cultivated; I will enjoy its fruits and all the other rights of ownership until Providence deprives me of life and I cannot take away the property from him because when I die I reserve the property for him." (sic) It was held that the donation was inter vivos because the phrase "hindi ko nga iyaalis (I will not take away the property") meant that the donor expressly renounced the right to freely dispose of the property in favor of another person and thereby manifested the irrevocability of the conveyance of the naked title to the donee. The donor retained the beneficial ownership or dominium utile Being an inter vivos donation, it could be revoked by the donor only on the grounds specified by law. No such grounds existed. The donee was not guilty of ingratitude. The other point to be disposed of is the matter of the claim for attorney's fees of Andrea Diaz against the Alejandro intervenors. The other point to be disposed of is the matter of the claim for attorney's fees of Andrea Diaz against the Alejandro intervenors. After a careful consideration of the facts and circumstances of the case, particularly the apparent good faith of the Alejandro intervenors in asserting a one-third interest in the disputed lot and their close relationship to Andrea Diaz, we find that it is not proper to require them to pay attorney's fees (Salao vs. Salao, L-26699, March 16, 1976, 70 SCRA 65). (Andrea Diaz did not implead Angel Diaz as a respondent in her petition for review.)

WHEREFORE, the trial court's amended decision is reversed insofar as it pronounces that the deed of donation is void. That donation is declared valid as a donation inter vivos. The disputed lot should be partitioned in accordance with that deed between Andrea Diaz and Angel Diaz. The decision is affirmed insofar as it does not require the Alejandro intervenors to pay attorney's fees to Andrea Diaz. No costs. SO ORDERED. Fernando (Chairman), Barredo, Concepcion, Jr. and Santos, JJ., concur.

G.R. No. L-36770

November 4, 1932

LUIS W. DISON, plaintiff-appellant, vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant. Marcelino Aguas for plaintiff-appellant. Attorney-General Jaranilla for defendant-appellant. BUTTE, J.: This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the defendant Juan Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the recovery of an inheritance tax in the sum of P2,808.73 paid under protest. The petitioner alleged in his complaint that the tax is illegal because he received the property, which is the basis of the tax, from his father before his death by a deed of gift inter vivos which was duly accepted and registered before the death of his father. The defendant answered with a general denial and with a counterdemand for the sum of P1,245.56 which it was alleged is a balance still due and unpaid on account of said tax. The plaintiff replied to the counterdemand with a general denial. The court a quo held that the cause of action set up in the counterdemand was not proven and dismissed the same. Both sides appealed to this court, but the cross-complaint and appeal of the Collector of Internal Revenue were dismissed by this court on March 17, 1932, on motion of the Attorney-General.1awphil.net The only evidence introduced at the trial of this cause was the proof of payment of the tax under protest, as stated, and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his sons Luis W. Dison, the plaintiff-appellant. This deed of gift transferred twenty-two tracts of land to the donee, reserving to the donor for his life the usufruct of three tracts. This deed was acknowledged by the donor before a notary public on April 16, 1928. Luis W. Dison, on April 17, 1928, formally accepted said gift by an instrument in writing which he acknowledged before a notary public on April 20, 1928. At the trial the parties agreed to and filed the following ingenious stipulation of fact: 1. That Don Felix Dison died on April 21, 1928;

2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis W. Dison of all his property according to a deed of gift (Exhibit D) which includes all the property of Don Felix Dizon; 3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of the latter; 4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison. It is inferred from Exhibit D that Felix Dison was a widower at the time of his death. The theory of the plaintiff-appellant is that he received and holds the property mentioned by a consummated gift and that Act No. 2601 (Chapter 40 of the Administrative Code) being the inheritance tax statute, does not tax gifts. The provision directly here involved is section 1540 of the Administrative Code which reads as follows: Additions of Gifts and Advances. After the aforementioned deductions have been made, there shall be added to the resulting amount the value of all gifts or advances made by the predecessor to any of those who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa. The question to be resolved may be stated thus: Does section 1540 of the Administrative Code subject the plaintiff-appellant to the payment of an inheritance tax? The appellant argues that there is no evidence in this case to support a finding that the gift was simulated and that it was an artifice for evading the payment of the inheritance tax, as is intimated in the decision of the court below and the brief of the Attorney-General. We see no reason why the court may not go behind the language in which the transaction is masked in order to ascertain its true character and purpose. In this case the scanty facts before us may not warrant the inference that the conveyance, acknowledged by the donor five days before his death and accepted by the donee one day before the donor's death, was fraudulently made for the purpose of evading the inheritance tax. But the facts, in our opinion, do warrant the inference that the transfer was an advancement upon the inheritance which the donee, as the sole and forced heir of the donor, would be entitled to receive upon the death of the donor.

The argument advanced by the appellant that he is not an heir of his deceased father within the meaning of section 1540 of the Administrative Code because his father in his lifetime had given the appellant all his property and left no property to be inherited, is so fallacious that the urging of it here casts a suspicion upon the appellants reason for completing the legal formalities of the transfer on the eve of the latter's death. We do not know whether or not the father in this case left a will; in any event, this appellant could not be deprived of his share of the inheritance because the Civil Code confers upon him the status of a forced heir. We construe the expression in section 1540 "any of those who, after his death, shall prove to be his heirs", to include those who, by our law, are given the status and rights of heirs, regardless of the quantity of property they may receive as such heirs. That the appellant in this case occupies the status of heir to his deceased father cannot be questioned. Construing the conveyance here in question, under the facts presented, as an advance made by Felix Dison to his only child, we hold section 1540 to be applicable and the tax to have been properly assessed by the Collector of Internal Revenue. This appeal was originally assigned to a Division of five but referred to the court in banc by reason of the appellant's attack upon the constitutionality of section 1540. This attack is based on the sole ground that insofar as section 1540 levies a tax upon gifts inter vivos, it violates that provision of section 3 of the organic Act of the Philippine Islands (39 Stat. L., 545) which reads as follows: "That no bill which may be enacted into law shall embraced more than one subject, and that subject shall be expressed in the title of the bill." Neither the title of Act No. 2601 nor chapter 40 of the Administrative Code makes any reference to a tax on gifts. Perhaps it is enough to say of this contention that section 1540 plainly does not tax gifts per se but only when those gifts are made to those who shall prove to be the heirs, devisees, legatees or donees mortis causa of the donor. This court said in the case of Tuason and Tuason vs. Posadas 954 Phil., 289):lawphil.net When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor of the language which refers to donations that took effect before the donor's death, and not to mortis causa donations, which can only be made with the formalities of a will, and can only take effect after the donor's death. Any other construction would virtually change this provision into: ". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We cannot give to the law an interpretation that would so vitiate its language. The truth of the matter is that in this section (1540) the law presumes that such gifts have been made in anticipation of inheritance,

devise, bequest, or gift mortis causa, when the donee, after the death of the donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to prevent this that it provides that they shall be added to the resulting amount." However much appellant's argument on this point may fit his preconceived notion that the transaction between him and his father was a consummated gift with no relation to the inheritance, we hold that there is not merit in this attack upon the constitutionality of section 1540 under our view of the facts. No other constitutional questions were raised in this case. The judgment below is affirmed with costs in this instance against the appellant. So ordered. Avancea, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial, JJ., concur.

G.R. No. L-15939

January 31, 1966

ANGELES UBALDE PUIG, ET AL., plaintiffs-appellants, vs. ESTELLA MAGBANUA PEAFLORIDA, 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 Peaflorida, 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 Doa 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 Doa 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 the donor 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 Doa 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, Doa Carmen Ubalde, to set at naught the alleged conveyance in favor of Doa 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. Bengzon, C.J., Concepcion, Dizon, Regala, Bengzon and Zaldivar, JJ., concur.

Barrera, J., Makalintal, J., is on leave.

took

no

part.