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G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-
appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
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 Courtof 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 mostadvantageous.
x x x x x x x x x
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 namedin 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, uponthe value thereof at the expiration of the period of ten years after which, according
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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 fornew trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the
following error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum
of P1,191.27, representing part of the interest at the rate of 1 per cent per month
from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the
inheritance tax assessed by the defendant against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal:
(a) When does the inheritance tax accrue and when must it be satisfied? (b) Should
the inheritance tax be computed on the basis of the value of the estate at the time
of the testator's death, or on its value ten years later? ( c) In determining the net
value of the estate subject to tax, is it proper to deduct the compensation due to
trustees? (d ) What law governs the case at bar? Should the provisions of Act No.
3606 favorable to the tax-payer be given retroactive effect? (e) Has there been
deliquency in the payment of the inheritance tax? If so, should the additional
interest claimed by the defendant in his appeal be paid by the estate? Other points
of incidental importance, raised by the parties in their briefs, will be touched upon
in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same.
Section 1536 as amended, of the Administrative Code, imposes the tax upon "every
transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance
in anticipation of inheritance,devise, or bequest." The tax therefore is upon
transmission 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 CivilProcedure 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
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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, successiontakes 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
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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 notfollow 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.
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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 togetherundisposed 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).
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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 isallowed to object to or resist the payment of taxes solely because no personal
benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep.,
340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the
government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law.
ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a
construction as to permit evasions on merely fanciful and insubstantial distictions.
(U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story,
369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs,
18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co.
vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39Phil., 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 Moorebecame 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.
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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 paymentunder 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.
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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 a nd Veneracion for Domingo E. de La ra. 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 taxesupon 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 Ben-
Lomond, 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 property,
worth............................................. 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 CruzCounty, 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
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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 thatthe 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 122-
124, 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) 272U.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 obtains-
protection, 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 FargoBank & 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 Titlein respect of intangible personal property (a) if the decedent at the time of
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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.
(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 non-
residents 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
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; andthirdly, because this exemption is allowed on all gross estates of non-
residents 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 aresident 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.
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[G.R. No. L-10128. November 13, 1956.]
MAMERTO C. CORRE, Plaintiff - Appellant , vs. GUADALUPE TAN CORRE, Defendant - Appellee.
D E C I S I O N
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 women’s 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 i s 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 d omicile. 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 (Moran’s
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.
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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 Concep cion for appellee.
Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as
amici curiæ.
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 theproperties 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 everytransmission 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 thetime 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 non-
resident, 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 theirsubjects 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
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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 theoperation 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 theoriginal 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 allpersons — 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.)
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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 away 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 singleplace, 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 withrespect 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.
Avanceña, C.J., Imperial, Diaz and Concepcion, JJ., concur.
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G.R. No. L-11622 January 28, 1961
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 leftby 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. 4,870.88
(4) Cash, with the Chartered Bank of India, 851.97
Australia & China
Total Gross Assets P130,792.85
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 statethe 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) P2,086.52
Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and Administration expenses 1,400.05
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as of August 9, 1952
8,604.39
Real Estate Tax for 1951 on Baguio real
properties (O.R. No. B-1 686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb. 2 to 22, 1951 22.47 10,022.47
Sub-Total P21,365.88
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 (½) 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
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
(½) 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
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(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 contendsthat 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
1241
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
13252
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
foreigners who married in the Philippines. Manresa,3
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 marriagehas 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
on this matter is the same as our law.4
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 13851of 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, heis familiar with the revenue and taxation laws of the State of California. When asked
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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
our courts are not authorized to take judicial notice of them.5
Like any other fact,
they must be alleged and proved.6
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
tax on non-residents not citizens of the United States,7 but does not provide for anyexemption 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, whichis equally enforceable in California he is bound to pay the same, there being no
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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 saidproviso 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, thatassessments 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 betaxed 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 byrespondents..
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 haveappealed..
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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 P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses 2,052.55
Total Deductions P8,604.39
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 thisfinding 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 P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administration expenses as of August 9, 1952 2,052.55
Total 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
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
other, for the two proceedings are separate and independent.8 The reason for theancillary 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
the same manner as wills originally presented for allowance therein.9
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
payment of just debts and expenses of administration.10
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 theactuations of our own probate court, in the settlement and distribution of the
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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 non-
resident 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
deductions specified in paragraph (1) of subjection (a) of this section11
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 thedetermination 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.
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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
exemption of Section 122 of the National Internal Revenue Code1 is now ripe for
adjudication. The Court of Tax Appeals answered the question in the negative, andthus 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
country" possess an international personality to come within its terms.2
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 Doña 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
demise she left, among others, intangible personal properties in the Philippines."3
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,
interests and compromise penalties."4
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
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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
Tax. Code."5
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 n ot the words `bienesmuebles', 'movables' and 'movable properties as used in the Tangier laws, include
or embrace 'intangible person property', as used in the Tax Code."6 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
hearing of the case on September 9, 1963. Respondent presented no evidence."
7
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
residing in that foreign country."8
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
law.9
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
exact obedience to its commands.10
It has been referred to as a body-politic
organized by common consent for mutual defense and mutual safety and to
promote the general welfare.11
Correctly has it been described by Esmein as "the
juridical personification of the nation."12
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 intogovernment and subjects, claiming within its allotted area a supremacy over all
other institutions.13
McIver similarly would point to the power entrusted to its
government to maintain within its territory the conditions of a legal order and to
enter into international relations.14
With the latter requisite satisfied, international
law do not exact independence as a condition of statehood. So Hyde did opine.15
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.
De Lara,16
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, asdid the Tax Court, that the Ancilliary Administrator is entitled the exemption from
the inheritance tax on the intangible personal property found in the Philippines."17
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
Code.18
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 whothereafter assumed that position in a permanent capacity, in Kiene v. Collector of
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Internal Revenue.19
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,
Ludwig Kiene being a resident of Liechtestein when he passed away."20
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
that demand reciprocity — as in this case. And the exemption must be honored."21
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.
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G.R. No. 123206 March 22, 2000
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, asAdministratrix of the Estate of Pedro P. Pajonar, respondents.
R E S O L U T I O N
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the December 21, 1995 Decision1
of the Court of Appeals2 in CA-G.R. Sp. No. 34399 affirming the June 7, 1994
Resolution of the Court of Tax Appeals in CTA Case No. 4381 granting private
respondent Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a
tax refund in the amount of P76,502.42, representing erroneously paid estate taxes
for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during thesecond World War, was a part of the infamous Death March by reason of which he
suffered shock and became insane. His sister Josefina Pajonar became the guardian
over his person, while his property was placed under the guardianship of the
Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City,
Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He was
survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister
Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece Conchita
Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under
guardianship valued at P3,037,672.09 in Special Proceedings No. 1254. However,
the PNB did not file an estate tax return, instead it advised Pedro Pajonar's heirs to
execute an extrajudicial settlement and to pay the taxes on his estate. On April 5,
1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the
estate of Pedro Pajonar paid taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of
Dumaguete City for the issuance in her favor of letters of administration of the
estate of her brother. The case was docketed as Special Proceedings No. 2399. On
July 18, 1988, the trial court appointed Josefina Pajonar as the regular
administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency
estate tax, the estate of Pedro Pajonar paid estate tax in the amount of
P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir of Pedro
Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying that the
estate tax payment in the amount of P1,527,790.98, or at least some portion of it,
be returned to the heirs. 3
However, on August 15, 1989, without waiting for her protest to be resolved by the
BIR, Josefina Pajonar filed a petition for review with the Court of Tax Appeals (CTA),
praying for the refund of P1,527,790.98, or in the alternative, P840,202.06, as
erroneously paid estate tax. 4 The case was docketed as CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund
Josefina Pajonar the amount of P252,585.59, representing erroneously paid estate
tax for the year 1988.5 Among the deductions from the gross estate allowed by the
CTA were the amounts of P60,753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50,000 as the attorney's fees in Special Proceedings
No. 1254 for guardianship.6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration7 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 Resolution8 ordering the Commissioner
of Internal Revenue to refund Josefina Pajonar, as administratrix of the estate of
Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estate tax
for the year 1988. Also, the CTA upheld the validity of the deduction of the notarial
fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTA's May 6, 1993 Decision and its June 7, 1994
Resolution, questioning the validity of the abovementioned deductions. On
December 21, 1995, the Court of Appeals denied the Commissioner's petition.9
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 10 of the National
Internal Revenue Code 11
(Tax Code) which provides for the allowable deductions
from the gross estate of the decedent. More particularly, the question is whether
the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and
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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 h is 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 guardianshipproceeding was but a necessary expense in the settlement of the
decedent's estate. Therefore, the attorney's fee incurred in the
guardianship proceedings amounting to P50,000.00 is a
reasonable and necessary business expense deductible from the
gross estate of the decedent. 12
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue,
the Court of Tax Appeals modified its previous ruling by reducing the refundable
amount to P76,502.43 since it found that a deficiency interest should be imposed
and the compromise penalty excluded.13
However, the tax court upheld its
previous ruling regarding the legality of the deductions —
It is significant to note that the inclusion of the estate tax law in the codification of
all our national internal revenue laws with the enactment of the National Internal
Revenue Code in 1939 were copied from the Federal Law of the United States. [
UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by
Presidential Decree No. 1158, effective June 3, 1977, reenacted substantially all the
provisions of the old law on estate and gift taxes, except the sections relating to the
meaning of gross estate and gift. [ Ibid , p. 286. ]
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 necessarilyincurred 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
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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 d eductions because these areexpenses 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:
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 commissionsfor selling or disposing of the estate, and the like. Deductible attorney's fees are
those incurred by the executor or administrator in the settlement of the estate or in
defending or prosecuting claims against or due the estate. (Estate and Gift Taxation
in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176).
xxx xxx xxx
It is clear then that the extrajudicial settlement was for the purpose of payment of
taxes and the distribution of the estate to the heirs. The execution of theextrajudicial 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
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
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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
Internal Revenue Code of 1939,16
and which was the first codification of Philippine
tax laws. Section 89 (a) (1) (B) of CA 466 also provided for the deduction of the
"judicial expenses of the testamentary or intestate proceedings" for purposes of
determining the value of the net estate. Philippine tax laws were, in turn, based onthe federal tax laws of the United States.
17 In accord with established rules of
statutory construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax laws. Judicial
expenses are expenses of administration.19
Administration expenses, as an
allowable deduction from the gross estate of the decedent for purposes of arriving
at the value of the net estate, have been construed by the federal and state courts
of the United States to include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons entitled to it." 20
In other words, the expenses must be essential to the proper settlement of the
estate. Expenditures incurred for the individual benefit of the heirs, devisees or
legatees are not deductible.21
This distinction has been carried over to our jurisdiction. Thus, in Lorenzo v . Posadas
22 the Court construed the phrase "judicial
expenses of the testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it appeared that such
trustee was appointed for the purpose of managing the decedent's real estate for
the benefit of the testamentary heir. In another case, the Court disallowed the
premiums paid on the bond filed by the administrator as an expense of
administration since the giving of a bond is in the nature of a qualification for the
office, and not necessary in the settlement of the estate. 23
Neither may attorney's
fees incident to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate. 24
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is
clearly a deductible expense since such settlement effected a distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for
acting as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed
accounting of decedent's property and gave advice as to the proper settlement of
the latter's estate, acts which contributed towards the collection of decedent's
assets and the subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming the
questioned resolution of the Court of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED.
The notarial fee for the extrajudicial settlement and the attorney's fees in the
guardianship proceedings are allowable deductions from the gross estate of Pedro
Pajonar.1âwphi1.nêt
SO ORDERED.
Melo, Vitug, Panganiban and Purisima, JJ., concur.
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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
process of law. Specifically, the petition assails the Decision1
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
Decision2
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 TAXREMEDIES 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
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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 inthe 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 h is right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT
MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF
COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well
as that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an
estate tax returns [sic], as well as several income tax returns covering the years
1982 to 1986, — all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252 — a & b) of the National
Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos
in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment
no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-
002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand "Bongbong" Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate
and income tax assessments were all personally and constructively served on
August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her
caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan,
M.M. (Annexes "D" and "E" of the Petition). Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand "Bongbong" Marcos II were also
personally and constructively served upon him (through his caretaker) on
September 12, 1991, at his last known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the Petition). Thereafter,
Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos
c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon
City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized
representative or counsel), to a conference, was furnished the counsel of Mrs.
Marcos, Dean Antonio Coronel — but to no avail.
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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 instantpetition for certiorari and prohibition under Rule 65 of the Rules of Court, with
prayer for temporary restraining order and/or writ of preliminary injunction.
It has been repeatedly observed, and not without merit, that the enforcement of
tax laws and the collection of taxes, is of paramount importance for the sustenance
of government. Taxes are the lifeblood of the government and should be collected
without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.3
Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the Court's
inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of
properties of the late President Marcos effected by the BIR are null and void for
disregarding the established procedure for the enforcement of taxes due upon the
estate of the deceased. The case of Domingo vs. Garlitos 4
is specifically cited tobolster 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, petitionercites 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
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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 afterthe 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 partiesinvoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person by his prospective
heirs before final adjudication;5
to determine who are the heirs of the
decedent;6
the recognition of a natural child;7
the status of a woman claiming to
be the legal wife of the decedent;8
the legality of disinheritance of an heir by the
testator;9
and to pass upon the validity of a waiver of hereditary rights.10
The pivotal question the court is tasked to resolve refers to the authority of the
Bureau of Internal Revenue to collect by the summary remedy of levying upon, and
sale of real properties of the decedent, estate tax deficiencies, without the
cognition and authority of the court sitting in probate over the supposed will of the
deceased.
The nature of the process of estate tax collection has been described as follows:
Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to
the complete settlement of an estate, and, under some statutes, it is made the duty
of the probate court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor is
it a claim against the estate as such, but it is against the interest or property right
which the heir, legatee, devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor is it an adversary proceeding between the
state and the person who owes the tax on the inheritance. However, under other
statutes it has been held that the hearing and determination of the cash value of
the assets and the determination of the tax are adversary proceedings. The
proceeding has been held to be necessarily a proceeding in rem.11
In the Philippine experience, the enforcement and collection of estate tax, is
executive in character, as the legislature has seen it fit to ascribe this task to the
Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code attests
to this:
Sec. 3. Powers and duties of the Bureau. — The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,penalties, and fines connected therewith, including the execution of judgments in
all cases decided in its favor by the Court of Tax Appeals and the ordinary courts.
Said Bureau shall also give effect to and administer the supervisory and police
power conferred to it by this Code or other laws.
Thus, it was in Vera vs. Fernandez 12
that the court recognized the liberal treatment
of claims for taxes charged against the estate of the decedent. Such taxes, we said,
were exempted from the application of the statute of non-claims, and this is
justified by the necessity of government funding, immortalized in the maxim that
taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae — taxes
are the sinews of the state.
Taxes assessed against the estate of a deceased person, after administration is
opened, need not be submitted to the committee on claims in the ordinary course
of administration. In the exercise of its control over the administrator, the court
may direct the payment of such taxes upon motion showing that the taxes have
been assessed against the estate.
Such liberal treatment of internal revenue taxes in the probate proceedings extends
so far, even to allowing the enforcement of tax obligations against the heirs of the
decedent, even after distribution of the estate's properties.
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Claims for taxes, whether assessed before or after the death of the deceased, can
be collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non -claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance.13
Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the liencreated 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 allegedlyowned 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 forreconsideration or reinvestigation in such form and manner as may be prescribed
by implementing regulations within (30) days from receipt of the assessment;
otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)
Apart from failing to file the required estate tax return within the time required for
the filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left by
President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been
validly undertaken by the Government, collection thereof may have been done in
violation of the law. Thus, the manner and method in which the latter is enforced
may be questioned separately, and irrespective of the finality of the former,
because the Government does not have the unbridled discretion to enforce
collection without regard to the clear provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No. 38-68,
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the
BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed
period, and are therefore null and void:
. . . the Notices of Levy on Real Property (Annexes 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
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least seventeen (17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of distraint of personal property
were first issued by respondents, the latter should have complied with Revenue
Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than
three (3) months nor later than six (6) months from 12 September 1991. In
accordance with the Circular, respondents only had until 12 March 1992 (the last
day of the sixth month) within which to issue these Notices of Levy. The Notices of
Levy, having been issued beyond the period allowed by law, are thus void and of no
effect.15
We hold otherwise. The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax Code.
The deficiency tax assessment, having already become final, executory, and
demandable, the same can now be collected through the summary remedy of
distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Article 223 of the NIRC, whichpertinently 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 allegewhether the properties levied upon by the BIR in the collection of estate taxes upon
the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to
the matter at issue. The mere fact that the decedent has pending cases involving ill-
gotten wealth does not affect the enforcement of tax assessments over the
properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the
findings of the Department of Justice's Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear evidence of the uncertainty on the part
of the Government as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of
estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue,16
whose determinations and assessments are presumed correct
and made in good faith.17
The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties, an
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assessment will not be disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the complaining party to show clearly that
the assessment is erroneous. Failure to present proof of error in the assessment will
justify the judicial affirmance of said assessment.18
In this instance, petitioner has
not pointed out one single provision in the Memorandum of the Special Audit Team
which gave rise to the questioned assessment, which bears a trace of falsity.
Indeed, the petitioner's attack on the assessment bears mainly on the alleged
improbable and unconscionable amount of the taxes charged. But mere rhetoric
cannot supply the basis for the charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with the
Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and
cannot be raised now via Petition for Certiorari , under the pretext of grave abuse of
discretion. The course of action taken by the petitioner reflects his disregard or
even repugnance of the established institutions for governance in the scheme of a
well-ordered society. The subject tax assessments having become final, executoryand enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost appeal or
remedy.19
This judicial policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner,
we find the respondent appellate court's pronouncements sound and resilient to
petitioner's attacks.
Anent grounds 3(b) and (B) — both alleging/claiming lack of notice — We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs.
Imelda Marcos.
Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment personally given to the
caretaker of petitioner also at his last known address on September 12, 1991 — the
subsequent notices given thereafter could no longer be ignored as they were sent
at a time when petitioner was already here in the Philippines, and at a place where
said notices would surely be called to petitioner's attention, and received by
responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs.
Marcos c/o the petitioner, at his office, House of Representatives, Batasan
Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8,
1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, wasfurnished 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 i t
appearing that petitioner continuously ignored said Notices despite severalopportunities given him to file a protest and to thereafter appeal to the Court of
Tax Appeals, — the tax assessments subject of this case, upon which the levy and
sale of properties were based, could no longer be contested (directly or indirectly)
via this instant petition forcertiorari .20
Petitioner argues that all the questioned Notices of Levy, however, must be nullified
for having been issued without validly serving copies thereof to the petitioner. As a
mandatory heir of the decedent, petitioner avers that he has an interest in the
subject estate, and notices of levy upon its properties should have been served
upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent
estate tax, the delinquent taxpayer is the Estate of the decedent, and not
necessarily, and exclusively, the petitioner as heir of the deceased. In the same
vein, in the matter of income tax delinquency of the late president and his spouse,
petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in
satisfaction of these tax delinquencies upon the petitioner is not required by law, as
under Section 213 of the NIRC, which pertinently states:
xxx xxx xxx
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. . . 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
Batasang Pambansa.21
We cannot therefore, countenance petitioner's insistence
that he was denied due process. Where there was an opportunity to raise
objections to government action, and such opportunity was disregarded, for no
justifiable reason, the party claiming oppression then becomes the oppressor of the
orderly functions of government. He who comes to court must come with clean
hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision
of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all
respects.SO ORDERED.
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G.R. No. L-33849 August 18, 1977
TEODORICO ALEJANDRO, IRENEO POLICARPIO, VIRGINIA ALEJANDRO, MARIAALEJANDRO, SALUD ALEJANDRO, EMILIA ALEJANDRO, FLORENCIO ALEJANDROand 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, FLORENCIOALEJANDRO 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 naibinibigay sa nasabing pinagkakalooban ang lupang binabanggit at
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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) ayipinagkakaloob 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 (daughter-
in-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 TituloNo. 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 nasabingpagbibili 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
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"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 1949donation 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 onSuccession. (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 expectationof 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)."
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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 aconclusive 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 publicinstrument 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— añ;adia-eran una especie de montsruo
entre los contratos y ultimas voluntades; las algarabia del Derecho
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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 debienes 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@itç
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, 67Phil. 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 becausethose 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 avoiduncertainty 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
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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, 70Phil. 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 deedthat 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
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("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 donorby 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 pormuerte 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 giveimportance to the generosity and solicitude shown by the donors and sincerely
thank them.
In the reddendum or reservation clause of the deed of donation, i t 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
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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 ownershipover 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 hisanswer (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 L-
33849 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 beendonated 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, constitutingtheir 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: one-
third was donated to Andrea Diaz and one-third to Angel Diaz. The remaining one-
third 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 one-
half 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.
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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 shareof 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 adisposicion 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 herobligations 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
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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.
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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 thedonor 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.
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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 behis 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 1540levies 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.
Avanceña, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial, JJ.,
concur.
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G.R. No. L-15939 January 31, 1966
ANGELES UBALDE PUIG, ET AL., plaintiffs-appellants,
vs.
ESTELLA MAGBANUA PEÑAFLORIDA, ET AL., defendants-appellants.
Salonga and Ordonez for the plaintiffs-appellants.
Fulgencio Vega for the defendants-appellants.
R E S O L U T I O N
(Main opinion was promulgated on November 29, 1965).
REYES, J.B.L., J.:
Defendants-appellants Estela Magbanua Peñaflorida, et al., insist that the
reservation by the donor of the right to dispose of the property during her lifetime
in the deed of December 28, 1949 indicates that title had passed to the donee in
her lifetime, otherwise, it is argued, the reservation would be superfluous, and they
cite American authorities in support.
This thesis would be plausible if the reservation of the power to dispose were the
only indication to be considered in deciding whether the donation of December 28,
1949 was mortis causa or inter vivos. But such is not the case. The Court in its
decision took to account not only the foregoing circumstance but also the fact that
the deceased expressly and consistently declared her conveyance to be one of
donation mortis causa, and further forbade the registration of the deed until after
her death. All these features concordantly indicated that the conveyance was not
intended to produce any definitive effects, nor to finally pass any interest to the
grantee, except from and after the death of the grantor.
We see nothing in the deed itself to indicate that any right, title or interest in the
properties described was meant to be transferred to Doña Estela Magbanua prior
to the death of the grantor, Carmen Ubalde Vda. de Parcon. Not ownership,
certainly, for the stipulation:
Que esta escritura de donacion mortis causa no se registrara en la oficina
del Registrador de Titulos de Iloilo sino despues del fallecimiento de la
Donante
necessarily meant, according to section 50 of the Land Registration Act, that the
deed in question should not take effect as a conveyancenor bind the land until after
the death of the "donor".
Neither did the document operate to vest possession upon Doña Estela Magbanua,
in view of the express condition that (paragraph 3) if at the date of her death the
donor had not transferred, sold, or conveyed one-half of lot 58 of the Pototan
Cadastre to other persons or entities, the donee would be bound to pay to Caridad
Ubalde, married to Tomas Pedrola, the amount of P600.00, and such payment wasto 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 thedonated 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 esvalido 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
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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 Doña CarmenUbalde imposed expressly that:
Que antes de su muerte, la Donante podra enajenar, vender, traspasar e
hipotecar a cualesquiera personas o entidades los bienes aqui donados a
favor de la Donataria en concepto de Donacion mortis causa.
In the Taylor vs. Uy Tieng Piao case, on the other hand, the condition read:
It is understood and agreed that should the machinery to be installed in
said factory fail, for any reason, to arrive, in the City of Manila within the
period of six (6) months from date hereof, this contract may be cancelled
by the party of the second part at its option, such cancellation, however,
not to occur before the expiration of such six (6) months. (pp. 874-875, cas.
cit.).
In the Uy Tieng Piao case the contract could only be cancelled after six months, so
that there could be no doubt that it was in force at least for that long, and the
optional cancellation can be viewed as a resolutory condition (or more properly, a
non-retroactive revocatory one); but no such restriction limited the power of the
donor, Doña Carmen Ubalde, to set at naught the alleged conveyance in favor of
Doña Estela Magbanua by conveying the property to other parties at any time, even
at the very next instant after executing the donation, if she so chose. It requires noargument 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., took no part.
Makalintal, J., is on leave.
Recommended