G.R. No.

123206 March 22, 2000

Facts: Private respondent Josefina Pajonar was the guardian of the person of decedent Pedro
Pajonar. The property of the decedent was put by the RTC- Dumaguete, under the guardianship
of the Philippine National Bank via special proceeding, wherein 50, 000 was spent therein for
payment of attorney's fees.

When the decedent died, instead of filing a estate tax return, PNB advised Josefina to extra-
judicially settle the estate of his brother. The decedent's estate was extra-judicially settled and
the heirs paid an amount of 60, 753 for the notarization of the deed of extra-judicial settlement of
estate.

The private paid the estate tax, however, they were subsequently assessed of deficiency taxes
because the amount paid in the special proceeding [50, 000] and the notarization fee [60, 753]
cannot be claimed as a deduction to the decedent's estate. Private respondent paid the said taxes
under protest. While the case is under review by the BIR, she filed a claim for refund in the CTA
which was granted.
Issue: whether or not the notarial fee paid for the extrajudicial settlement in the amount of
P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000 may be
allowed as deductions from the gross estate of decedent in order to arrive at the value of the net
estate.

Held: Yes.

As to the deductibility of the amount spent for notarization of the deed of extra-judicial
settlement of estate- Explained the SC, 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 [which the law on allowable
deductions from gross estate was copied!] 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."

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. This distinction has been carried over to our jurisdiction. Thus, in Lorenzo
v. Posadas the Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing the decedent's real estate
for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid
on the bond filed by the administrator as an expense of administration since the giving of a bond
is in the nature of a qualification for the office, and not necessary in the settlement of the estate.
Neither may attorney's fees incident to litigation incurred by the heirs in asserting their
respective rights be claimed as a deduction from the gross estate.

In this case, it is clear that the extrajudicial settlement was for the purpose of payment of taxes
and the distribution of the estate to the heirs. The execution of the extrajudicial settlement
necessitated the notarization of the same. 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.

Deductible expenses of administration of the estate may include executor's or administrator's

fees, attorney's fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees or commissions for selling or
disposing of the estate, and the like. Deductible attorney's fees are those incurred by the executor
or administrator in the settlement of the estate or in defending or prosecuting claims against or
due the estate.

As to the deductibility of attorney's fees in the Special proceedings- As a rule attorney's fees in
order to be deductible from the gross estate must be essential to the collection of assets, payment
of debts or the distribution of the property to the persons entitled to it. The services for which the
fees are charged must relate to the proper settlement of the estate. [34 Am. Jur. 2d 767.] In this
case, the guardianship proceeding was necessary for the distribution of the property of the late
Pedro Pajonar to his rightful heirs. 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. Hence the attorney's fees of 50, 000 is deductible
from the gross estate of the decedent.

10. ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. CIR
GR. No. 155541; January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but
two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the
decedent had died. The BIR conducted an administrative investigation of the decedents tax
liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93.
Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment
notice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address
stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal
Revenue issued warrants of distraint and levy to enforce the collection of decedents deficiency
income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22,
1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax.
The Court denied BIRs claim against the estate on the ground that no proper notice of the tax
assessment was made on the proper party. On appeal, the CA held that BIRs service on
PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal
duty to inform the respondent of antecedents death. Consequently, as the estate failed to
question the assessment within the statutory period of thirty days, the assessment became
final, executory, and incontestable.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment
on Juliana through PhilTrust was a valid service as to bind the estate; (2) Whether or not the CA
erred in holding that the tax assessment had become final, executory, and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed
the moment of the taxpayers death, none of the PhilTrusts acts or omissions could bind the
estate of the taxpayer. Although the administrator of the estate may have been remiss in his
legal obligation to inform respondent of the decedents death, the consequence thereof merely
refer to the imposition of certain penal sanction on the administrator. These do not include the
indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of
the notice requirement for such assessment.

(2) The assessment was served not even on an heir or the estate but on a completely
disinterested party. This improper service was clearly not binding on the petitioner. The most
crucial point to be remembered is that PhilTust had absolutely no legal relationship with the
deceased or to her Estate. There was therefore no assessment served on the estate as to the
alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court
for collection of said tax; therefore, it could not have become final, executory and
incontestable. Respondents claim for collection filed with the court only on November 22,
1984 was barred for having been made beyond the five-year prescriptive period set by law.

15. Rafael Arsenio S. Dizon, v. CTA and CIR

G.R. No. 140944; April 30, 2008

Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his
will was filed. The probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the
Estate of Jose Fernandez.

An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter
issued a deficiency estate tax assessment, demanding payment of Php 66.97 million as
deficiency estate tax. This was subsequently reduced by CTA to Php 37.42 million. The CA
affirmed the CTAs ruling, hence, the instant petition.
The petitioner claims that in as much as the valid claims of creditors against the Estate are in
excess of the gross estate, no estate tax was due. On the other hand, respondents argue that
since the claims of the Estates creditors have been condoned, such claims may no longer be
deducted from the gross estate of the decedent.

Issue: Whether the actual claims of creditors may be fully allowed as deductions from the gross
estate of Jose despite the fact that the said claims were reduced or condoned through
compromise agreements entered into by the Estate with its creditors

Held: YES. Following the US Supreme Courts ruling in Ithaca Trust Co. v. United States, the
Court held that post-death developments are not material in determining the amount of
deduction. This is because estate tax is a tax imposed on the act of transferring property by will
or intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the
instance of death, the net value of the property transferred should be ascertained, as nearly as
possible, as of the that time. This is the date-of-death valuation rule.

The Court, in adopting the date-of-death valuation principle, explained that: First. There is no
law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death
valuation principle and particularly provides that post-death developments must be considered
in determining the net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports,
tax statutes being construed strictissimi juris against the government. Second. Such
construction finds relevance and consistency in our Rules on Special Proceedings wherein the
term "claims" required to be presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced against the
deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions.

G.R. No. 120880 June 5, 1997FERDINAND R. MARCOS II,

petitioner,vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE andHERMINIA D. DE GUZMAN,
respondents.Petitioner is the eldest son of the late President Marcos who questions the
assessment of the CIR andcollecting through the summary remedy of Levy on Real
Properties, estate and income tax delinquenciesupon the estate and properties of his
father, despite the pendency of the proceedings on probate of thewill of the late
president. Marcos filed a petition for certiorari and Prohibition with an application for writ
ofpreliminary injunction and/or temporary restraining order before the CA against the
issuance of CIR of thenotice of Levy on Real Property and sale by public auction of the
said properties. CA ruled the deficiencyassessments for estate and income tax of the
late President already become final and unappealable, andmay thus be enforced by the
summary remedy of levying upon the properties, hence this petition. Marcoscontended
that the pending probate proceeding puts the properties in custodia legis of the probate
court
to the exclusion of all other courts and administrative agencies. BIR argued that the
sates authority to
collect internal revenue taxes is paramount.
Issue:
Whether or not the State can collect taxes on the estate of the deceased despite the
pendingprobate proceeding
Ruling:
The case of Pineda vs Court of First Instance of Tayabas and Collector of Internal
Revenue (52Phil 803), relied upon by the petitioner-appellant is good authority on the
proposition that the court havingcontrol over the administration proceedings has
jurisdiction to entertain the claim presented by thegovernment for taxes due and to
order the administrator to pay the tax should it find that the assessmentwas proper, and
that the tax was legal, due and collectible.Thus, it was inVera vs Fernandez
that the court recognized the liberal treatment of claims for taxescharged against the
estate of the decedent. Such taxes, we said, were exempted from the application ofthe
statute of non-claims, and this is justified by the necessity of government funding,
immortalized in themaxim that taxes are the lifeblood of the government.
Vectigalia nervi sunt rei publicae

taxes are thesinews of the state.It has been repeatedly observed, and not without merit,
that the enforcement of tax laws and thecollection of taxes, is of paramount importance
for the sustenance of government. Taxes are the lifebloodof the government and should
be collected without unnecessary hindrance. However, such collectionshould be made
in accordance with law as any arbitrariness will negate the very reason for
governmentitself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and thetaxpayers so that the real purpose of taxation, which
is the promotion of the common good, may beachieved. [Marcos II vs. Court of Appeals,
273 SCRA 47(1997)]IN VIEW WHEREOF, the Court RESOLVED to DENY the
present petition.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 159694 January 27, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AZUCENA T. REYES, Respondent.
xx
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must
be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the
assessment is void. Being invalid, the assessment cannot in turn be used as a basis for the perfection of
a tax compromise.
The Case
Before us are two consolidated Petitions for Review filed under Rule 45 of the Rules of Court, assailing
1 2

the August 8, 2003 Decision of the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive
3

portion of the assailed Decision reads as follows:

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is
ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the
proposed compromise settlement of the Maria C. Tancinco estates tax liability. 4

The Facts
The CA narrated the facts as follows:
On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot and
an old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village, Makati
City.
On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad
(or Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedents
estate (or estate). Subsequently, it issued a Return Verification Order. But without the required
preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular investigation
of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of
Authority on March 14, 1997.
On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a
preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the
heirs of the decedent (or heirs) received a final estate tax assessment notice and a demand letter, both
dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest.
On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the
heirs on the ground that the subject property had already been sold by the decedent sometime in 1990.
On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection
letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.
On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on
February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.
On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed
a compromise settlement of P1,000,000.00.
In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing
the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer,
pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial
incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more
than sufficient to settle the tax liability. Thus, [the CIR] demanded payment of the amount
of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the subject property
would be published.
On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due
in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.
As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at
public auction on August 8, 2000.
On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled
auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings
against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the
correct amount of tax without surcharge [or] interest.
Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to
proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition
for [R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No. 6124.
On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status
Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the
amount ofP27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to
desist and refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant
of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a
contrary order is issued.
[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has
jurisdiction over the case[,] because the assessment against the estate is already final and executory;
and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied
[the CIRs] motion.
During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue
Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering
certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their
tax liability.
On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or
compromise) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.
On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the
CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The
motion was granted and the hearing was reset to February 6, 2001.
On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time
on the ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting
approval of the National Evaluation Board (or NEB). The CTA granted the motion and reset the hearing
to February 27, 2001.
On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed
the compromise[,] because of procedural red tape requiring the initials of four Deputy Commissioners on
relevant documents before the compromise is signed by the [CIR]. [Reyes] posited that the absence of
the requisite initials and signature[s] on said documents does not vitiate the perfected compromise.
Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess]
application for compromise with the BIR cannot be considered a perfected or consummated compromise.
On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for Reconsideration
Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration
with the suggestion that[,] for an orderly presentation of her case and to prevent piecemeal resolutions of
different issues, [Reyes] should file a [S]upplemental [P]etition for [R]eview[,] setting forth the new issue
of whether there was already a perfected compromise.
On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4,
2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following
issues:
1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of
Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected and
consummated compromise.
2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that
requires approval by the BIR [NEB].
Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax
liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either the
NEB or the Regional Evaluation Board (or REB), as the case may be.
On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July
11, 2001. After submission of memoranda, the case was submitted for [D]ecision.
On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:
WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED.
Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen Million
Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed as
follows:
xxxxxxxxx
[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due
of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the Tax
Code, as amended.
In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated
compromise of the estates tax liability[,] if the NEB has approved [Reyess] application for compromise in
accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.
Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that
at the time the questioned assessment notice and letter of demand were issued, the heirs knew very well
the law and the facts on which the same were based. It also observed that the petition was not filed
within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the
Tax Code. 5

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter should
have stated the facts and the law on which they were based; otherwise, they were deemed void. The 6

appellate court held that while administrative agencies, like the BIR, were not bound by procedural
requirements, they were still required by law and equity to observe substantive due process. The reason
behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of and
could effectively protest the basis of tax assessments against them. Since the assessment and the
7

demand were void, the proceedings emanating from them were likewise void, and any order emanating
from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and consummated the
compromise of the estates tax liability. It explained that, where the basic tax assessed exceeded P1
million, or where the settlement offer was less than the prescribed minimum rates, the National Evaluation
Boards (NEB) prior evaluation and approval were the condition sine qua non to the perfection and
consummation of any compromise. Besides, the CA pointed out, Section 204(A) of the Tax Code applied
8

to all compromises, whether government-initiated or not. Where the law did not distinguish, courts too
9

should not distinguish.

Hence, this Petition.
10
 The Issues
In GR No. 159694, petitioner raises the following issues for the Courts consideration:
I.
Whether petitioners assessment against the estate is valid.
II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and
the law on which the assessment in question is based, after she had opted to propose several
compromises on the estate tax due, and even prematurely acting on such proposal by paying 20% of the
basic estate tax due.
11

The foregoing issues can be simplified as follows: first, whether the assessment against the estate is
valid; and, second, whether the compromise entered into is also valid.
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code is clear and mandatory. It provides as follows:
12

Sec. 228. Protesting of Assessment.

xxxxxxxxx
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made:
otherwise, the assessment shall be void.
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment
of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied
upon the provisions of former Section 229 prior to its amendment by Republic Act (RA) No. 8424,
13

otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During
those dates, RA 8424 was already in effect. The notice required under the old law was no longer
sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on
which the assessment was based. It does not at all conform to the compulsory requirement under Section
228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer
purpose of investigation and was not even the requisite notice under the law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which
deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The
answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under the general rule against the retroactive operation
of statutes. Clearly, Section 228 provides for the procedure in case an assessment is protested. The
14

provision does not create new or take away vested rights. In both instances, it can surely be applied
retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that
pending actions are excepted from the operation of Section 228, or that applying it to pending
proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code. While it is desirable for the government authority or administrative agency to have one
15

immediately issued after a law is passed, the absence of the regulation does not automatically mean that
the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer
must be informed of both the law and facts on which the assessment was based. Thus, the CIR should
have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear
mandate of the new law. The old regulation governing the issuance of estate tax assessment notices ran
afoul of the rule that tax regulations old as they were should be in harmony with, and not supplant or
modify, the law.16

It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the
imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer,
in any manner, of the law and the facts on which an assessment was based. That requirement is neither
difficult to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute. RR17

12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998 a date prior to the issuance of
the preliminary assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been
amended. Furthermore, in case of discrepancy between the law as amended and its implementing but old
regulation, the former necessarily prevails. Thus, between Section 228 of the Tax Code and the
18

pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the
law. The law must still be followed, even though the existing tax regulation at that time provided for a
different procedure. The regulation then simply provided that notice be sent to the respondent in the form
prescribed, and that no consequence would ensue for failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid notice was sent, either. A void assessment
bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle in
administrative investigations: that taxpayers should be able to present their case and adduce supporting
evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability.
19

Without complying with the unequivocal mandate of first informing the taxpayer of the governments
claim, there can be no deprivation of property, because no effective protest can be made. The 20

haphazard shot at slapping an assessment, supposedly based on estate taxations general provisions
that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals
the lack of basis for not to mention the insufficiency of the gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on
estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood
of the government, their assessment and collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. 21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot be
rendered nugatory by a mere act of the CIR .
Tax laws are civil in nature. Under our Civil Code, acts executed against the mandatory provisions of law
22

are void, except when the law itself authorizes the validity of those acts. Failure to comply with Section
23

228 does not only render the assessment void, but also finds no validation in any provision in the Tax
Code. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-
abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has been
perfected and consummated, considering the earlier determination that the assessment against the
estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the
basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed
minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner
and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not
distinguish, we should not distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement
as to costs.
SO ORDERED.
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was
conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed.
Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay
P14.9 million in taxes inclusive of surcharge and interest; the estates liability was based on Section 229
of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal
Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant
but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was
denied. She continued to work on another compromise but was eventually denied. The case reached the
Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable
judgment.
ISSUE: Whether or not the formal assessment notice is valid.
HELD: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the
NIRC,taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void. In the case at bar, the FAN merely stated the amount of
liability to be shouldered by the estate and the law upon which such liability is based. However, the estate
was not informed in writing of the facts on which the assessment of estate taxes had been made. The
estate was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature
can be applied retroactively even though the tax investigation was conducted prior to the laws passage.
Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the
invalid FAN is void including the issuance of the warrant of distraint and/or levy.

SUMIPAT vs BANGA
G.R. No. 155810. August 13, 2004
FACTS: The spouses Placida Tabo-tabo and Lauro Sumipat acquired three parcels of land.
The couple was childless.

Lauro Sumipat, however, sired five illegitimate children out of an extra-marital affair, namely: herein
defendants-appellees.

Lauro Sumipat executed a document denominated DEED OF ABSOLUTE TRANSFER AND/OR

QUIT-CLAIM OVER REAL PROPERTIES (the assailed document) in favor of defendants-appellees
covering the three parcels of land (the properties). On the document appears the signature of his
wife Placida indicating her marital consent thereto.

It appears that when the assailed document was executed, Lauro Sumipat was already very sick and
bedridden; that upon defendant-appellee Lydias request, their neighbor Benjamin Rivera lifted the
body of Lauro Sumipat whereupon Lydia guided his (Lauro Sumipats) hand in affixing his signature
on the assailed document which she had brought; that Lydia thereafter left but later returned on the
same day and requested Lauros unlettered wife Placida to sign on the assailed document, as she
did in haste, even without the latter getting a responsive answer to her query on what it was all
about.

After Lauro Sumipats death, his wife Placida, hereinafter referred to as plaintiff-appellant, and
defendants-appellees jointly administered the properties 50% of the produce of which went to
plaintiff-appellant.

As plaintiff-appellants share in the produce of the properties dwindled until she no longer received
any and learning that the titles to the properties in question were already transferred/made in favor of
the defendants-appellees, she filed a complaint for declaration of nullity of titles, contracts, partition,
recovery of ownership now the subject of the present appeal.

Defendant-appellee Lydia disclaims participation in the execution of the assailed document, she
claiming to have acquired knowledge of its existence only five days after its execution when Lauro
Sumipat gave the same to her.

RTC decided the case in favor of defendants-appellees holding that by virtue of the assailed
document the due execution of which was not contested by plaintiff-appellant, the properties were
absolutely transferred to defendants-appellees.

ISSUE: Whether the questioned deed by its terms or under the surrounding circumstances has
validly transferred title to the disputed properties to the petitioners?
HELD: NO. A perusal of the deed reveals that it is actually a gratuitous disposition of property a
donation although Lauro Sumipat imposed upon the petitioners the condition that he and his wife,
Placida, shall be entitled to one-half (1/2) of all the fruits or produce of the parcels of land for their
subsistence and support.
Title to immovable property does not pass from the donor to the donee by virtue of a deed of
donation until and unless it has been accepted in a public instrument and the donor duly notified
thereof. The acceptance may be made in the very same instrument of donation. If the acceptance
does not appear in the same document, it must be made in another. Where the deed of donation
fails to show the acceptance, or where the formal notice of the acceptance, made in a separate
instrument, is either not given to the donor or else not noted in the deed of donation and in the
separate acceptance, the donation is null and void.

In this case, the donees acceptance of the donation is not manifested either in the deed itself or in a
separate document. Hence, the deed as an instrument of donation is patently void.

Neither can we give effect to the deed as a sale, barter or any other onerous conveyance, in the
absence of valid cause or consideration and consent competently and validly given.

FIRST DIVISION

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

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

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

DECISION
AZCUNA, J.:

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

On September 12, 1988, petitioners filed a petition for review with the
CTA, which was decided on October 7, 1991 in favor of the petitioners. As
aforestated, the CTA ordered the Commissioner to desist from collecting
donors taxes from the petitioners. [2]

On appeal, the Court of Appeals reversed and set aside the CTA decision
on April 20, 1994. The appellate Court ordered the petitioners to pay donors
[3]

tax amounting to P263,032.66 each, reasoning as follows:

The National Internal Revenue Code, as amended, provides:

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

Pursuant to the above-quoted provisions of law, the transfer of property by gift,

whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible, is subject to donors or
gift tax.

A gift is generally defined as a voluntary transfer of property by one to another

without any consideration or compensation therefor (28 C.J. 620; Santos vs. Robledo,
28 Phil. 250).

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

As correctly pointed out by the Solicitor General:

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

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

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

Political Contributions. For internal revenue purposes, political contributions in the

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

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

In the light of the above BIR Ruling, it is clear that the political contributions of the
private respondents to Sen. Edgardo Angara are taxable gifts. The vagueness of the
law as to what comprise the gift subject to tax was made concrete by the above-quoted
BIR ruling. Hence, there is no doubt that political contributions are taxable gifts. [4]
 Petitioners filed a motion for reconsideration, which the Court of Appeals
denied in its resolution of June 16, 1995. [5]

Petitioners thereupon filed the instant petition on July 26, 1995. Raised are
the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF
OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING
THE INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE
PETITIONERS POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER THE DEFINITION OF AN ELECTORAL CONTRIBUTION UNDER
THE OMNIBUS ELECTION CODE IN DETERMINING WHETHER OR NOT
POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING
THE ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT
SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING
THE AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX
APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING
AMERICAN JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT
KNOWN AT THE TIME THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN
1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE
MAINLY ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY
AFTER THE ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT
CONSTRUE THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER
AND STRICLTY AGAINST THE GOVERNMENT IN ACCORDANCE WITH
APPLICABLE PRINCIPLES OF STATUTORY CONSTRUCTION?[6]

First, Fifth and Sixth Issues

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

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

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

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

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

. . . an act of liberality whereby a person disposes gratuitously of a thing or right in

favor of another, who accepts it.

Donation has the following elements: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do
an act of liberality or animus donandi. [7]

The present case falls squarely within the definition of a donation.

Petitioners, the late Manuel G. Abello , Jose C. Concepcion, Teodoro D.
[8]

Regala and Avelino V. Cruz, each gave P882,661.31 to the campaign funds of
Senator Edgardo Angara, without any material consideration. All three
elements of a donation are present. The patrimony of the four petitioners
were reduced by P882,661.31 each. Senator Edgardo Angaras patrimony
correspondingly increased by P3,530,645.24 . There was intent to do an act
[9]

of liberality or animus donandi was present since each of the petitioners gave
their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the
NIRC is clear and unambiguous, thereby leaving no room for construction.
In Rizal Commercial Banking Corporation v. Intermediate Appellate
Court the Court enunciated:
[10]

It bears stressing that the first and fundamental duty of the Court is to apply the law.
When the law is clear and free from any doubt or ambiguity, there is no room for
construction or interpretation. As has been our consistent ruling, where the law
speaks in clear and categorical language, there is no occasion for interpretation; there
is only room for application (Cebu Portland Cement Co. v. Municipality of Naga, 24
SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly what it
says and the court has no choice but to see to it that its mandate is obeyed (Chartered
Bank Employees Association v. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. v.
De Garcia, 30 SCRA 111 [1969]; Quijano v. Development Bank of the Philippines, 35
SCRA 270 [1970]).

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

Second Issue

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

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

Third Issue

Petitioners maintain that the definition of an electoral contribution under

the Omnibus Election Code is essential to appreciate how a political
contribution differs from a taxable gift. Section 94(a) of the said Code defines
[11]

electoral contribution as follows:

The term "contribution" includes a gift, donation, subscription, loan, advance or

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

Since the purpose of an electoral contribution is to influence the results of

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

Fourth Issue

Petitioners raise the fact that since 1939 when the first Tax Code was
enacted, up to 1988 the BIR never attempted to subject political contributions
to donors tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government agency
charged with the execution of a statute, acquiesced in and relied upon by all
concerned over an appreciable period of time, is an authoritative interpretation
thereof, entitled to great weight and the highest respect. . . .
[12]

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

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

Seventh Issue

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

Eighth Issue

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

[G.R. No. 111904. October 5, 2000]

SPS. AGRIPINO GESTOPA and ISABEL SILARIO

GESTOPA, petitioners, vs. COURT OF APPEALS and
MERCEDES DANLAG y PILAPIL, respondents.

DECISION
QUISUMBING, J.:

This petition for review,[1] under Rule 45 of the Rules of Court, assails the
decision[2]of the Court of Appeals dated August 31, 1993, in CA-G.R. CV No.
38266, which reversed the judgment[3] of the Regional Trial Court of Cebu City,
Branch 5.
The facts, as culled from the records, are as follows:
Spouses Diego and Catalina Danlag were the owners of six parcels of
unregistered lands. They executed three deeds of donation mortis causa, two
of which are dated March 4, 1965 and another dated October 13, 1966, in
favor of private respondent Mercedes Danlag-Pilapil.[4]The first deed pertained
to parcels 1 & 2 with Tax Declaration Nos. 11345 and 11347,
respectively. The second deed pertained to parcel 3, with TD No. 018613. The
last deed pertained to parcel 4 with TD No. 016821. All deeds contained the
reservation of the rights of the donors (1) to amend, cancel or revoke the
donation during their lifetime, and (2) to sell, mortgage, or encumber the
properties donated during the donors' lifetime, if deemed necessary.
On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina
Danlag, executed a deed of donation inter vivos[5] covering the aforementioned
parcels of land plus two other parcels with TD Nos. 11351 and 11343,
respectively, again in favor of private respondent Mercedes. This contained
two conditions, that (1) the Danlag spouses shall continue to enjoy the fruits of
the land during their lifetime, and that (2) the donee can not sell or dispose of
the land during the lifetime of the said spouses, without their prior consent and
approval. Mercedes caused the transfer of the parcels' tax declaration to her
name and paid the taxes on them.
On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold
parcels 3 and 4 to herein petitioners, Mr. and Mrs. Agripino Gestopa. On
September 29, 1979, the Danlags executed a deed of revocation[6]recovering
the six parcels of land subject of the aforecited deed of donation inter vivos.
On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with
the RTC a petition against the Gestopas and the Danlags, for quieting of
title[7] over the above parcels of land. She alleged that she was an illegitimate
daughter of Diego Danlag; that she lived and rendered incalculable beneficial
services to Diego and his mother, Maura Danlag, when the latter was still
alive. In recognition of the services she rendered, Diego executed a Deed of
Donation on March 20, 1973, conveying to her the six (6) parcels of land. She
accepted the donation in the same instrument, openly and publicly exercised
rights of ownership over the donated properties, and caused the transfer of
the tax declarations to her name. Through machination, intimidation and
undue influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil,
to buy two of the six parcels covered by the deed of donation. Said
donation inter vivos was coupled with conditions and, according to Mercedes,
since its perfection, she had complied with all of them; that she had not been
guilty of any act of ingratitude; and that respondent Diego had no legal basis
in revoking the subject donation and then in selling the two parcels of land to
the Gestopas.
In their opposition, the Gestopas and the Danlags averred that the deed of
donation dated January 16, 1973 was null and void because it was obtained
by Mercedes through machinations and undue influence. Even assuming it
was validly executed, the intention was for the donation to take effect upon the
death of the donor. Further, the donation was void for it left the donor, Diego
Danlag, without any property at all.
On December 27, 1991, the trial court rendered its decision, thus:

"WHEREFORE, the foregoing considered, the Court hereby renders judgment in

favor of the defendants and against the plaintiff:

1. Declaring the Donations Mortis Causa and Inter Vivos as revoked, and, therefore,
has (sic) no legal effect and force of law.
 2. Declaring Diego Danlag the absolute and exclusive owner of the six (6) parcels of
land mentioned in the Deed of revocation (Exh. P-plaintiff, Exh. 6-defendant Diego
Danlag).
3. Declaring the Deeds of Sale executed by Diego Danlag in favor of spouses Agripino
Gestopa and Isabel Gestopa dated June 28, 1979 (Exh. S-plaintiff; Exh. 18-
defendant); Deed of Sale dated December 18, 1979 (Exh. T plaintiff; Exh. 9-
defendant); Deed of Sale dated September 14, 1979 (Exh. 8); Deed of Sale dated
June 30, 1975 (Exh. U); Deed of Sale dated March 13, 1978 (Exh. X) as valid and
enforceable duly executed in accordance with the formalities required by law.
4. Ordering all tax declaration issued in the name of Mercedes Danlag Y Pilapil
covering the parcel of land donated cancelled and further restoring all the tax
declarations previously cancelled, except parcels nos. 1 and 5 described, in the
Deed of Donation Inter Vivos (Exh. "1") and Deed of Sale (Exh. "2") executed by
defendant in favor of plaintiff and her husband.
[5.] With respect to the contract of sale of abovestated parcels of land, vendor Diego
Danlag and spouse or their estate have the alternative remedies of demanding the
balance of the agreed price with legal interest, or rescission of the contract of sale.

SO ORDERED."[8]

In rendering the above decision, the trial court found that the reservation
clause in all the deeds of donation indicated that Diego Danlag did not make
any donation; that the purchase by Mercedes of the two parcels of land
covered by the Deed of Donation Inter Vivos bolstered this conclusion; that
Mercedes failed to rebut the allegations of ingratitude she committed against
Diego Danlag; and that Mercedes committed fraud and machination in
preparing all the deeds of donation without explaining to Diego Danlag their
contents.
Mercedes appealed to the Court of Appeals and argued that the trial court
erred in (1) declaring the donation dated January 16, 1973 asmortis
causa and that the same was already revoked on the ground of ingratitude;
(2) finding that Mercedes purchased from Diego Danlag the two parcels of
land already covered by the above donation and that she was only able to pay
three thousand pesos, out of the total amount of twenty thousand pesos; (3)
failing to declare that Mercedes was an acknowledged natural child of Diego
Danlag.
On August 31, 1993, the appellate court reversed the trial court. It ruled:

"PREMISES CONSIDERED, the decision appealed from is REVERSED and a new

judgment is hereby rendered as follows:
1. Declaring the deed of donation inter vivos dated January 16, 1973 as not having
been revoked and consequently the same remains in full force and effect;

2. Declaring the Revocation of Donation dated June 4, 1979 to be null and void and
therefore of no force and effect;

3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner of the six
(6) parcels of land specified in the above-cited deed of donation inter vivos;

4. Declaring the Deed of Sale executed by Diego Danlag in favor of spouses Agripino
and Isabel Gestopa dated June 28, 1979 (Exhibits S and 18), Deed of Sale dated
December 18, 1979 (Exhibits T and 19), Deed of Sale dated September 14, 1979
(Exhibit 8), Deed of Sale dated June 30, 1975 (Exhibit U), Deed of Sale dated March
13, 1978 (Exhibit X) as well as the Deed of Sale in favor of Eulalio Danlag dated
December 27, 1978 (Exhibit 2) not to have been validly executed;

5. Declaring the above-mentioned deeds of sale to be null and void and therefore of no
force and effect;

6. Ordering spouses Agripino Gestopa and Isabel Silerio Gestopa to reconvey within
thirty (30) days from the finality of the instant judgment to Mercedes Danlag Pilapil
the parcels of land above-specified, regarding which titles have been subsequently
fraudulently secured, namely those covered by O.C.T. T-17836 and O.C.T. No.
17523.

7. Failing to do so, ordering the Branch Clerk of Court of the Regional Trial Court
(Branch V) at Cebu City to effect such reconveyance of the parcels of land covered by
O.C.T. T-17836 and 17523.

SO ORDERED."[9]

The Court of Appeals held that the reservation by the donor of lifetime
usufruct indicated that he transferred to Mercedes the ownership over the
donated properties; that the right to sell belonged to the donee, and the
donor's right referred to that of merely giving consent; that the donor changed
his intention by donating inter vivos properties already donated mortis causa;
that the transfer to Mercedes' name of the tax declarations pertaining to the
donated properties implied that the donation was inter vivos; and that
Mercedes did not purchase two of the six parcels of land donated to her.
Hence, this instant petition for review filed by the Gestopa spouses,
asserting that:
"THE HONORABLE COURT OF APPEALS, TWELFTH DIVISION, HAS
GRAVELY ERRED IN REVERSING THE DECISION OF THE COURT A
QUO."[10]

Before us, petitioners allege that the appellate court overlooked the fact
that the donor did not only reserve the right to enjoy the fruits of the
properties, but also prohibited the donee from selling or disposing the land
without the consent and approval of the Danlag spouses. This implied that the
donor still had control and ownership over the donated properties. Hence, the
donation was post mortem.
Crucial in resolving whether the donation was inter vivos or mortis causa is
the determination of whether the donor intended to transfer the ownership
over the properties upon the execution of the deed.[11]
In ascertaining the intention of the donor, all of the deed's provisions must
be read together.[12] The deed of donation dated January 16, 1973, in favor of
Mercedes contained the following:

"That for and in consideration of the love and affection which the Donor inspires in
the Donee and as an act of liberality and generosity, the Donor hereby gives, donates,
transfer and conveys by way of donation unto the herein Donee, her heirs, assigns and
successors, the above-described parcels of land;

That it is the condition of this donation that the Donor shall continue to enjoy all the
fruits of the land during his lifetime and that of his spouse and that the donee cannot
sell or otherwise, dispose of the lands without the prior consent and approval by the
Donor and her spouse during their lifetime.

xxx

That for the same purpose as hereinbefore stated, the Donor further states that he has
reserved for himself sufficient properties in full ownership or in usufruct enough for
his maintenance of a decent livelihood in consonance with his standing in society.

That the Donee hereby accepts the donation and expresses her thanks and gratitude for
the kindness and generosity of the Donor."[13]

Note first that the granting clause shows that Diego donated the properties out
of love and affection for the donee. This is a mark of a donationinter
vivos.[14] Second, the reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the properties.As correctly
posed by the Court of Appeals, what was the need for such reservation if the
donor and his spouse remained the owners of the properties? Third, the donor
reserved sufficient properties for his maintenance in accordance with his
standing in society, indicating that the donor intended to part with the six
parcels of land.[15] Lastly, the donee accepted the donation. In the case
of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an acceptance
clause is a mark that the donation is inter vivos. Acceptance is a requirement
for donations inter vivos.Donations mortis causa, being in the form of a will,
are not required to be accepted by the donees during the donors' lifetime.
Consequently, the Court of Appeals did not err in concluding that the right
to dispose of the properties belonged to the donee. The donor's right to give
consent was merely intended to protect his usufructuary
interests. In Alejandro, we ruled that a limitation on the right to sell during the
donors' lifetime implied that ownership had passed to the donees and
donation was already effective during the donors' lifetime.
The attending circumstances in the execution of the subject donation also
demonstrated the real intent of the donor to transfer the ownership over the
subject properties upon its execution.[16] Prior to the execution of donation inter
vivos, the Danlag spouses already executed three donations mortis causa. As
correctly observed by the Court of Appeals, the Danlag spouses were aware
of the difference between the two donations. If they did not intend to
donate inter vivos, they would not again donate the four lots already
donated mortis causa. Petitioners' counter argument that this proposition was
erroneous because six years after, the spouses changed their intention with
the deed of revocation, is not only disingenious but also fallacious. Petitioners
cannot use the deed of revocation to show the spouses' intent because its
validity is one of the issues in this case.
Petitioners aver that Mercedes' tax declarations in her name can not be a
basis in determining the donor's intent. They claim that it is easy to get tax
declarations from the government offices such that tax declarations are not
considered proofs of ownership. However, unless proven otherwise, there is a
presumption of regularity in the performance of official duties.[17] We find that
petitioners did not overcome this presumption of regularity in the issuance of
the tax declarations. We also note that the Court of Appeals did not refer to
the tax declarations as proofs of ownership but only as evidence of the intent
by the donor to transfer ownership.
Petitioners assert that since private respondent purchased two of the six
parcels of land from the donor, she herself did not believe the donation
was inter vivos. As aptly noted by the Court of Appeals, however, it was
private respondent's husband who purchased the two parcels of land.
 As a rule, a finding of fact by the appellate court, especially when it is
supported by evidence on record, is binding on us.[18] On the alleged purchase
by her husband of two parcels, it is reasonable to infer that the purchase was
without private respondent's consent. Purchase by her husband would make
the properties conjugal to her own disadvantage. That the purchase is against
her self-interest, weighs strongly in her favor and gives credence to her claim
that her husband was manipulated and unduly influenced to make the
purchase, in the first place.
Was the revocation valid? A valid donation, once accepted, becomes
irrevocable, except on account of officiousness, failure by the donee to comply
with the charges imposed in the donation, or ingratitude.[19] The donor-spouses
did not invoke any of these reasons in the deed of revocation. The deed
merely stated:

"WHEREAS, while the said donation was a donation Inter Vivos, our intention
thereof is that of Mortis Causa so as we could be sure that in case of our death, the
above-described properties will be inherited and/or succeeded by Mercedes Danlag de
Pilapil; and that said intention is clearly shown in paragraph 3 of said donation to the
effect that the Donee cannot dispose and/or sell the properties donated during our life-
time, and that we are the one enjoying all the fruits thereof."[20]

Petitioners cited Mercedes' vehemence in prohibiting the donor to gather

coconut trees and her filing of instant petition for quieting of title.There is
nothing on record, however, showing that private respondent prohibited the
donors from gathering coconuts. Even assuming that Mercedes prevented the
donor from gathering coconuts, this could hardly be considered an act
covered by Article 765 of the Civil Code.[21] Nor does this Article cover
respondent's filing of the petition for quieting of title, where she merely
asserted what she believed was her right under the law.
Finally, the records do not show that the donor-spouses instituted any
action to revoke the donation in accordance with Article 769 of the Civil
Code.[22] Consequently, the supposed revocation on September 29, 1979, had
no legal effect.
WHEREFORE, the instant petition for review is DENIED. The assailed
decision of the Court of Appeals dated August 31, 1993, is AFFIRMED.
Costs against petitioners.
SO ORDERED.
 SECOND DIVISION

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

THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ,

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

DECISION
PUNO, J.:

This petition for review on certiorari seeks to annul and set aside the
decision dated November 10, 1994 and the resolution dated January 5,
1995 of the Court of Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a
holographic will naming as his heirs his only son, Edmond Ruiz, his adopted
daughter, private respondent Maria Pilar Ruiz Montes, and his three
granddaughters, private respondents Maria Cathryn, Candice Albertine and
Maria Angeline, all children of Edmond Ruiz. The testator bequeathed to his
heirs substantial cash, personal and real properties and named Edmond Ruiz
executor of his estate.2
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash
component of his estate was distributed among Edmond Ruiz and private
respondents in accordance with the decedents will. For unbeknown
reasons, Edmond, the named executor, did not take any action for the probate
of his fathers holographic will.
On June 29, 1992, four years after the testators death, it was private
respondent Maria Pilar Ruiz Montes who filed before the Regional Trial Court,
Branch 156, Pasig, a petition for the probate and approval of Hilario Ruizs will
and for the issuance of letters testamentary to Edmond
Ruiz. Surprisingly, Edmond opposed the petition on the ground that the will
3

was executed under undue influence.

 On November 2, 1992, one of the properties of the estate - the house and
lot at No. 2 Oliva Street, Valle Verde IV, Pasig which the testator bequeathed
to Maria Cathryn, Candice Albertine and Maria Angeline4 - was leased out by
Edmond Ruiz to third persons.
On January 19, 1993, the probate court ordered Edmond to deposit with
the Branch Clerk of Court the rental deposit and payments totalling
P540,000.00 representing the one-year lease of the Valle Verde property. In
compliance, on January 25, 1993, Edmond turned over the amount
of P348,583.56, representing the balance of the rent after deducting
P191,416.14 for repair and maintenance expenses on the estate.5
In March 1993, Edmond moved for the release of P50,000.00 to pay the
real estate taxes on the real properties of the estate. The probate court
approved the release of P7,722.006
On May 14, 1993, Edmond withdrew his opposition to the probate of the
will. Consequently, the probate court, on May 18, 1993, admitted the will to
probate and ordered the issuance of letters testamentary
to Edmond conditioned upon the filing of a bond in the amount of
P50,000.00. The letters testamentary were issued on June 23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor,
filed an Ex-Parte Motion for Release of Funds. It prayed for the release of
the rent payments deposited with the Branch Clerk of Court. Respondent
Montes opposed the motion and concurrently filed a Motion for Release of
Funds to Certain Heirs and Motion for Issuance of Certificate of Allowance of
Probate Will. Montes prayed for the release of the said rent payments to
Maria Cathryn, Candice Albertine and Maria Angeline and for the distribution
of the testators properties, specifically the Valle Verde property and the Blue
Ridge apartments, in accordance with the provisions of the holographic will.
On August 26, 1993, the probate court denied petitioners motion for
release of funds but granted respondent Montes motion in view of petitioners
lack of opposition. It thus ordered the release of the rent payments to the
decedents three granddaughters. It further ordered the delivery of the titleds
to and possession of the properties bequeathed to the three granddaughters
and respondent Montes upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his
opposition to respondent Montes motion for release of rent payments which
opposition the court failed to consider. Petitioner likewise reiterated his
previous motion for release of funds.
 On November 23, 1993, petitioner, through counsel, manifested that he
was withdrawing his motion for release of funds in view of the fact that the
lease contract over Valle Verde property had been renewed for another year.7
Despite petitioners manifestation, the probate court, on December 22,
1993, ordered the release of the funds to Edmond but only such amount as
may be necessary to cover the espenses of administration and allowanceas
for support of the testators three granddaughters subject to collation and
deductible from their share in the inheritance. The court, however, held in
abeyance the release of the titles to respondent Montes and the three
granddaughters until the lapse of six months from the date of firast publication
of the notice to creditors.8 The Court stated thus:
xxx xxx xxx

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

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

WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an

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

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

Hence, this petition.

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

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

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

Petitioner alleges that this provision only gives the widow and the minor or
incapacitated children of the deceased the right to receive allowances for
support during the settlement of estate proceedings. He contends that the
testators three granddaughters do not qualify for an allowance because they
are not incapacitated and are no longer minors but of legal age, married and
gainfully employed. In addition, the provision expressly states children of the
deceased which excludes the latters grandchildren.
It is settled that allowances for support under Section 3 of Rule 83 should
not be limited to the minor or incapacitated children of the deceased. Article
18813 of the Civil Code of the Philippines, the substantive law in force at the
time of the testators death, provides that during the liquidation of the conjugal
partnership, the deceaseds legitimate spouse and children, regardless of their
age, civil status or gainful employment, are entitled to provisional support from
the funds of the estate.14 The law is rooted on the fact that the right and duty to
support, especially the right to education, subsist even beyond the age of
majority.15
Be that as it may, grandchildren are not entitled to provisional support from
the funds of the decedents estate. The law clearly limits the allowance to
widow and children and does not extend it to the deceaseds grandchildren,
regardless of their minority or incapacity.16 It was error, therefore, for the
appellate court to sustain the probate courts order granting an allowance to
the grandchildren of the testator pending settlement of his estate.
Respondent courts also erred when they ordered the release of the titles
of the bequeathed properties to private respondents six months after the date
of first publication of notice to creditors. An order releasing titles to properties
of the estate amounts to an advance distribution of the estate which is allowed
only under the following conditions:

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

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

And Rule 90 provides that:

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

No distribution shall be allowed until the payment of the obligations above-

mentioned has been made or provided for, unless the distributees, or any of
them, give a bond, in a sum to be fixed by the court, conditioned for the payment
of said obligations within such time as the court directs.18
In settlement of estate proceedings, the distribution of the estate properties
can only be made: (1) after all the debts, funeral charges, expenses of
administration, allowance to the widow, and estate tax have been paid; or (2)
before payment of said obligations only if the distributees or any of them gives
a bond in a sum fixed by the court conditioned upon the payment of said
obligations within such time as the court directs, or when provision is made to
meet those obligations.19
In the case at bar, the probate court ordered the release of the titles to the
Valle Verde property and the Blue Ridge apartments to the private
respondents after the lapse of six months from the date of first publication of
the notice to creditors. The questioned order speaks of notice to creditors,
not payment of debts and obligations. Hilario Ruiz allegedly left no debts when
he died but the taxes on his estate had not hitherto been paid, much less
ascertained. The estate tax is one of those obligations that must be paid
before distribution of the estate. If not yet paid, the rule requires that the
distributees post a bond or make such provisions as to meet the said tax
obligation in proportion to their respective shares in the inheritance.20 Notably,
at the time the order was issued the properties of the estate had not yet been
inventoried and appraised.
It was also too early in the day for the probate court to order the release of
the titles six months after admitting the will to probate. The probate of a will is
conclusive as to its due execution and extrinsic validity21 and settles only the
question of whether the testator, being of sound mind, freely executed it in
accordance with the formalities prescribed by law.22 Questions as to the
intrinsic validity and efficacy of the provisions of the will, the legality of any
devise or legacy may be raised even after the will has been authenticated.23
The intrinsic validity of Hilarios holographic will was controverted by
petitioner before the probate court in his Reply to Montes Opposition to his
motion for release of funds24 and his motion for reconsideration of the August
26, 1993 order of the said court.25 Therein, petitioner assailed the distributive
shares of the devisees and legatees inasmuch as his fathers will included the
estate of his mother and allegedly impaired his legitime as an intestate heir of
his mother. The Rules provide that if there is a controversy as to who are the
lawful heirs of the decedent and their distributive shares in his estate, the
probate court shall proceed to hear and decide the same as in ordinary
cases.26
Still and all, petitioner cannot correctly claim that the assailed order
deprived him of his right to take possession of all the real and personal
properties of the estate. The right of an executor or administrator to the
possession and management of the real and personal properties of the
deceased is not absolute and can only be exercised so long as it is
necessary for the payment of the debts and expenses of
administration,27Section 3 of Rule 84 of the Revised Rules of Court explicitly
provides:

Sec. 3. Executor or administrator to retain whole estate to pay debts, and to

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

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