SECOND DIVISION

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

Petitioner,
Present:
CARPIO, J., Chairperson,
- versus - PERALTA,
BERSAMIN,*
ABAD, and
PEREZ,** JJ.
ASUNCION G. FERRER, substituted
by her heirs, VICENTE, PILAR,
ANGELITO, FELIXBERTO, JR.,
all surnamed G. FERRER, and Promulgated:
MIGUELA FERRER ALTEZA,
Respondents. September 20, 2010

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

DECISION

ABAD, J.:

This case pertains to a gift, otherwise denominated as a donation mortis

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

The Facts and the Case

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

It is our will that this Donation Mortis Causa shall be

irrevocable and shall be respected by the surviving spouse.
 It is our will that Jarabini Gonzales-del Rosario and
Emiliano Gonzales will continue to occupy the portions now
occupied by them.

It is further our will that this DONATION MORTIS

CAUSA shall not in any way affect any other distribution of
other properties belonging to any of us donors whether testate
or intestate and where ever situated.

It is our further will that any one surviving spouse

reserves the right, ownership, possession and administration of
this property herein donated and accepted and this Disposition
and Donation shall be operative and effective upon the death of
the DONORS.[3]

Although denominated as a donation mortis causa, which in law is the

equivalent of a will, the deed had no attestation clause and was witnessed by only
two persons. The named donees, however, signified their acceptance of the
donation on the face of the document.

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

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

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

On Asuncions appeal to the Court of Appeals (CA), the latter rendered a

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

Issue Presented

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

The Courts Ruling

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

In Austria-Magat v. Court of Appeals,[11] the Court held that irrevocability is a

quality absolutely incompatible with the idea of conveyances mortis causa, where
revocability is precisely the essence of the act. A donation mortis causa has the
following characteristics:

1. It conveys no title or ownership to the transferee

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

2. That before his death, the transfer should be revocable

by the transferor at will, ad nutum; but revocability may be
provided for indirectly by means of a reserved power in the
donor to dispose of the properties conveyed; and

3. That the transfer should be void if the transferor

should survive the transferee.[12] (Underscoring supplied)
 The Court thus said in Austria-Magat that the express irrevocability of the
donation is the distinctive standard that identifies the document as a donation inter
vivos. Here, the donors plainly said that it is our will that this Donation Mortis
Causa shall be irrevocable and shall be respected by the surviving spouse. The
intent to make the donation irrevocable becomes even clearer by the proviso that a
surviving donor shall respect the irrevocability of the donation. Consequently, the
donation was in reality a donation inter vivos.

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

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

Finally, as Justice J. B. L. Reyes said in Puig v. Peaflorida,[16] in case of doubt,

the conveyance should be deemed a donation inter vivos rather than mortis causa,
in order to avoid uncertainty as to the ownership of the property subject of the
deed.

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

Given that the donation in this case was irrevocable or one given inter vivos,
Leopoldos subsequent assignment of his rights and interests in the property
to Asuncionshould be regarded as void for, by then, he had no more rights to
assign. He could not give what he no longer had. Nemo dat quod non habet.[18]
 The trial court cannot be faulted for passing upon, in a petition for probate of
what was initially supposed to be a donation mortis causa, the validity of the
document as a donation inter vivos and the nullity of one of the donors subsequent
assignment of his rights and interests in the property. The Court has held before
that the rule on probate is not inflexible and absolute.[19] Moreover, in opposing the
petition for probate and in putting the validity of the deed of assignment squarely in
issue, Asuncion or those who substituted her may not now claim that the trial court
improperly allowed a collateral attack on such assignment.

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

SO ORDERED.

ROBERTO A. ABAD
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

*
Designated as additional member in lieu of Associate Justice Jose Catral Mendoza,
per Special Order 886 dated September 1, 2010.
**
Designated as additional member in lieu of Associate Justice Antonio Eduardo B.
Nachura, per Special Order 894 dated September 20, 2010.
[1]
Rollo, p. 101.
[2]
Covered by Transfer Certificate of Title (TCT) 101873.
[3]
Supra note 1.
[4]
In the Matter of the Petition for the Allowance of the Donation Mortis Causa of
Leopoldo Gonzales. Jarabini del Rosario, Petitioner.
[5]
Rollo, pp. 125-128.
[6]
Id. at 128.
[7]
Id. at 54-64; penned by Associate Justice Apolinario D. Bruselas, Jr. with the
concurrence of Associate Justices Bienvenido L. Reyes and Mariflor P. Punzalan
Castillo.
[8]
Art. 728. Donations which are to take effect upon the death of the donor partake
of the nature of testamentary provisions, and shall be governed by the rules
established in the Title on Succession.
Art. 805. Every will, other than a holographic will, must be subscribed at the
end thereof by the testator himself or by the testator's name written by some other
person in his presence, and by his express direction, and attested and subscribed
by three or more credible witnesses in the presence of the testator and of one
another.
The testator or the person requested by him to write his name and the
instrumental witnesses of the will, shall also sign, as aforesaid, each and every
page thereof, except the last, on the left margin, and all the pages shall be
numbered correlatively in letters placed on the upper part of each page.
The attestation shall state the number of pages used upon which the will is
written, and the fact that the testator signed the will and every page thereof, or
caused some other person to write his name, under his express direction, in the
presence of the instrumental witnesses, and that the latter witnessed and signed
the will and all the pages thereof in the presence of the testator and of one another.
If the attestation clause is in a language not known to the witnesses, it shall
be interpreted to them.
[9]
Rollo, p. 66.
[10]
Concepcion v. Concepcion, 91 Phil. 823, 828 (1952).
[11]
426 Phil. 263 (2002).
[12]
Aluad v. Aluad, G.R. No. 176943, October 17, 2008, 569 SCRA 697, 705-706.
[13]
Austria-Magat v. Court of Appeals, supra note 11, at 274; Spouses Gestopa v.
Court of Appeals, 396 Phil. 262, 271 (2000); Alejandro v. Judge Geraldez, 168 Phil.
404, 420-421 (1977); Cuevas v. Cuevas, 98 Phil. 68, 71 (1955); Bonsato v. Court
of Appeals, 95 Phil. 481, 488 (1954).
[14]
Rollo, p. 101.
[15]
Austria-Magat v. Court of Appeals, supra note 11, at 276-277.
[16]
122 Phil. 665, 672 (1965).
[17]
Heirs of Sevilla v. Sevilla, 450 Phil. 598, 613 (2003).
[18]
Gochan & Sons Realty Corp. v. Heirs of Raymundo Baba, 456 Phil. 569, 579
(2003).
[19]
Reyes v. Court of Appeals, 346 Phil. 266, 273 (1997).

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-
appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate
of Thomas Hanley, deceased, brought this action in the Court of First Instance of
Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal
Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance
tax on the estate of the deceased, and for the collection of interst thereon at the rate of
6 per cent per annum, computed from September 15, 1932, the date when the
aforesaid tax was [paid under protest. The defendant set up a counterclaim for
P1,191.27 alleged to be interest due on the tax in question and which was not included
in the original assessment. From the decision of the Court of First Instance of
Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim,
both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga,
leaving a will (Exhibit 5) and considerable amount of real and personal properties. On
june 14, 1922, proceedings for the probate of his will and the settlement and
distribution of his estate were begun in the Court of First Instance of Zamboanga. The
will was admitted to probate. Said will provides, among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold
or otherwise disposed of for a period of ten (10) years after my death, and that
the same be handled and managed by the executors, and proceeds thereof to be
given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the same be used only for
the education of my brother's children and their descendants.

6. I direct that ten (10) years after my death my property be given to the above
mentioned Matthew Hanley to be disposed of in the way he thinks most
advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that
my nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of
ther estate to appoint a trustee to administer the real properties which, under the will,
were to pass to Matthew Hanley ten years after the two executors named in the will,
was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond
on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and
the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal
Revenue, alleging that the estate left by the deceased at the time of his death consisted
of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction
of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24
which, together with the penalties for deliquency in payment consisting of a 1 per cent
monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per
cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a
motion in the testamentary proceedings pending before the Court of First Instance of
Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be
ordered to pay to the Government the said sum of P2,052.74. The motion was granted.
On September 15, 1932, the plaintiff paid said amount under protest, notifying the
defendant at the same time that unless the amount was promptly refunded suit would
be brought for its recovery. The defendant overruled the plaintiff's protest and refused
to refund the said amount hausted, plaintiff went to court with the result herein above
indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his
instituted heir, Matthew Hanley, from the moment of the death of the former,
and that from the time, the latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance
tax due on the estate of said deceased.

III. In holding that the inheritance tax in question be based upon the value of
the estate upon the death of the testator, and not, as it should have been held,
upon the value thereof at the expiration of the period of ten years after which,
according to the testator's will, the property could be and was to be delivered to
the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount
of the estate subject to said tax, the amounts allowed by the court as
compensation to the "trustees" and paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion
for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the
following error besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the
sum of P1,191.27, representing part of the interest at the rate of 1 per cent per
month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to
 pay on the inheritance tax assessed by the defendant against the estate of
Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a)
When does the inheritance tax accrue and when must it be satisfied? (b) Should the
inheritance tax be computed on the basis of the value of the estate at the time of the
testator's death, or on its value ten years later? (c) In determining the net value of the
estate subject to tax, is it proper to deduct the compensation due to trustees? (d) What
law governs the case at bar? Should the provisions of Act No. 3606 favorable to the
tax-payer be given retroactive effect? (e) Has there been deliquency in the payment of
the inheritance tax? If so, should the additional interest claimed by the defendant in his
appeal be paid by the estate? Other points of incidental importance, raised by the
parties in their briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same.
Section 1536 as amended, of the Administrative Code, imposes the tax upon "every
transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in
anticipation of inheritance,devise, or bequest." The tax therefore is upon transmission
or the transfer or devolution of property of a decedent, made effective by his death. (61
C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed
to, receive, or take property by or under a will or the intestacy law, or deed, grant, or
gift to become operative at or after death. Acording to article 657 of the Civil Code, "the
rights to the succession of a person are transmitted from the moment of his death." "In
other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the
property of the deceased ancestor. The property belongs to the heirs at the moment of
the death of the ancestor as completely as if the ancestor had executed and delivered
to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See
also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13;
Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas
vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs.
Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti
Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First
Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff,
however, asserts that while article 657 of the Civil Code is applicable to testate as well
as intestate succession, it operates only in so far as forced heirs are concerned. But the
language of article 657 of the Civil Code is broad and makes no distinction between
different classes of heirs. That article does not speak of forced heirs; it does not even
use the word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil Procedure
regarding the authentication and probate of a will as a necessary condition to effect
transmission of property does not affect the general rule laid down in article 657 of the
Civil Code. The authentication of a will implies its due execution but once probated and
allowed the transmission is effective as of the death of the testator in accordance with
article 657 of the Civil Code. Whatever may be the time when actual transmission of
the inheritance takes place, succession takes place in any event at the moment of the
decedent's death. The time when the heirs legally succeed to the inheritance may differ
from the time when the heirs actually receive such inheritance. "Poco importa", says
Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento del
causante, hasta que el heredero o legatario entre en posesion de los bienes de la
herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de
retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que debe
considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440,
par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow
that the obligation to pay the tax arose as of the date. The time for the payment on
inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as
amended by Act No. 3031, in relation to section 1543 of the same Code. The two
sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following

shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the

fiduciary heir or legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary
is greater than that paid by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before
entrance into possession of the property.

(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the payment shall be
made by the executor or administrator before delivering to each
beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate
of twelve per centum per annum shall be added as part of the tax; and to the
tax and interest due and unpaid within ten days after the date of notice and
demand thereof by the collector, there shall be further added a surcharge of
twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the

Collector of Internal Revenue by the Clerk of Court within thirty days after their
issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of
section 1543, should read "fideicommissary" or "cestui que trust". There was an
obvious mistake in translation from the Spanish to the English version.
The instant case does fall under subsection (a), but under subsection (b), of section
1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee.
Under the subsection, the tax should have been paid before the delivery of the
properties in question to P. J. M. Moore as trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real
properties are concerned, did not and could not legally pass to the instituted heir,
Matthew Hanley, until after the expiration of ten years from the death of the testator on
May 27, 1922 and, that the inheritance tax should be based on the value of the estate
in 1932, or ten years after the testator's death. The plaintiff introduced evidence
tending to show that in 1932 the real properties in question had a reasonable value of
only P5,787. This amount added to the value of the personal property left by the
deceased, which the plaintiff admits is P1,465, would generate an inheritance tax
which, excluding deductions, interest and surcharge, would amount only to about
P169.52.

If death is the generating source from which the power of the estate to impose
inheritance taxes takes its being and if, upon the death of the decedent, succession
takes place and the right of the estate to tax vests instantly, the tax should be
measured by the vlaue of the estate as it stood at the time of the decedent's death,
regardless of any subsequent contingency value of any subsequent increase or
decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and
Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20
Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax
accrues at the moment of death, and hence is ordinarily measured as to any beneficiary
by the value at that time of such property as passes to him. Subsequent appreciation or
depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and
Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders,
taxation is postponed until the estate vests in possession or the contingency is settled.
This rule was formerly followed in New York and has been adopted in Illinois,
Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is by
no means entirely satisfactory either to the estate or to those interested in the property
(26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find
upon examination of cases and authorities that New York has varied and now requires
the immediate appraisal of the postponed estate at its clear market value and the
payment forthwith of the tax on its out of the corpus of the estate transferred. (In
re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N.
Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y.,
609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also,
Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul.
Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by
inheritance is taxable at the time of the predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the beneficiary,
and the tax measured by the value of the property transmitted at that time regardless
of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in
arriving at the net value of the estate on which the inheritance tax is to be computed
(sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the
trial court allowed a deduction of only P480.81. This sum represents the expenses and
disbursements of the executors until March 10, 1924, among which were their fees and
the proven debts of the deceased. The plaintiff contends that the compensation and
fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN,
OO), should also be deducted under section 1539 of the Revised Administrative Code
which provides, in part, as follows: "In order to determine the net sum which must bear
the tax, when an inheritance is concerned, there shall be deducted, in case of a
resident, . . . the judicial expenses of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney
vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that
the compensation due him may lawfully be deducted in arriving at the net value of the
estate subject to tax. There is no statute in the Philippines which requires trustees'
commissions to be deducted in determining the net value of the estate subject to
inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the duties of his executors
and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893;
175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in
paragraph 5 of his will, the testator expressed the desire that his real estate be handled
and managed by his executors until the expiration of the period of ten years therein
provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in
State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was
said: ". . . The compensation of a trustee, earned, not in the administration of the
estate, but in the management thereof for the benefit of the legatees or devises, does
not come properly within the class or reason for exempting administration expenses. . .
. Service rendered in that behalf have no reference to closing the estate for the purpose
of a distribution thereof to those entitled to it, and are not required or essential to the
perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that
here before the court, are created for the the benefit of those to whom the property
ultimately passes, are of voluntary creation, and intended for the preservation of the
estate. No sound reason is given to support the contention that such expenses should
be taken into consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of
Thomas Hanley under the provisions of section 1544 of the Revised Administrative
Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on
January 1, 1930. It, therefore, was not the law in force when the testator died on May
27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act
No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time
of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p.
3461). The taxpayer can not foresee and ought not to be required to guess the
outcome of pending measures. Of course, a tax statute may be made retroactive in its
operation. Liability for taxes under retroactive legislation has been "one of the incidents
of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep.,
44.) But legislative intent that a tax statute should operate retroactively should be
perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust &
Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs.
Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its
operation, whether it enacts, amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or expresses that it shall have a retroactive
effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations
No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending
section 1544 of the Revised Administrative Code, applicable to all estates the
inheritance taxes due from which have not been paid, Act No. 3606 itself contains no
provisions indicating legislative intent to give it retroactive effect. No such effect can
begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions
of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that
said provisions are penal in nature and, therefore, should operate retroactively in
conformity with the provisions of article 22 of the Revised Penal Code. This is the
reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No.
3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the
tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed
twenty days from notice and demand by rthe Collector of Internal Revenue within which
to pay the tax, instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense

committed against the state which, under the Constitution, the Executive has the power
to pardon. In common use, however, this sense has been enlarged to include within the
term "penal statutes" all status which command or prohibit certain acts, and establish
penalties for their violation, and even those which, without expressly prohibiting certain
acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily resorted to for the
collection of taxes are not classed as penal laws, although there are authorities to the
contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington,
141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs.
Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article
22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of
clear legislative intent, we cannot give Act No. 3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain
time and the tax may be paid within another given time. As stated by this court, "the
mere failure to pay one's tax does not render one delinqent until and unless the entire
period has eplased within which the taxpayer is authorized by law to make such
payment without being subjected to the payment of penalties for fasilure to pay his
taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax
before the delivery of the decedent's property to the trustee. Stated otherwise, the
defendant contends that delivery to the trustee was delivery to the cestui que trust, the
beneficiery in this case, within the meaning of the first paragraph of subsection (b) of
section 1544 of the Revised Administrative Code. This contention is well taken and is
sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true that the
word "trust" is not mentioned or used in the will but the intention to create one is clear.
No particular or technical words are required to create a testamentary trust (69 C. J., p.
711). The words "trust" and "trustee", though apt for the purpose, are not necessary.
In fact, the use of these two words is not conclusive on the question that a trust is
created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the
will his intention so to do by using language sufficient to separate the legal from the
equitable estate, and with sufficient certainty designate the beneficiaries, their interest
in the ttrust, the purpose or object of the trust, and the property or subject matter
thereof. Stated otherwise, to constitute a valid testamentary trust there must be a
concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite
subject; (3) a certain or ascertain object; statutes in some jurisdictions expressly or in
effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the testator
intended to create a trust. He ordered in his will that certain of his properties be kept
together undisposed during a fixed period, for a stated purpose. The probate court
certainly exercised sound judgment in appointment a trustee to carry into effect the
provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in
him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the
estate of the deceased was placed in trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment of the inheritance tax. The
corresponding inheritance tax should have been paid on or before March 10, 1924, to
escape the penalties of the laws. This is so for the reason already stated that the
delivery of the estate to the trustee was in esse delivery of the same estate to
the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent
for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57
Law. ed., 1086). When Moore accepted the trust and took possesson of the trust estate
he thereby admitted that the estate belonged not to him but to his cestui que
trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not
acquire any beneficial interest in the estate. He took such legal estate only as the
proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary
(65 C. J., p. 542).

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

That taxes must be collected promptly is a policy deeply intrenched in our tax system.
Thus, no court is allowed to grant injunction to restrain the collection of any internal
revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil.,
252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to
demonstrate trenchment adherence to this policy of the law. It held that "the fact that
on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they
were prevented from praying their internal revenue taxes on time and by mutual
agreement closed their homes and stores and remained therein, does not authorize the
Collector of Internal Revenue to extend the time prescribed for the payment of the
taxes or to accept them without the additional penalty of twenty five per cent."
(Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . .
that the modes adopted to enforce the taxes levied should be interfered with as little as
possible. Any delay in the proceedings of the officers, upon whom the duty is developed
of collecting the taxes, may derange the operations of government, and thereby, cause
serious detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66;
Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment
of inheritance tax and, therefore, liable for the payment of interest and surcharge
provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became
trustee. The interest due should be computed from that date and it is error on the part
of the defendant to compute it one month later. The provisions cases is mandatory
(see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal
Revenuen or this court may remit or decrease such interest, no matter how heavily it
may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and
demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five per
centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code).
Demand was made by the Deputy Collector of Internal Revenue upon Moore in a
communiction dated October 16, 1931 (Exhibit 29). The date fixed for the payment of
the tax and interest was November 30, 1931. November 30 being an official holiday,
the tenth day fell on December 1, 1931. As the tax and interest due were not paid on
that date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error
assigned by the plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the
estate of Thomas Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and
personal properties worth P1,465, or a total of P29,385. Deducting from this amount
the sum of P480.81, representing allowable deductions under secftion 1539 of the
Revised Administrative Code, we have P28,904.19 as the net value of the estate
subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised
Administrative Code, should be imposed at the rate of one per centum upon the first
ten thousand pesos and two per centum upon the amount by which the share exceed
thirty thousand pesos, plus an additional two hundred per centum. One per centum of
ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these
two sums an additional two hundred per centum, or P965.16, we have as primary tax,
correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section
1544 of the Revised Administrative Code. First should be added P1,465.31 which stands
for interest at the rate of twelve per centum per annum from March 10, 1924, the date
of delinquency, to September 15, 1932, the date of payment under protest, a period
covering 8 years, 6 months and 5 days. To the tax and interest thus computed should
be added the sum of P724.88, representing a surhcarge of 25 per cent on both the tax
and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29),
giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is
legally due from the estate. This last sum is P390.42 more than the amount demanded
by the defendant in his counterclaim. But, as we cannot give the defendant more than
what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27
the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff
in both instances. So ordered.

Avanceña, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.
 SECOND DIVISION

[G.R. No. 120880. June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF

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

DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again

assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law.Specifically, the petition assails the
Decision[1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP
No. 31363, where the said court held:

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

WHEREFORE, premises considered, judgment is hereby rendered

DISMISSING the petition for certiorari with prayer for Restraining
Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

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

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

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

III. Enjoin the Head Revenue Executive Assistant Director II

(Collection Service), from proceeding with the Auction of the real
properties covered by Notices of Sale.

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

"WHEREFORE, premises considered judgment is hereby rendered

DISMISSING the petition for Certiorari with prayer for Restraining
Order and Injunction.

No pronouncements as to cost.

SO ORDERED."

Unperturbed, petitioner is now before us assailing the validity of the

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

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

(2) [a] The numerous pending court cases questioning the late
President's ownership or interests in several properties (both
personal and real) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents assessment of the
estate tax and their issuance of the Notices of Levy and Sale are
premature, confiscatory and oppressive.
 [b] Petitioner, as one of the late President's compulsory heirs,
was never notified, much less served with copies of the Notices
of Levy, contrary to the mandate of Section 213 of the NIRC. As
such, petitioner was never given an opportunity to contest the
Notices in violation of his right to due process of law.

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

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

"On September 29, 1989, former President Ferdinand Marcos died

in Honolulu, Hawaii, USA.

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

Subsequently, criminal charges were filed against Mrs. Imelda R.

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

The Commissioner of Internal Revenue thereby caused the

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

The Commissioner of Internal Revenue avers that copies of the

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

The deficiency tax assessments were not protested administratively,

by Mrs. Marcos and the other heirs of the late president, within 30
days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two

notices of levy on real property against certain parcels of land
owned by the Marcoses - to satisfy the alleged estate tax and
deficiency income taxes of Spouses Marcos.

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

On May 26, 1993, additional four (4) notices of Levy on real

property were again issued. The foregoing tax remedies were
resorted to pursuant to Sections 205 and 213 of the National
Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto

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

Notices of sale at public auction were posted on May 26, 1993, at

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

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed

the instant petition for certiorari and prohibition under Rule 65 of
the Rules of Court, with prayer for temporary restraining order
and/or writ of preliminary injunction."

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

"The case of Pineda vs. Court of First Instance of Tayabas and

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

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

"Strictly speaking, the assessment of an inheritance tax does not

directly involve the administration of a decedent's estate, although
it may be viewed as an incident to the complete settlement of an
estate, and, under some statutes, it is made the duty of the probate
court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of
decedent, nor is it a claim against the estate as such, but it is
against the interest or property right which the heir, legatee,
devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is
not a suit or controversy between the parties, nor is it an adversary
proceeding between the state and the person who owes the tax on
the inheritance. However, under other statutes it has been held that
the hearing and determination of the cash value of the assets and
the determination of the tax are adversary proceedings. The
proceeding has been held to be necessarily a proceeding in rem. [11]

In the Philippine experience, the enforcement and collection of estate

tax, is executive in character, as the legislature has seen it fit to ascribe this
task to the Bureau of Internal Revenue. Section 3 of the National Internal
Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of

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

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

"Taxes assessed against the estate of a deceased person, after

administration is opened, need not be submitted to the committee
on claims in the ordinary course of administration. In the exercise of
its control over the administrator, the court may direct the payment
of such taxes upon motion showing that the taxes have been
assessed against the estate."
 Such liberal treatment of internal revenue taxes in the probate
proceedings extends so far, even to allowing the enforcement of tax
obligations against the heirs of the decedent, even after distribution of the
estate's properties.

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

"Thus, the Government has two ways of collecting the taxes in

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

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

"Sec. 229. Protesting of assessment.-When the Commissioner of

Internal Revenue or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of
his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner shall
issue an assessment based on his findings.

Such assessment may be protested administratively by filing a

request for reconsideration or reinvestigation in such form and
manner as may be prescribed by implementing regulations within
(30) days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual,

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

Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never
questioned the assessments served upon them, allowing the same to lapse
into finality, and prompting the BIR to collect the said taxes by levying upon
the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may
have been validly undertaken by the Government, collection thereof may
have been done in violation of the law.Thus, the manner and method in
which the latter is enforced may be questioned separately, and irrespective
of the finality of the former, because the Government does not have the
unbridled discretion to enforce collection without regard to the clear
provision of law."[14]
Petitioner specifically points out that applying Memorandum Circular No.
38-68, implementing Sections 318 and 324 of the old tax code (Republic Act
5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex
C of this Petition) in satisfaction of said assessments were still
issued by respondents well beyond the period mandated in Revenue
Memorandum Circular No. 38-68. These Notices of Levy were issued
only on 22 February 1993 and 20 May 1993 when at least
seventeen (17) months had already lapsed from the last service of
tax assessment on 12 September 1991. As no notices of distraint of
personal property were first issued by respondents, the latter should
have complied with Revenue Memorandum Circular No. 38-68 and
issued these Notices of Levy not earlier than three (3) months nor
later than six (6) months from 12 September 1991. In accordance
with the Circular, respondents only had until 12 March 1992 (the
last day of the sixth month) within which to issue these Notices of
Levy. The Notices of Levy, having been issued beyond the period
allowed by law, are thus void and of no effect." [15]

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

"Sec. 223. Exceptions as to a period of limitation of assessment and

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

xxx

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

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

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice -

We find, after considering the facts and circumstances, as well as
evidences, that there was sufficient, constructive and/or actual
notice of assessments, levy and sale, sent to herein petitioner
Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.

Even if we are to rule out the notices of assessments personally

given to the caretaker of Mrs. Marcos at the latter's last known
address, on August 26, 1991 and September 12, 1991, as well as
the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 -
the subsequent notices given thereafter could no longer be ignored
as they were sent at a time when petitioner was already here in the
Philippines, and at a place where said notices would surely be called
to petitioner's attention, and received by responsible persons of
sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices were served

upon Mrs. Marcos c/o the petitioner, at his office, House of
Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-
2", "A-3"; pp. 207-210, Comment/Memorandum of OSG). Moreover,
a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a
conference relative to her tax liabilities, was furnished the counsel
of Mrs. Marcos - Dean Antonio Coronel (Annex "B", p. 211,
ibid). Thereafter, copies of Notices were also served upon Mrs.
Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7,
1993 and June 10, 1993. Despite all of these Notices, petitioner
never lifted a finger to protest the assessments, (upon which the
Levy and sale of properties were based), nor appealed the same to
the Court of Tax Appeals.

There being sufficient service of Notices to herein petitioner (and his

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

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

...Levy shall be effected by writing upon said certificate a

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

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

[1]
Penned by Associate Justice Asaali S. Isnani, Chairman; Justices Corona Ibay Somera and
Celia Lipana Reyes, concurring.
[2]
Annex "A", Petition, p. 80, Rollo.
[3]
Commissioner of Internal Revenue vs. Algue, Inc., et. al., G.R. No. L-28896, February 17,
1988, 158 SCRA 9.
[4]
G.R. No. L-18994, June 29, 8 SCRA 443.
[5]
Acebedo vs Abesamis, G.R. No. 102380, 18 January 1993, 217 SCRA 186.
[6]
Reyes vs. Ysip, G.R. No. 7516, May 12, 1955, 97 Phil 11.
[7]
Gaas vs. Fortich, G.R. No. 3154, Dec. 28, 1929, 54 Phil. 196.,
[8]
Torres vs. Javier, May 24, 1916 34 Phil 382.
[9]
Pecson vs. Mediavillo, G.R. No. 7890, September 29, 1914, 28 Phil 81
[10]
Borromeo-Herrera vs. Borromeo, et. al., L-41171, July 23, 1982.
[11]
85 C.J.S. # 1191, pp. 1056-1057.
[12]
No. L-31364, March 30, 1979, 89 SCRA 199.
[13]
Pineda vs. Court of First Instance of Tayabas, G.R. No. 30921, February 16, 1929, 52 Phil
805; Government vs. Pamintuan, G.R. No. 33139, October 11, 1930, 55 Phil 13.
[14]
Petition, p. 50, Rollo.
[15]
Ibid., pp. 57-58.
[16]
Section 16, National Internal Revenue Code.
[17]
Interprovincial Autobus Co., Inc. vs. Collector of Internal Revenue, G.R. No.
6741, January 31, 1956, 98 Phil 290; CIR vs. Construction Resources Asia, Inc., G.R.
No. 98230, November 25, 1986, 145 SCRA 671; Sy Po vs. Court of Tax Appeals, et.
al., G.R. No. L-81446, August 18, 1988, 164 SCRA 524; CIR vs. Bohol Land
Transportation Co., 58 O.G. 2407 (1960).
[18]
Gutierrez vs. Villegas, G.R. No. L-17117, July 31, 1963, 8 SCRA 527.
[19]
De la Paz vs. Panis, G.R. No. 57023, June 22, 1995, 245 SCRA 242.
[20]
Court of Appeals Decision, pp. 12-13, Rollo.
[21]
Affidavit of Service by the Revenue Officer of the Collection and Enforcement Division of
the BIR, Annex "D", Comment/Memorandum of the Commissioner of Internal
Revenue in the Court of Appeals.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 48122 October 29, 1948

A. W. BEAM, A. W. BEAM, Jr., and EUGENIA BEAM, the latter two assisted by
their guardian ad litem,
John W. Haussermann, plaintiffs-appellants,
vs.
A. L. YATCO, Collector of Internal Revenue of the Philippines, defendant-
appellee.

Ross, Selph, Carrascoso and Janda for appellants.

Office of the Solicitor General Roman Ozaeta and Assistant Solicitor General Rafael
Amparo for appellee.

PERFECTO, J.:

On July 17, 1937, plaintiffs filed a complaint praying that the amount of P343,298.72,
paid by them as inheritance tax, be refunded to them as follows: P40,480 to A. W.
Beam, P151,409.36 to A. W. Beam, Jr. and P151,409.36 to Eugenia Beam.

In March, 1938, the parties entered into a stipulation of facts from which the following
can be gathered:
That on or before April 26, 1937, the Collector of Internal Revenue declared and
assessed the following items of property of A. W. Beam and Lydia McKee Beam at the
time of the death of the latter on October 18, 1934, at P8,100,544.91:

15,000 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 2,

15 and 25 issued to and in the name of Lydia McKee Beam;

88,163 shares of stock of Beam Investment Company, evidenced by Certificates Nos.

11, 23 and 24 issued to and in the name of A. W. Beam;

500 shares of stock of Benguet Consolidated Mining Company, evidenced by Certificate

No. 3342 issued to and in the name of A. W. Beam;

2,080 shares of stock of Balatoc Mining Company, evidenced by Certificates Nos. 600,
614 and 809 issued to and in the name of A. W. Beam;

5,000 shares of stock of Beam Investment Company evidenced by Certificates Nos. 17

and 26 issued to and in the name of A. W. Beam, Junior;lawphil.net

Deposit of P2,933.18 in Manila Building and Loan Association in the name and to the
credit of A. W. Beam, Junior;

5,000 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 19

and 27 issued to and in the name of Eugenia Beam;

Deposit of P2,933.18 in Manila Building and Loan Association in the name and to the
credit of Eugenia Beam.

One-half thereof, appraised at P4,050,272.46, was the estate to the deceased Lydia
McKee Beam located in the Philippines and transmitted to plaintiffs and to Syrena
McKee and Rose P. McKee by virtue of inheritance, devise, or bequest, gifts mortis
causa or advance in anticipation of inheritance, and the collector assessed and
demanded inheritance taxes thereon as follows:

Heirs Share Tax

A. W. Beam P532,375.00 P40,480.00
A. W. Beam,
1,749,448.73 151,409.36
Jr.
Eugenia
1,749,448.73 151,409.36
Beam
Syrena
10,000.00 200.00
McKee
Rose T.
10,000.00 200.00
McKee

P4,050,272.46 P343,698.72
On April 26, 1937, plaintiffs, together with Syrena McKee and Rose T. McKee, both
sister of Lydia Mckee Beam, paid respectively the amounts assessed and demanded by
the collector, aggregating P343,698.72, under protest that was overruled by the
collector on May 11, 1937.

A. W. Beam is of age but the other two plaintiffs are minors and are assisted by their
guardian ad litem, John W. Haussermann.

On her death in the State of California on October 8, 1934, Lydia McKee Beam left a
last will and testament which, after due and regular proceedings, was admitted to
probate in the superior court of the State of California for the County of Almeda.

Lydia McKee Beam was the wife of A. W. Beam from their marriage in 1913 until her
death, and the other two plaintiffs are the legitimate children of said marriage. Plaintiffs
are, and since birth, have been, and Lydia McKee Beam was, throughout of her life,
citizens of the United States of America. A. W. Beam was for many years, beginning
from year 1902, a resident domiciled in the Philippines.

On April 18, 1934, A. W. Beam, with his wife Lydia and daughter Eugenia, left the
Philippines for California and arrived at San Francisco on May 9, 1934, and since such
arrival neither said Lydia nor any of the plaintiffs have been in the Philippines, except A.
W. Beam who was in the Philippines from December 20, 1936, to January 15, 1937.

At the time of the death of Lydia McKee Beam, she and plaintiffs owned separately and
severally, according to plaintiffs, and jointly with Lydia McKee Beam and A. W. Beam,
according to defendant, the following properties:

LYDIA MCKEE BEAM: 15,000 shares of stock of Beam Investment Company,

evidenced by Certificates Nos. 2, 15 and 25 issued to and in the name of Lydia
McKee Beam;

A. W. BEAM: 88,163 shares of stock of Beam Investment Company, evidenced

by Certificates Nos. 11, 23 and 24 issued to and in the name of A. W. Beam; 500
shares of stock of Benguet Consolidated Mining Company, evidenced by
Certificate No. 3342 issued to and in the name of A. W. Beam; 2,080 shares of
stock of Balatoc Mining Company, evidenced by Certificates Nos. 600, 614 and
809 issued to and in the name of A. W. Beam;

A. W. BEAM, JUNIOR: 5,000 shares of stock of Beam Investment Company

evidenced by Certificates Nos. 17 and 26 issued to and in the name of A. W.
Beam, Junior; Deposit of P2,933.18 in Manila Building and Loan Association in
the name and to the credit of A. W. Beam, Junior;

EUGENIA BEAM: 5,000 shares of stock of Beam Investment Company, evidenced

by Certificates Nos. 19 and 27 issued to and in the name of Eugenia Beam;
Deposit of P2,933.18 in Manila Building and Loan Association in the name and to
the credit of Eugenia Beam.
The Beam Investment Company, the Balatoc Mining Company and the Manila Building
and Loan Association are, and were at all times mentioned in the amended complaint,
corporations organized and existing under the laws of the Philippines. The Benguet
Consolidated Mining Company is, and was at all times mentioned in the amended
complaint, a sociedad anonima organized and existing under the laws of the Philippines.

The above-listed properties were acquired in the Philippines during and within the
period from the marriage of A. W. Beam to Lydia McKee Beam in 1913 to April 18,
1934. A. W. Beam has been, and was up to April 18, 1934, the Vice-President and
Assistant General Manager of the Benguet Consolidated Mining Company and a member
of the Board of Directors of said company and of the Balatoc Mining Company. He was
also, and up to the present, is, the President of Beam Investment Company.

Prior to his departure from the Philippines on April 18, 1934, with his wife and his
daughter Eugenia, A. W. Beam filed an application for a tax clearance certificate with
the Bureau of Internal Revenue.

On September 30, 1940, the lower court rendered decision dismissing the complaint
with costs against the plaintiffs.

Plaintiffs appealed.

Appellants complain that the lower court dismissed the complaint on factual conclusions
dealing with points not at issue between the parties. They allege that the issue of fact,
under the pleadings, was between the appellants' contention that A. W. Beam and
deceased wife were residents and citizens of California on October 18, 1934, and
appellee's contention that their Philippine residence and domicile extended to October
18, 1934, and sometime later, and there was no issue as to whether or not said A. W.
Beam changed his residence and domicile in 1923 from the Philippines to California
and, therefore, the lower court erred in finding that appellant became a resident and
citizen of California in 1923.

Appellee alleges that it has been his original theory from the inception of the action that
the plaintiffs were and continued to be California citizens and that they are not entitled
to recover on the ground that according to California law the property acquired by A. W.
Beam in one-half thereof belongs to the deceased and passed by succession to her
heirs subject to the inheritance tax, and said theory is borne out by the following
allegation of the amended answers filed on September 2, 1937:

That under the Inheritance Tax Law, the defendant demanded and collected from
the plaintiffs the sum of P343,698.72 alleged in the complaint, which had been
assessed on the amount of P4,050,272.46, value of the estate of said Lydia
McKee, located and having business situs in the Philippines, and transmitted to
the plaintiffs by virtue of inheritance. (Pages 15, 16, record on appeal; emphasis
supplied.)

That the law of the State of California in effect at the time of the death of Lydia
McKee Beam provided that, upon the death of a wife, one-half of the community
property shall go to the surviving spouse, the other half being subject to the
 testamentary disposition of the decedent, and that in the absence thereof, that
half shall go to the surviving spouse by inheritance.

The last paragraph reproduces only the penultimate paragraph of the original answer
dated October 11, 1937.

The allegations necessarily include by implication the allegation of California citizenship

so that the California law may be invoked as the personal law of the deceased
applicable to her personal property in the Philippines in accordance with article 10 of
the Civil Code.

The finding of the lower court is fully supported by the testimonies of A. W. Beam and
John W. Haussermann, wherein the first stated that in 1923 he bought a house in
Oakland, California, and used it as a residence until December, 1930, when he built
another in Piedmont, California, which he has used and occupied as a residence since
then, and his children were in school in California and Mrs. Beam wanted to be with
them and made a home for them, and it was his intention to live in California and from
1923 on, his family spent most of their time in California, where he himself used to take
long vacations, and that he never really intended to live permanently in the Philippines,
while Haussermann testified that A. W. Beam left the Philippines somewhere along
1923 and 1924 when he established a home for his wife and children on Kenmore
Avenue, Oakland, and he went there frequently.

We are of opinion that, upon the pleadings and the evidence, the lower court did not err
in finding that A. W. Beam and wife became residents and citizens of California in 1923.

On the other hand, appellee maintains that, because the burden of proof is on the
plaintiffs to establish their right to recover, in view of the fact that they had failed to
establish that right based on their alleged Utah citizenship, the dismissal of the
complaint is fully justified, and the defendant is entitled to take advantage of the
plaintiff's failure to present sufficient proof and of the evidence adduced by themselves.

Plaintiff pleaded Utah citizenship to invoke the laws of the state which, it is alleged, is
to the effect that properties acquired by the spouses during marriage belong to them
separately, and the Utah citizenship was thus put in issue in view of the general denial
of appellee and his special defense predicated on the California law.

The evidence of the plaintiff on the Utah citizenship consists exclusively in the
deposition of A. W. Beam wherein he states that he was born in Nevada in 1878; he
lived with his parents in Nevada until 1883 and then in Utah until 1898, when he
enlisted in the army; and that upon his discharge from the army in San Francisco in
1889 he returned to, and stayed in, Utah, until he came to the Philippines in 1902. As
contended by appellee, the evidence does not sufficiently prove the Utah citizenship
claimed by said appellant. There is no evidence that he ever returned to Utah, or has
any interest in that estate, or that he ever intended to return there.

Where plaintiffs themselves show a state of facts upon which they should not recover,
whether defendant pleaded such fact as a defense or not, their claim should be
dismissed. Evidence introduced without objection becomes property of the case and all
the parties are amenable to any favorable or unfavorable effects resulting from the
evidence.

Appellants complain that they were not given opportunity to present evidence regarding
the fact found by the lower court that plaintiff A. W. Beam became in 1923 a resident
and citizen of California has no merit, because plaintiffs had in fact the opportunity, and
taken advantage of it, to present all the facts which, according to them, would entitle
them to recover and they cannot complain of their failure to present more evidence
than that appearing in the record. As a matter of fact, the evidence upon which the
lower court concluded that A. W. Beam became resident and citizen of California in
1923, consists in the testimony of A. W. Beam himself and his witness John W.
Haussermann.

Appellants contend that no evidence whatsoever has been adduced to prove the
California law of community property and that the trial court should not have taken into
consideration the provision of said law as quoted in the memorandum filed by the
Solicitor General. Appellee alleges that there is no dispute that California is a
community property state, citing 31 C. J., 12 and the decision in Osorio vs. Posadas (56
Phil., 748 and 756). Appellants themselves assert that, in the absence of proof as to
what the California law is, the presumption would militate against them, because when
a foreign law is pleaded and no evidence has been presented as to said law it is
presumed that the same is the law of the forum. (Yan Ka Lim vs. Collector of Customs,
30 Phil., 46; Lim vs. Collector of Internal Revenue, 36 Phil., 472; Miciano vs. Brimo, 50
Phil., 876.)

Accordingly, the properties in question which have been acquired by A.W. Beam and
wife during their marriage, should be considered as community property and upon the
death of the wife, the one that belonged to her passed by succession to her heirs, in
accordance with the provisions of articles 1401, 1407 and 1426 of the Civil Code, and
therefore is subject to the inheritance tax collected by appellee.

Appellants contended that A. W. Beam has not become a resident and citizen of
California since 1923 and that the evidence points out that he changed his residence
from the Philippines to California between the time he left Manila for Piedmont on April
18, 1934, and the time of his wife's death on October 18, 1934. Appellants point to the
testimony of A. W. Beam that his departures before 1934 were without intention of
permanently abandoning his home in the Philippines, while when he left on April 18,
1934, he had no intention of returning, for which reason he brought his car and all his
household belongings with him, and to the testimonies of Robert B. Dell, John W.
Haussermann, W. H. Taylor, W. H. Lawrence. These testimonies, all hearsay, except
that A. W. Beam himself, notwithstanding, cannot change the effect of A. W. Beam's
testimony to the effect that in 1923 he bought a house in Oakland, California, used it as
a residence until December 1930, when he built another house in Piedmont, California,
which he used and occupied as a residence from that time to the present, and that his
children were in school in California and Mrs. Beam wanted to be with them and make a
home for them, and from 1923 on his family spent most of their time in California. He
also testified that "he never really intended permanently to live in the Philippines all my
life." Under the provisions of the fourteenth amendment to the Federal Constitution, "all
persons born or naturalized in the United States are subject to the jurisdiction thereof,
are citizens of the United States and of the state wherein they reside."
A. W. Beam became citizen of California in 1923 when he established therein a
permanent residence for him and his family.

One's personal presence at the new domicile is not necessary when the intent to
change has been manifested and carried out by sending his wife and family
there. (19 C. J., 425.)

As correctly stated by appellee, even granting appellant's contention that the deceased
became a resident of California only in 1934, she was a citizen of that state at the time
of her death and her national law applicable to the case, in accordance with article 10 of
the Civil Code, is the law of California which, in the absence of contrary evidence, is to
be presumed to be the same as the Philippine law.

The question raised by appellants regarding the situs of the properties in question, has
no merit in view of the express provisions of section 1536 of the Revised Administrative
Code, specifying shares issued by any corporation or sociedad anonima organized in the
Philippines among properties subject to inheritance tax. The pronouncement of the
lower court that the actual situs of the shares in question is in the Philippines is fully
supported by the evidence as, according to the testimony of John W. Haussermann, the
corresponding certificates of stock were in the Philippines before and after the death of
Mrs. Beam, the owners were represented by proxy at the stockholders' meetings and
their shares voted by their attorney in fact who had the power to collect dividends
corresponding to the share.

The questions raised by appellants that are premised on the Utah citizenship of A. W.
Beam and his deceased wife cannot be countenanced after we have concluded that the
lower court declared correctly that they became California citizens since 1923.

The lower court's decision is affirmed with costs against appellants.

Paras, Feria, Pablo, Bengzon, Briones and Tuason, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-14070 March 29, 1961

MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONCIO GERVACIO BLAS

and LODA GERVACIO BLAS, plaintiffs-appellants,
vs.
ROSALINA SANTOS, in her capacity as Special Administratrix of the Estate of
the deceased MAXIMA SANTOS VDA. DE BLAS, in Sp. Proc. No. 2524, Court of
First Instance of Rizal, defendants-appellants. MARTA GERVACIO BLAS and DR.
JOSE CHIVI, defendants-appellants.

Teofilo Sison and Nicanor Sison for plaintiffs-appellants.

De los Santos, Caluag, Pascal and Felizardo for defendants-appellees.

LABRADOR, J.:

This action was instituted by plaintiffs against the administration of the estate of
Maxima Santos, to secure a judicial declaration that one-half of the properties left by
Maxima Santos Vda. de Blas, the greater bulk of which are set forth and described in
the project of partition presented in the proceedings for the administration of the estate
of the deceased Simeon Blas, had been promised by the deceased Maxima Santos to be
delivered upon her death and in her will to the plaintiffs, and requesting that the said
properties so promised be adjudicated to the plaintiffs. The complaint also prays for
actual damages in the amount of P50,000. (Record on Appeal, pp. 1-65.) The alleged
promise of the deceased Maxima Santos is contained in a document executed by
Maxima Santos on December 26, 1936 attached to the complaint as Annex "H" and
introduced at the trial as Exhibit "A". (Ibid., pp. 258-259.) The complaint also alleges
that the plaintiffs are entitled to inherit certain properties enumerated in paragraph 3
thereof, situated in Malabon, Rizal and Obando, Bulacan, but which properties have
already been in included in the inventory of the estate of the deceased Simeon Blas and
evidently partitioned and conveyed to his heirs in the proceedings for the administration
of his (Simeon Blas) estate.
Defendant, who is the administratrix of the estate of the deceased Maxima Santos Vda.
de Blas, filed an answer with a counterclaim, and later, an amended answer and a
counterclaim. The said amended answer admits the allegations of the complaint as to
her capacity as administratrix the death of Simeon Blas on January 3, 1937; the fact
that Simeon Blas and Marta Cruz begot three children only one of whom, namely,
Eulalio Blas, left legitimate descendants; that Simeon Blas contracted a second
marriage with Maxima Santos on June 28, 1898. She denies for lack of sufficient
information and belief, knowledge edge of the first marriage of Simeon Blas to Marta
Cruz, the averment that Simeon Blas and Marta Cruz acquired properties situated in
Obando, Bulacan, that said properties were utilized as capital, etc. As special defenses,
she alleges that the properties of the spouses Blas and Santos had been settled and
liquidated in the project of partition of the estate of said Simeon Blas; that pursuant to
the project of partition, plaintiffs and some defendants had already received the
respective properties adjudicated to them; that the plaintiffs and the defendants Marta
Geracio and Jose Chivi are estopped from impugning the validity of the project of
partition of the estate of the deceased Simeon Blas and from questioning the ownership
in the properties conveyed in the project of partition to Maxima Santos as her own
exclusive property; that the testament executed by Maxima Santos is valid, the plain
plaintiffs having no right to recover any portion of Maxima Santos' estate now under
administration by the court. A counterclaim for the amount of P50,000 as damages is
also included in the complaint, as also a cross-claim against Marta Gervacio Blas and
Jose Chivi.

Trial of the case was Conducted and, thereafter, the court, Hon. Gustave Victoriano,
presiding, rendered judgment dismissing the complaint, with costs against plaintiff, and
dismissing also the counterclaim and cross-claim decision ,the plaintiffs filed by the
defendants. From this district have appealed to this Court.

The facts essential to an understanding of the issues involved in the case may be briefly
summarized as follows: Simeon Blas contracted a first marriage with Marta Cruz
sometime before 1898. They had three children, only one of whom, Eulalio, left
children, namely, Maria Gervacio Blas, one of the plaintiffs, Marta Gervacio Blas, one of
the defendants, and Lazaro Gervacio Blas. Lazaro died in 1950, and is survived by three
legitimate children who are plaintiffs herein, namely, Manuel Gervacio Blas, Leoncio
Gervacio Blas and Loida Gervacio Blas. Marta Cruz died in 1898, and the following year,
Simeon Blas contracted a second marriage with Maxima Santos. At the time of this
second marriage, no liquidation of the properties required by Simeon Blas and Marta
Cruz was made. Three of the properties left are fishponds located in Obando, Bulacan.
Maxima Santos does not appear to have apported properties to her marriage with
Simeon Blas.

On December 26, 1936, only over a week before over a week before his death on
January 9, 1937, Simeon Blas executed a last will and testament. In the said testament
Simeon Blas makes the following declarations:

2. Sa panahon ng aking pangalawang asawa, MAXIMA SANTOS DE BLAS, ay

nagkaroon ako at nakatipon ng mga kayamanan (bienes) at pag-aari
(propriedades) na ang lahat ng lupa, palaisdaan at iba pang pag-aari ay
 umaabot sa halagang ANIM NA RAAN PITONG PU'T WALONG DAAN LIBO
WALONG DAAN WALONG PUNG PISO (678,880-00) sang-ayon sa mga halaga sa
amillarimento (valor Amillarado.)

II

1. Ang kalahati ng lahat ng aming pag-aari, matapos mabayaran ang lahat ng

aking o aming pag-kakautang na mag-asawa, kung mayroon man, yayamang
ang lahat ng ito ay kita sa loob ng matrimonio (bienes ganaciales) ay bahagi ng
para sa aking asawa, MAXIMA SANTOS DE BLAS, sang-ayon sa batas. (Record
on Appeal, pp. 250-251.)

The above testamentary provisions may be translated as follows:

2. During my second marriage with Maxima Santos de Blas, I possessed and

acquired wealth and properties, consisting of lands, fishponds and other kinds of
properties, the total assessed value of which reached the amount P678,880.00.

II

1. One-half of our properties, after the payment of my and our indebtedness, all
these properties having been acquired during marriage (conjugal properties),
constitutes the share of my wife Maxima Santos de Blas, according to the law.

At the time of the execution of said will, Andres Pascual a son-in-law of the testator,
and Avelina Pascual and others, were present. Andres Pascual had married a
descendant by the first marriage. The will was prepared by Andres Pascual, with the
help of his nephew Avelino Pascual. The testator asked Andres Pascual to prepare a
document which was presented in court as Exhibit "A", thus:

Q — Was there anybody who asked you to prepare this document?

A — Don Simeon Blas asked me to prepare this document (referring to Exhibit

"A"), (t.s.n., Sarmiento to, P. 24).

The reason why the testator ordered the preparation of Exhibit "A" was because the
properties that the testator had acquired during his first marriage with Marta Cruz had
not been liquidated and were not separated from those acquired during the second
marriage. Pascual's testimony is as follows:

Q — To whom do you refer with the word "they"?

A — Simeon Blas and his first wife, Marta Cruz. When Marta Cruz died they had
not made a liquidation of their conjugal properties and so all those properties
were included all in the assets of the second marriage, and that is the reason
why this document was prepared. (t.s.n., Sarmiento, p. 36.)
The above testimony is fully corroborated by that of Leoncio Gervacio, son-in-law of
Simeon Blas.

Q — Please state to the Court?

A — My children were claiming from their grandfather Simeon Blas the properties
left by their grandmother Marta Cruz in the year 1936.

Q — And what happened with that claim of your children against Simeon Blas
regarding the assets or properties of the first marriage that were left after the
death of Marta Cruz in 1936?

A — The claim was not pushed through because they reached into an agreement
whereby the parties Simeon Blas Maxima Santos, Maria Gervacio Bias, Marta
Gervacio Blas and Lazaro Gervacio Blas agreed that Simeon Blas and Maxima
Blas will give one-half of the estate of Simeon Blas. (t.s.n., Sarmiento, pp. 143-
144).

The document which was thus prepared and which is marked as Exhibit "A" reads in
Tagalog, thus:

MAUNAWA NG SINO MANG MAKABABASA:

Na akong si MAXIMA SANTOS DE BLAS, nasa hustong gulang, kasal kay SIMEON
BLAS, taga bayan ng Malabon, Rizal, Philippines, sa pamamagitan ng kasulatang
ito ay malaya kong ipinahahayag:

Na aking nabasa at naunawa ang testamento at huling kalooban na nilagdaan ng

aking asawa, SIMEON BLAS, at ipinahahayag ko sa ilalim ng aking karangalan at
sa harap ng aking asawa na igagalang at pagpipitaganan ang lahat at bawa't
isang bahagi ng nabanggit na testamento at ipinangangako ko pa sa
pamamagitan ng kasulatang ito na ang lahat ng maiiwang pag-aari at
kayamanan naming mag-asawa, na nauukol at bahaging para sa akin sa
paggawa ko naman ng aking testamento ay ipagkakaloob ko ang kalahati (½) sa
mga herederos at legatarios o pinamamanahan ng aking nabanggit na asawa,
SIMEON BLAS, sa kaniyang testamento, na ako'y makapipili o makahihirang na
kahit kangino sa kanila ng aking pagbibigyan at pamamanahan sang-ayon sa
paggalang, paglilingkod, at pakikisama ng gagawin sa akin.

SA KATUNAYAN NG LAHAT NG ITO ay nilagdaan ko ang kasulatang ito ngayon

ika 26 ng Diciembre ng taong 1936, dito sa San Francisco del Monte, San Juan,
Rizal, Philippines. (Exh. "A", pp. 29-30 — Appellant's brief).

(Fdo.) MAXIMA SANTOS DE BLAS

and which, translated into English, reads as follows:

KNOW ALL MEN BY THESE PRESENTS:

 That I MAXIMA SANTOS DE BLAS, of legal age, married to SIMEON BLAS,
resident of Malabon, Rizal, Philippines, voluntarily state:

That I have read and knew the contents of the will signed by my husband,
SIMEON BLAS, (2) and I promise on my word of honor in the presence of my
husband that I will respect and obey all and every disposition of said will (3) and
furthermore, I promise in this document that all the properties my husband and I
will leave, the portion and share corresponding to me when I make my will, I will
give one-half (½) to the heirs and legatees or the beneficiaries named in the will
of my husband, (4) and that I can select or choose any of them, to whom I will
give depending upon the respect, service and treatment accorded to me.

IN WITNESS WHEREOF, I signed this document this 26th day of December, 1936
at San Francisco del Monte, San Juan, Rizal, Philippines. (Exh. "A", pp. 30-31,
Appellant's brief).

(Sgd.) MAXIMA SANTOS DE BLAS

The court below held that said Exhibit "A" has not created any right in favor of plaintiffs
which can serve as basis for the complaint; that neither can it be considered as a valid
and enforceable contract for lack of consideration and because it deals with future
inheritance. The court also declared that Exhibit "A" is not a will because it does not
comply with the requisites for the execution of a will; nor could it be considered as a
donation, etc.

Both the court below in its decision and the appellees in their brief before us, argue
vehemently that the heirs of Simeon Blas and his wife Marta Cruz can no longer make
any claim for the unliquidated conjugal properties acquired during said first marriage,
because the same were already included in the mass of properties constituting the
estate of the deceased Simeon Blas and in the adjudications made by virtue of his will,
and that the action to recover the same has prescribed. This contention is correct. The
descendants of Marta Cruz can no longer claim the conjugal properties that she and her
husband may have required during their marriage although no liquidation of such
properties and delivery thereof to the heirs of Marta Cruz have been made, no action to
recover said propertied having been presented in the proceedings for the settlement of
the estate of Simeon Blas.

But the principal basis for the plaintiffs' action in the case at bar is the document
Exhibit "A". It is not disputed that this document was prepared at the instance of
Simeon Blas for the reason that the conjugal properties of me on Blas for the reason his
first marriage had not been liquidated; that it was prepared at the same time as the will
of Simeon Blas on December 26, 1936, at the instance of the latter himself. It is also
not disputed that the document was signed by Maxima Santos and one copy thereof,
which was presented in court as Exhibit "A", was kept by plaintiffs' witness Andres
Pascual.

Plaintiffs-appellants argue before us that Exhibit "A" is both a trust agreement and a
contract in the nature of a compromise to avoid litigation. Defendants-appellees, in
answer, claim that it is neither a trust agreement nor a compromise a agreement.
Considering that the properties of the first marriage of Simeon Blas had not been
liquidated when Simeon Blas executed his will on December 26, 1936', and the further
fact such properties where actually , and the further fact that included as conjugal
properties acquired during the second marriage, we find, as contended by plaintiffs-
appellants that the preparation and execution of Exhibit "A" was ordered by Simeon
Blas evidently to prevent his heirs by his first marriage from contesting his will and
demanding liquidation of the conjugal properties acquired during the first marriage, and
an accounting of the fruits and proceeds thereof from the time of the death of his first
wife.

Exhibit "A", therefore, appears to be the compromise defined in Article 1809 of the Civil
Code of Spain, in force at the time of the execution of Exhibit "A", which provides as
follows:

Compromise is a contract by which each of the parties in interest, by

giving, promising, or retaining something avoids the provocation of a suitor
terminates one which has already the provocation been instituted. (Emphasis
supplied.)

Exhibit "A" states that the maker (Maxima Santos) had read and knew the contents of
the will of her husband read and knew the contents of the will Simeon Blas — she was
evidently referring to the declaration in the will(of Simeon Blas) that his properties are
conjugal properties and one-half thereof belongs to her (Maxima Santos) as her share
of the conjugal assets under the law. The agreement or promise that Maxima Santos
makes in Exhibit "A" is to hold one-half of her said share in the conjugal assets in trust
for the heirs and legatees of her husband in his will, with the obligation of conveying
the same to such of his heirs or legatees as she may choose in her last will and
testament. It is to be noted that the conjugal properties referred to are those that were
actually existing at that time, December 26, 1936. Simeon Blas died on January 9,
1937. On June 2, 1937, an inventory of the properties left by him, all considered
conjugal, was submitted by Maxima Santos herself as administratrix of his estate. A list
of said properties is found in Annex "E", the complete inventory submitted by Maxima
Santos Vda. de Blas, is administratrix of the estate of her husband, dated March 10,
1939. The properties which were given to Maxima Santos as her share in the conjugal
properties are also specified in the project of partition submitted by said Maxima Santos
herself on March 14, 1939. (Record on Appeal, pp. 195-241.) Under Exhibit "A",
therefore, Maxima Santos contracted the obligation and promised to give one-half of
the above indicated properties to the heirs and legatees of Simeon Blas.

Counsel for the defendant-appellee claims Exhibit "A" is a worthless piece of paper
because it is not a will nor a donation mortis causa nor a contract. As we have in
indicated above, it is a compromise and at the same time a contract with a sufficient
cause or consideration. It is also contended that it deals with future inheritance. We do
not think that Exhibit "A" is a contract on future inheritance. it is an obligation or
promise made by the maker to transmit one-half of her share in the conjugal properties
acquired with her husband, which properties are stated or declared to be conjugal
properties in the will of the husband. The conjugal properties were in existence at the
time of the execution of Exhibit "A" on December 26, 1936. As a matter of fact, Maxima
Santos included these properties in her inventory of her husband's estate of June 2,
1937. The promise does not refer to any properties that the maker would inherit upon
the death of her husband, because it is her share in the conjugal assets. That the kind
of agreement or promise contained in Exhibit "A" is not void under Article 1271 of the
old Civil Code, has been decided by the Supreme Court of Spain in its decision of
October 8, 19154, thus:

Que si bien el art. 1271 del Codigo civil dispone que sobre la herenciafutura no
se podra celebrar otros contratos que aquellos cuyo objecto seapracticar entre
vivos la division de un caudal, conforme al articulo 1056, esta prohibicion noes
aplicable al caso, porque la obligacion que contrajoel recurr en contrato privado
de otorgar testamento e instituir heredera a su subrina de los bienes que
adquirio en virtud de herencia, procedentes desu finada consorte que le
quedasen sobrantes despues de pagar las deudas, y del ganacial que se expresa,
asi como de reconocer, ademas, con alguna cosaa otros sobrinos, se refiere a
bienes conocidos y determinados existentes cuando tal compromisi se otorgo, y
no a la universalidad de una herencia que, sequn el art. 659 del citado Codigo
civil, as determina a muerte, constituyendola todos los bienes, derechos y
obligaciones que por ella no sehayan extinguido: ..." (Emphasis supplied.)

It will be noted that what is prohibited to be the subject matter of a contract under
Article 1271 of the Civil Code is "future inheritance." To us future inheritance is any
property or right not in existence or capable of determination at the time of the
contract, that a person may in the future acquire by succession. The properties subject
of the contract Exhibit "A" are well defined properties, existing at the time of the
agreement, which Simeon Blas declares in his statement as belonging to his wife as her
share in the conjugal partnership. Certainly his wife's actual share in the conjugal
properties may not be considered as future inheritance because they were actually in
existence at the time Exhibit "A" was executed.

The trial court held that the plaintiffs-appellants in the case at bar are concluded by the
judgement rendered in the proceedings for the settlement of the estate of Simeon Blas
for the reason that the properties left by him belonged to himself and his wife Maxima
Santos; that the project of partition in the said case, adjudicating to Maxima Santos
one-half as her share in the conjugal properties, is a bar to another action on the same
subject matter, Maxima Santos having become absolute owner of the said properties
adjudicated in her favor. As already adverted to above, these contentions would be
correct if applied to the claim of the plaintiffs-appellants that said properties were
acquired with the first wife of Simeon Blas, Marta Cruz. But the main ground upon
which plaintiffs base their present action is the document Exhibit "A", already fully
considered above. As this private document contains the express promise made by
Maxima Santos to convey in her testament, upon her death, one-half of the conjugal
properties she would receive as her share in the conjugal properties, the action to
enforce the said promise did not arise until and after her death when it was found that
she did not comply with her above-mentioned promise. (Art. 1969, old Civil Code.) The
argument that the failure of the plaintiffs-appellants herein to oppose the project of
partition in the settlement of the estate of Simeon Blas, especially that portion of the
project which assigned to Maxima Santos one-half of all the conjugal properties bars
their present action, is, therefore, devoid of merit. It may be added that plaintiffs-
appellants did not question the validity of the project of partition precisely because of
the promise made by Maxima Santos in the compromise Exhibit "A"; they acquised in
the approval of said project of partition because they were relying on the promise made
by Maxima Santos in Exhibit "A", that she would transmit one-half of the conjugal
properties that she was going to receive as her share in the conjugal partnership upon
her death and in her will, to the heirs and legatees of her husband Simeon Blas.

Neither can the claim of prescription be considered in favor of the defendants. The right
of action arose at the time of the death of Maxima Santos on October 5,1956, when she
failed to comply with the promise made by her in Exhibit "A". The plaintiffs-appellants
immediately presented this action on December 27, 1956, upon learning of such failure
on the part of Maxima Santos to comply with said promise. This defense is, therefore,
also without merit.

It is next contended by the defendant-appellee that Maxima Santos complied with her
above-mentioned promise, — that Andres Pascual, Tomasa Avelino, Justo Garcia,
Ludovico Pimpin and Marta Gervacio Blas were given substancial legacies in the will and
testament of Maxima Santos. To determine whether she had actually complied with the
promise made in Exhibit "A", there is herein set forth a list only of the fishponds and
their respective areas as contained in the list of properties she acquired as her share in
the conjugal partnership, which list includes, besides many ricelands as well as
residential lots, thus:

31. Paco, Obando, Bulacan 5.8396 has.

3.5857 "
32. Pangjolo, Obando
34. Batang Pirasuan, Lubao, 11.9515 "
Pampanga
30.2059 "
35. Calangian, Lubao, Pampanga
215.4325
38. Bakuling, Lubao, Pampanga "
8.3763 "
39. Bakuling, Lubao, Pampanga
23.0730 "
40. Bangkal, Sinubli
6.8692 "
41. Tagulod,
34.2779 "
44. Bangkal Pugad (a)
51.7919 "
(b)
2.5202 "
(c)
45. Magtapat Bangkal, Lubao, 18.0024 "
Pampanga (a)
7.3265 "
(b)
 53.5180 "
(c)
159.0078
46. Pinanganakan, Lubao, Pampanga "
34.5229 "
47. Emigdio Lingid, Lubao, Pampanga
80.5382 "
48. Propios, Lubao, Pampanga
49. Batang Mabuanbuan, Sexmoan, 43.3350 "
Pampanga
50. Binatang Mabuanbuan, Sexmoan, 3.5069 "
Pampanga
51. Sapang Magtua, Sexmoan, 56,8242 "
Pampanga
5.0130 "
52. Kay Limpin, Sexmoan, Pampanga
53. Calise Mabalumbum, Sexmoan, 23.8935 "
Pampanga
54. Messapinit Kineke, Sexmoan, 5.2972 "
Pampanga (a)
5.9230 "
(b)
1.4638 "
(c)
1.4638 "
(d)
2.8316 "
(e)
10.4412 "
(f)
3.9033 "
(g)
11.9263 "
(h)
6.0574 "
(i)
55. Dalang, Banga, Sexmoan, 23.3989 "
Pampanga
147.1242
62. Alaminos, Pangasinan "
10.000 "
80. Mangasu Sexmoan, Pampanga
81. Don Tomas, Sexmoan, Pampanga 21.6435 "
 16.0000
82. Matikling, Lubao, Pampanga "
Total area 1045.7863
............................... "
(See Record on Record,
pp. 195-241.)

In her will, Maxima Santos devised to Marta Gervacio Blas the 80-hectare fishpond
situated in Lubao, Pampanga. The fishpond devised is evidently that designated as
"Propios" in Lubao, Pampanga, item No. 8 in the list of properties adjudicated to her in
the project of partition. (Record on Appeal, p. 215.) Considering that the total area of
the fishponds amount to 1045.7863 hectares, the 80 hectares devised to Marta
Gervacio Blas is not even one-tenth of the total area of the fishponds. Add to this the
fact that in the will she imposed upon Marta Gervacio Blas de Chivi an existing
obligation on said fishponds, namely, its lease in 1957 and the duty to pay out of the
rentals thereof an obligation to the Rehabilitation Finance Corporation RFC (Ibid., pp.
262-263.) Angelina Blas was given only a lot of 150 square meters in Hulong Duhat,
Malabon, Rizal, and Leony Blas, the sum of P300.00 (Ibid., p. 264.)

It is evident from a consideration of the above figures and facts that Maxima Santos did
not comply with her obligation to devise one-half of her conjugal properties to the heirs
and legatees of her husband. She does not state that she had complied with such
obligation in her will. If she intended to comply therewith by giving some of the heirs of
Simeon Blas the properties mentioned above, the most that can be considered in her
favor is to deduct the value of said properties from the total amount of properties which
she had undertaken to convey upon her death.

All the issues in the pleadings of the parties and in their respective briefs, have now
been fully discussed and considered. Reiterating what we have stated above, we
declare that by Exhibit "A", a compromise to avoid litigation, Maxima Santos promised
to devise to the heirs and legatees of her husband Simeon Blas, one-half of the
properties she received as her share in the conjugal partnership of herself and her
husband, which share is specified in the project of partition submitted by herself on
March 14, 1939 in the settlement of the estate of her husband, and which is found on
pages 195 to 240 of the record on appeal and on pages 27 to 46 of the project of
partition, submitted by Maxima Santos herself before the Court of First Instance of Rizal
in Civil Case No. 6707, entitled "Testamentaria del Finado Don Simeon Blas, Maxima
Santos Vda. de Bias, Administradora"; and that she failed to comply with her
aforementioned obligation. (Exhibit "A")

WHEREFORE, the judgment appealed from is hereby reversed and the defendant-
appellee, administratrix of the estate of Maxima Santos, is ordered to convey and
deliver one-half of the properties adjudicated o Maxima Santos as her share in the
conjugal properties in said Civil Case No. 6707, entitled "Testamentaria del Finado Don
Simeon Blas, Maxima Santos Vda. de Blas, Administradora", to the heirs and the
legatees of her husband Simeon Blas. Considering that all said heirs and legatees,
designated in the will of Simeon Blas as the persons for whose benefit Exhibit "A" had
been executed, have not appeared in these proceedings, the record is hereby remanded
to the court below, with instructions that, after the conveyance of the properties
hereinabove ordered had been effected, the said heirs and legatees (of Simeon Blas)
file adversary pleadings to determine the participation of each and every one of them in
said properties. Costs against the defendant- appellee Rosalina Santos.

Padilla, Parades and Dizon, JJ., concur.

Reyes, J.B.L. and Barrera, JJ., concur in a separate opinion.
Bengzon, C.J., reserves his vote.
Concepcion, J., took no part.

Separate Opinions

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

I concur in the opinion of Mr. Justice Labrador, and would only add that the doctrine in
the decision of 8 October 1915 of the Supreme Court of Spain, applied in the main
opinion, is not a mere accident nor an isolated instance, but one of a series of decisions
reaffirming the legal proposition therein laid down. Thus, the Presiding Justice Castan of
the Spanish Tribunal Supremo, in volume 3 of his Treaties on Civil Law (1951 Edition,
page 344, footnote 2), observes that:

(2) IA sentencia de 16 de mayo de 1940 declare que segun la doctrina sentada

por el Tribunal Supremo en sua fallos de 8 de Octubre de 1915 y 26 de Octubre
de 1926 y por la Direction de los Registros en au resolution de 19 de mayo de
1917, la prohibition contenida en el art. 1271 se refiere unica y exclusivamente a
los paetos sobre la universalidad de una heren cia que, segun el art. 659, se
determine a la muerte del cau sante constituyendola todos los bienes, derechos
y obligaciones que por ella no se hayan extinguido y no al pacto sobre bienes
conocidos y determinados, existentes cuando tal compromiso se otorgo, en el
dominio del cedente.

And in a later decision of 25 April 1951, the Supreme Court of Spain once ore insisted
on the rule that a successional agreement concerning property already owned by the
grantor at the time the contract was perfected is not banned by, Article 1271 of the
Spanish Civil Code according to Article 1847 of the Civil Code of the Philippines):

CONSIDERANDO: Que el tercer motive del recurso de doña M. G. G., y el sexto

del formulado por doña D. G. G., hacen roferencia a la ultima de las tres
cuestiones que son ob jato del debate en ambos recurso interpuestos esto es la
dis cutida cesion que las hermanas senoras G. G., hoy recurrentes, hicieron a
doña C. A. de la mitad de los bienes muebles e innuebles que recibiesen por
herencia de doña M. P., procedentes de la de doña M. A. P., antes N., consignada
en documents privado de fecha 2 de noviembre de 1929, firmado y reconocida
su autenticidad por las tres senoras interesa das, cuya validez y eficacia es
objeto de la cuarta pieza de los presentee autos acumulados y si se examination
 con determiento el documento aludido y el acto que en el se consigna habra de
advertirse de modo notorio que se halla afectado de vicio de nulidadporque su
objeto son unos bienes que clara mente se petpresa que han de entrar en el
patrimonio de las cendentes mediantes una transmission hereditaria, lo que
conatituye el pacto sobre herencia futura prohibido por el parrafo segundo del
articulo 1271 del Codigo Civil, ya que no se concreta sobre bienes conocido y
determinados, existentes en el del cedents cuando el compromiso de otorgo,
sino que se refiem a la universalidad de que habrian de adra la muerte del
causante sentido en el que conforme a la jurisprudencia de esta Sala es de plena
aplicacion la norma a tiva antes citada, y al no haberio asi entendido la Sala de
instancia, ha incurrido en la infmccion de interpreter erro to y por ello ha hecho
aplicacion de indebida de dicho precepto y precede la estimacion de los motivo
que aprincipio se citan y que denuncian la estimada infraccion, produciendo la
casacion de la sentencia recurrida en el extremo a que los dichos motives se
refieren. (Sentencia 25 abril 1951) (Emphasis Supplied)

It can thus be seen that the constant authoritative in interpretation of the prohibition
against agreements involving future inheritance requires not only that a future
succession be contemplated but also that the subject matter of the bargain should be
either the universality or complex or mass of property owned by the grantor at the time
of his death, or else an aliquot portion thereof. Castan, in his Treaties already
mentioned, sums up the rulings in this wise:

Por otra parte, se ha de entender: 1. Que la cesion oenajenacion de los derechos

hereditarios puede bacerse una vez falle cido el causante, aunque no se haya
entrado en possession matetrial de los bienes 2. Que la prohibition legal se
refiere solo a los contratos concluidos sobre la herencia misma o alguna de sus
cuotas, no sobre objetos aislados que, eventualmente, hayan de adquirirse a
virtud de la herencia.

It has been contended that the doctrine thus stated confuses future inheritance
(herencia futura) with future property (bienes futuros). This is a misapprehension. In
construing the term "future inheritance" as the contingent universality or complex of
property rights and obligations that are passed to the heirs upon the death of the
grantor, the rule advocated merely correlates the prohibition against contracts over
"future inheritance" with the definition of "inheritance" given in Article 659 of the
Spanish Civil Code, which is now Article 776 of the Civil Code of the Philippines:

ART. 776. The inheritance includes all the property, rights and obligations of a
person which are not extinguished by his death.

The inheritance of a person may, and usually does, include not only property that he
already owns at a given time, but also his future property, that is to say, the property
that he may subsequently acquire. But it may include only future property whenever he
should dispose of the present property before he dies. And future inheritance may
include only property he already owns at any given moment, if he should thereafter
acquire no other property until his death. In any case, the inheritance or estate cons of
the totality of and liabilities he holds at the time of his demise, and not what he at any
other time. If the questioned contract envisages all or a fraction of that contingent
mass, then it is a contract over herencia futurall otherwise it is not. The statutory
prohibition, in other words, is not so much concerned with the process of transfer as
with the subject matter of the bargain. It is addressed to "future inheritance", not
"future succession".

Of course, it can be said that every single item of property that a man should hold at
any given instant of his life may become a part of his inheritance if he keeps it long
enough. But is that mere possibility (or even probability) sufficient to do upon a
contract over an individual item of existing property the outlaw brand of "contract over
future inheritance"? If it should ever be, then no agreement concerning present
property can escape the legal ban. No donation inter vivos, no reversionary clause, no
borrowing of money, and no alienation, not even a contract of sale (or other contract
in praisenti for that matter), with or without deferred delivery, will avoid the reproach
that it concerns or affects the grantor's "future inheritance". It is permissible to doubt
whether the law ever contemplated the sweeping away of the entire contractual system
so carefully regulated in the Code.

The restrictive interpretation given by the Spanish Supreme Court to the codal
prohibition of agreements involving future inheritance is justified not only by the fact
that the prohibition limits contractual freedom (and therefore, should not be given
extensive interpretation), but also because there is no real or substantial difference
between (1) an agreement whereby a person, for a valuable consideration, agrees to
bequeath some of the property he already owns, and (2) a contract whereby he dispose
of that property, subject to the condition that he will be entitled to its usufruct until the
time he dies. The court has repeatedly sanctioned even donations inter vivos wherein
the donor has reserved to elf the right to enjoy the donated property for the remainder
of his days, and riders the actual transfer of on to the time of his death (Guzman vs.
Ibea 67 Phil. 633; Balagui vs Dongso, 53 Phil. 673; Laureta vs. Mata, 44 Phil. 668).
Whatever objection is raised against the effects of the first kind of contracts can be
made to apply to the second.

Mature reflection will show that where present (existing) property is the object of the
bargain, all arguments brandished against Conventions over future succession (post
mortem) are just as applicable to other contracts de praesenti with deferred execution,
the validity of which has never been questioned. Thus, the loss of the power to
bequeath the bargained property to persons of the grantor's choice, and the awakening
of the grantee's desire for the early death of the grantor (the Roman "votum mortis
captandae") in order to obtain prompt control of the contracted goods, occur in both
cases. In truth, the latter ground would bar even a contract of life insurance in favor of
a stated beneficiary. It may also be noted that since the later part of the nineteenth
century, the civilists have recognized that the progress in social relations has rendered
such objections obsolete (Puig Peña, Derecho Civil, Vol. V, part I, 613 et seq.).

But where the contract involves the universality of the estate that will be left at a
person's death (the "herencia future" as understood by the Spanish Tribunal Supreno),
there is another reason which I believe to be the true justification for the legal
interdiction, and it is this: that if a man were to be allowed to bargain away all the
property he expects to leave behind (i.e., his estate as a whole), he would practically
remain without any incentive to practice thrift and frugality or to conserve and invest
his earnings and property. He would then be irresistibly drawn to be a wasteful spend-
thrift, a social parasite, without any regard for his future, because whatever he leaves
belong to another by virtue of his contract. The disastrous effects upon family and
society if such agreements were to be held binding can be readily imagined. Hence, the
interpretation given to Article 1271 (now Art. 1347) by the Supreme Court of Spain
appears amply supported by practical reasons, and there is no ground to deny its
application.

Much emphasis has been placed on the provisions of the contract Exhibit "A" that the
widow, Maxima Santos de Blas, would execute a testament in favor of the appellees. To
me this is purely secondary, since it is merely the method selected by the parties for
carrying out the widow's agreement to convey to the appellees the property in question
without her losing its enjoyment during her natural life, and does not affect the
substance or the validity of the transaction. To ensure the widow's possession of the
property and the perception of its fruits while she was alive the means logically selected
was to return it by will, since such a conveyance could only be operative after death.
There might be a doubt as to the validity of this arrangement if the widows promise had
been purely gratuitous, because then it could be argued that the promise involved a
hybrid donation mortis causa yet irrevocable;1 but here the obligation to return is
concededly irrevocable and supported by adequate consideration duly received in
advance.

Since the agreement in the instant case did not refer to the future estate of the widow
of Blas, but only to part of her present property at the time the contract was made;
since the promise to retransfer one-half of her conjugal share was supported by
adequate consideration as shown in the main decision; since the contract obviated
protracted litigation and complicated accounting in settling the conjugal partnership of
Blas and his first (deceased) wife; and since the testament that the widow promised to
make was merely the mode chosen to perform the contract and carry out the promised
devolution of the property, being thus of secondary importance, I can see no reason for
declaring the entire arrangement violative of the legal interdiction of contracts over
future inheritance, and disappoint the legitimate expectation held by the heirs of the
first wife during all these years.

BARRERA, J., concurring:

It seems to me clear that the document Exhibit "A", basis of the action of the plaintiffs-
appellants, refers specifically to and affects solely the share of the grantor Maxima
Santos in the conjugal properties as determined and specified in the will of her husband
Simeon Blas, whose provisions, which she expressly acknowledged to have read and
understood, constitute the raison d'etre of her promise to deliver or convey, by will,
one-half of that specific share to the heirs and legatees named in her husband's will
(who are his heirs by his first marriage). Nowhere in the document Exhibit "A" is there
reference, to hereditary estate that she herself would leave behind at the time of her
own demise which legally would be her "future inheritance." For this reason, I believe
the contractual obligation assumed by Maxima Santos in virtue of Exhibit "A" does not
come within the prohibition of Article 1271 of the Spanish Civil Code, now Article 1347
of the Civil Code of the Philippines.
I, therefore, concur in the opinions of Justices Labrador and Reyes.

BAUTISTA ANGELO, J., dissenting:

While I agree with the theory that the document Exhibit "A" does not involve a contract
on future inheritance but a promise made by Maxima Santos to transmit one-half of her
share in the conjugal property acquired during her marriage to Simeon Blas to the heirs
and legatees of the latter, I am however of the opinion that herein appellants have no
cause of action because Maxima Santos has Substantially complied with her promise.

It should be noted that Maxima Santos' promise to transmit is predicated on the

condition that she can freely choose and select from among the heirs and legatees of
her husband those to whom she would like to give and bequeath depending on the
respect, service and companionship that they may render to her. Her commitment is
not an absolute promise to give to all but only to whom she may choose and select.
And here this promise has been substantially complied with.

Thus, it appears that Maxima Santos selected eight such heirs and legatees instituted in
the will of her husband. Note that appellant Marta Gervacio Bias, who has given a
legacy of only P38,000.00 in the will of Simeon Blas, who was given by her a legacy
worth around P400,000.00, appellants Loida Gervacio Blas (or Luding Blas) and Leoncio
(Leony) Gervacio Blas were given a legacy of P300.00 each every year to last during
their lifetime; And Lorenzo Santos was given a legacy of two fishponds and one-tenth of
the whole residuary estate. It may be stated that although appellant Maria Gervacio
Blas was not given any legacy in Maxima Santos' will, yet her son Simeon Dungao was
given a legacy of a residential land in Tonsuya, Malabon.

I, therefore, consider not in keeping with the nature of the pledge made by Maxima
Santos the decision of the majority in ordering her administratrix to convey and deliver
one-half of her share in the conjugal property to all the heirs and legatees of her
husband Simeon Blas, because only such heirs and legatees are entitled to share in the
property as may be selected by Maxima Santos, and this she has already done. For
these reasons, I dissent.

Footnotes

REYES, J., concurring:

1Note that the original "pactum successorium" was essentially gratuitous: "che e
essenzialmente a titulo gratuito" (Stolfi Diritto Civile Vol. 6)
 SECOND DIVISION

[G.R. No. 43314. December 19, 1935.]

A. L. VELILLA, administrator of the estate of Arthur Graydon Moody, Plaintiff-Appellant, v. JUAN

POSADAS, JR., Collector of Internal Revenue, Defendant-Appellee.

Ohnick & Opisso for Appellant.

Solicitor-General Hilado for Appellee.

SYLLABUS
1. INHERITANCE TAX; DOMICILE OF TAXPAYER. — To effect the abandonment of one’s domicile, there must
be a deliberate and provable choice of a new domicile, coupled with actual residence in the place chosen,
with a declared or provable intent that it should be one’s fixed and permanent place of abode, one’s home.
There is a complete dearth of evidence in the record that M ever established a new domicile in a foreign
country.

2. INHERITANCE AND INCOME TAXES. — As M’s legal domicile at the time of his death was the Philippine
Islands and his estate had its situs here, the inheritance and income taxes here involved were lawfully
collected.

DECISION

BUTTE, J.:

This is an appeal from a judgment of the Court of First Instance of Manila in an action to recover from the
defendant-appellee as Collector of Internal Revenue the sum of P77,018,39 as inheritance taxes and
P13,001.41 as income taxes assessed against the estate of Arthur G. Moody, deceased.

The parties submitted to the court an agreed statement of facts as follows: jgc:chan roble s.com.p h

"I. That Arthur Graydon Moody died in Calcutta, India, on February 18, 1931.

"II. That Arthur Graydon Moody executed in the Philippine Islands a will, certified copy of which marked
Exhibit AA is hereto attached and made a part hereof, by virtue of which will, he bequeathed all his property
to his only sister, Ida M. Palmer, who then was and still is a citizen and resident of the State of New York,
United States of America.

"III. That on February 24, 1931, a petition for appointment of special administrator of the estate of the
deceased Arthur Graydon Moody was filed by W. Maxwell Thebaut with the Court of First Instance of Manila,
the same being designated as case No. 39113 of said court. Copy of said petition marked Exhibit BB is
hereto attached and made a part hereof.

"IV. That subsequently or on April 10, 1931, a petition was filed by Ida M. Palmer, asking for the probate of
said will of the deceased Arthur Graydon Moody, and the same was, after hearing, duly probated by the
court in a decree dated May 5, 1931. Copies of the petition and of the decree marked Exhibits CC and DD,
respectively, are hereto attached and made parts hereof.

"V. That on July 14, 1931, Ida M. Palmer was declared to be the sole and only heiress of the deceased
Arthur Graydon Moody by virtue of an order issued by the court in said case No. 39113, copy of which
marked Exhibit EE is hereto attached and made a part hereof; and that during the hearing for the
declaration of heirs, Ida M. Palmer presented as evidence a letter dated February 28, 1925, and addressed
to her by Arthur Graydon Moody, copy of which marked Exhibit FF is hereto attached and made a part
hereof.

"VI. That the property left by the late Arthur Graydon Moody consisted principally of bonds and shares of
stock of corporations organized under the laws of the Philippine Islands, bank deposits and other personal
properties, as are more fully shown in the inventory of April 17, 1931, filed by the special administrator with
the court in said case No. 39113, certified copy of which inventory marked Exhibit GG is hereto attached and
made a part hereof. This stipulation does not, however, cover the respective values of said properties for the
purpose of the inheritance tax.

"VII. That on July 22, 1931, the Bureau of Internal Revenue prepared for the estate of the late Arthur
Graydon Moody an inheritance tax return, certified copy of which marked Exhibit HH is hereto attached and
made a part hereof.

"VIII. That on September 9, 1931, an income tax return for the fractional period from January 1, 1931 to
June 30, 1931, certified copy of which marked Exhibit II is hereto attached and made a part hereof, was
also prepared by the Bureau of Internal Revenue for the estate of the said deceased Arthur Graydon Moody.
"IX. That on December 3, 1931, the committee on claims and appraisals filed with the court its report,
certified copy of which marked Exhibit KK is hereto attached and made a part hereof.

"X. That on September 15, 1931, the Bureau of Internal Revenue addressed to the attorney for the
administratrix Ida M. Palmer a letter, copy of which marked Exhibit LL is hereto attached and made a part
hereof.

"XI. That on October 15, 1931, the attorney for Ida M. Palmer answered the letter of the Collector of
Internal Revenue referred to in the preceding paragraph. Said answer marked Exhibit MM is hereto attached
and made a part hereof.

"XII. That on November 4, 1931, and in answer to the letter mentioned in the preceding paragraph, the
Bureau of Internal Revenue addressed to the attorney for Ida M. Palmer another letter, copy of which
marked Exhibit NN is hereto attached and made a part hereof.

"XIII. That on December 7, 1931, the attorney for Ida M. Palmer again replied in a letter, marked Exhibit
OO, hereto attached and made a part hereof.

"XIV. That the estate of the late Arthur Graydon Moody paid under protest the sum of P50,000 on July 22,
1931, and the other sum of P40,019,75 on January 19, 1932, making a total of P90,019,75, of which
P77,018.39 covers the assessment for inheritance tax and the sum of P13,001.41 covers the assessment for
income tax against said estate.

"XV. That on January 21, 1932, the Collector of Internal Revenue overruled the protest made by Ida M.
Palmer through her attorney.

"XVI. The parties reserve their right to introduce additional evidence at the hearing of the present case.

"Manila, August 15, 1933." cralaw virtua1 aw libra ry

In addition to the foregoing agreed statement of facts, both parties introduced oral and documentary
evidence from which it appears that Arthur G. Moody, an American citizen, came to the Philippine Islands in
1902 or 1903 and engaged actively in business in these Islands up to the time of his death in Calcutta,
India, on February 18, 1931. He had no business elsewhere and at the time of his death left an estate
consisting principally of bonds and shares of stock of corporations organized under the laws of the Philippine
Islands, bank deposits and other intangibles and personal property valued by the commissioners of appraisal
and claims at P609,767.58 and by the Collector of Internal Revenue for the purposes of inheritance tax at
P653,657.47. All of said property at the time of his death was located and had its situs within the Philippine
Islands. So far as this record shows, he left no property of any kind located anywhere else. In his will,
Exhibit AA, executed without date in Manila in accordance with the formalities of the Philippine law, in which
he bequeathed all his property to his sister, Ida M. Palmer, he stated: jgc:chanrobles. com.ph

"I, Arthur G. Moody, a citizen of the United States of America, residing in the Philippine Islands, hereby
publish and declare the following as my last Will and Testament . . . ." cralaw virtua1aw li bra ry

The substance of the plaintiff’s cause of action is stated in paragraph 7 of his complaint as follows: jgc:chanrobles. com.ph

"That there is no valid law or regulation of the Government of the Philippine Islands under or by virtue of
which any inheritance tax may be levied, assessed or collected upon transfer, by death and succession, of
intangible personal properties of a person not domiciled in the Philippine Islands, and the levy and collection
by defendant of inheritance tax computed upon the value of said stocks, bonds, credits and other intangible
properties as aforesaid constituted and constitutes the taking and deprivation of property without due
process of law contrary to the Bill of Rights and organic law of the Philippine Islands." cralaw virt ua1aw lib ra ry

Section 1536 of the Revised Administrative Code (as amended) provides as follows: jgc:cha nrobles.com. ph

"SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of inheritance, devise, bequest,
gift mortis causa or advance in anticipation of inheritance, devise, or bequest of real property located in the
Philippine Islands and real rights in such property; of any franchise which must be exercised in the Philippine
Islands; of any shares, obligations, or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippine Islands in accordance with its laws; of any shares or rights in any partnership,
business or industry established in the Philippine Islands or of any personal property located in the Philippine
Islands shall be subject to the following tax:"

x x x

It is alleged in the complaint that at the time of his death, Arthur G. Moody was a "non-resident of the
Philippine Islands." The answer, besides the general denial, sets up as a special defense that "Arthur G.
Moody, now deceased, was and prior to the date of his death, a resident in the City of Manila, Philippine
Islands, where he was engaged actively in business." Issue was thus joined on the question: Where was the
legal domicile of Arthur G. Moody at the time of his death?

The Solicitor-General raises a preliminary objection to the consideration of any evidence that Moody’s
domicile was elsewhere than in Manila at the time of his death based on the proposition that as no such
objection was made before the Collector of Internal Revenue as one of the grounds of the protest against
the payment of the tax, this objection cannot be considered in a suit against the Collector to recover the
taxes paid under protest. He relies upon the decision in the case of W. C. Tucker v. A. C. Alexander,
Collector (15 Fed. [2], 356). We call attention, however, to the fact that this decision was reversed in 275 U.
S., 232; 72 Law. ed., 256, and the case remanded for trial on the merits on the ground that the requirement
that the action shall be based upon the same grounds, and only such, as were presented in the protest had
been waived by the collector. In the case before us no copy of the taxpayer’s protest is included in the
record and we have no means of knowing its contents. We think, therefore, the preliminary objection made
on behalf of the appellee does not lie.

We proceed, therefore, to the consideration of the question on the merits as to whether Arthur G. Moody
was legally domiciled in the Philippine Islands on the day of his death. Moody was never married and there
is no doubt that he had his legal domicile in the Philippine Islands from 1902 or 1903 forward during which
time he accumulated a fortune from his business in the Philippine Islands. He lived in the Elks’ Club in Manila
for many years and was living there up to the date he left Manila the latter part of February, 1928, under
the following circumstances: He was afflicted with leprosy in an advanced stage and had been informed by
Dr. Wade that he would be reported to the Philippine authorities for confinement in the Culion Leper Colony
as required by the law. Distressed at the thought of being thus segregated and in violation of his promise to
Dr. Wade that he would voluntarily go to Culion, he surreptitiously left the Islands the latter part of
February, 1928, under cover of night, on a freighter, without ticket, passport or tax clearance certificate.
The record does not show where Moody was during the remainder of the year 1928. He lived with a friend in
Paris, France, during the months of March and April of the year 1929 where he was receiving treatment for
leprosy at the Pasteur Institute. The record does not show where Moody was in the interval between April,
1929, and November 26, 1930, on which latter date he wrote a letter, Exhibit B, to Harry Wendt of Manila,
offering to sell him his interest in the Camera Supply Company, a Philippine corporation, in which Moody
owned 599 out of 603 shares. In this letter, among other things, he states: "Certainly I’ll never return there
to live or enter business again." In this same letter he says:
jgc:chan robles .com.p h

"I wish to know as soon as possible now (as to the purchase) for I have very recently decided either to sell
or put in a line of school or office supplies . . . before I go to the necessary investments in placing any side
lines. I concluded to get your definite reply to this . . . I have given our New York buying agent a conditional
order not to be executed until March and this will give you plenty of time . . . anything that kills a business
is to have it peddled around as being for sale and this is what I wish to avoid." He wrote letters dated
December 12, 1930, and January 3, 1931, along the same line to Wendt. As Moody died of leprosy less than
two months after these letters were written, there can be no doubt that he would have been immediately
segregated in the Culion Leper Colony had he returned to the Philippine Islands. He was, therefore, a
fugitive, not from justice, but from confinement in the Culion Leper Colony in accordance with the law of the
Philippine Islands.

There is no statement of Moody, oral or written, in the record that he had adopted a new domicile while he
was absent from Manila. Though he was physically present for some months in Calcutta prior to the date of
his death there, the appellant does not claim that Moody had a domicile there although it was precisely from
Calcutta that he wrote and cabled that he wished to sell his business in Manila and that he had no intention
to live there again. Much less plausible, it seems to us, is the claim that he established a legal domicile in
Paris in February, 1929. The record contains no writing whatever of Moody from Paris. There is no evidence
as to where in Paris he had any fixed abode that he intended to be his permanent home. There is no
evidence that he acquired any property in Paris or engaged in any settled business on his own account
there. There is no evidence of any affirmative factors that prove the establishment of a legal domicile there.
The negative evidence that he told Cooley that he did not intend to return to Manila does not prove that he
had established a domicile in Paris. His short stay of three months in Paris is entirely consistent with the
view that he was a transient in Paris for the purpose of receiving treatments at the Pasteur Institute. The
evidence in the record indicates clearly that Moody’s continued absence from his legal domicile in the
Philippines was due to and reasonably accounted for by the same motive that caused his surreptitious
departure, namely, to evade confinement in the Culion Leper Colony; for he doubtless knew that on his
return he would be immediately confined, because his affliction became graver while he was absent than it
was on the day of his precipitous departure and he could not conceal himself in the Philippines where he was
well known, as he might do in foreign parts.

Our Civil Code (art. 40) defines the domicile of natural persons as "the place of their usual residence." The
record before us leaves no doubt in our minds that the "usual residence" of this unfortunate man, whom
appellant describes as a "fugitive" and "outcast", was in Manila where he had lived and toiled for more than
a quarter of a century, rather than in any foreign country he visited during his wanderings up to the date of
his death in Calcutta. To effect the abandonment of one’s domicile, there must be a deliberate and provable
choice of a new domicile, coupled with actual residence in the place chosen, with a declared or provable
intent that it should be one’s fixed and permanent place of abode, one’s home. There is a complete dearth of
evidence in the record that Moody ever established a new domicile in a foreign country.

The contention under the appellant’s third assignment of error that the defendant collector illegally assessed
an income tax of P13,001.41 against the Moody estate is, in our opinion, untenable. The grounds for this
assessment, stated by the Collector of Internal Revenue in his letter, Exhibit NN, appear to us to be sound.
That the amount of P259,986.69 was received by the estate of Moody as dividends declared out of surplus
by the Camera Supply Company is clearly established by the evidence. The appellant contends that this
assessment involves triple taxation: First, because the corporation paid income tax on the same amount
during the years it was accumulated as surplus; second, that an inheritance tax on the same amount was
assessed against the estate, and third, the same amount is assessed as income of the estate. As to the first,
it appears from the collector’s assessment, Exhibit II, that the collector allowed the estate a deduction of the
normal income tax on said amount because it had already been paid at the source by the Camera Supply
Company. The only income tax assessed against the estate was the additional tax or surtax that had not
been paid by the Camera Supply Company for which the estate, having actually received the income, is
clearly liable. As to the second alleged double taxation, it is clear that the inheritance tax and the additional
income tax in question are entirely distinct. They are assessed under different statutes and we are not
convinced by the appellant’s argument that the estate which received these dividends should not be held
liable for the payment of the income tax thereon because the operation was simply the conversion of the
surplus of the corporation into the property of the individual stockholders. (Cf. U. S. v. Phellis, 257 U. S.,
171, and Taft v. Bowers, 278 U. S., 460.) Section 4 of Act No. 2833 as amended, which is relied on by the
appellant, plainly provides that the income from exempt property shall be included as income subject to
tax.

Finding no merit in any of the assignments of error of the appellant, we affirm the judgment of the trial
court, first, because the property in the estate of Arthur G. Moody at the time of his death was located and
had its situs within the Philippine Islands and, second, because his legal domicile up to the time of his death
was within the Philippine Islands. Costs against the Appellant.

Malcolm, Villa-Real, and Imperial, JJ., concur.

Separate Opinions

GODDARD, J., concurring: chanro b1es vi rtu al 1aw libra ry

I concur in the result. I think the evidence clearly establishes that Moody had permanently abandoned his
residence in the Philippine Islands. But even so, his estate would be liable for the taxes which the plaintiff-
appellant seeks to recover in this action. Section 1536 of the Revised Administrative Code makes no
distinction between the estates of residents and of non-residents of the Philippine Islands. The case of First
National Bank of Boston v. State of Maine (284 U. S., 312; 76 Law. ed., 313), relied on by the appellant is
not in point because in that case the estate of the deceased was actually taxed in both the state of his
domicile, Massachusetts, and in the state where the shares of stock had their situs, namely, the State of
Maine. But in the case before us there is no evidence whatever that the estate of Moody had been taxed
anywhere but in the Philippines. (Cf. Burnet, Commissioner, v. Brooks, 288 U. S., 378.) .
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. Nos. L-9456 and L-9481 January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H.
MILLER (Deceased), and the COURT OF TAX APPEALS, respondents.

Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara.

Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of
Internal Revenue.

MONTEMAYOR, J.:

These are two separate appeals, one by the Collector of Internal Revenue, later on
referred to as the Collector, and the other by Domingo de Lara as Ancilliary
Administrator of the estate of Hugo H. Miller, from the decision of the Court of Tax
Appeals of June 25, 1955, with the following dispositive part:

WHEREFORE, respondent's assessment for estate and inheritance taxes upon the
estate of the decedent Hugo H. Miller is hereby modified in accordance with the
computation attached as Annex "A" of this decision. Petitioner is hereby ordered
to pay the amount of P2,047.22 representing estate taxes due, together with the
interests and other increments. In case of failure to pay the amount of
P2,047.22 within thirty (30) days from the time this decision has become final,
the 5 per cent surcharge and the corresponding interest due thereon shall be
paid as a part of the tax.

The facts in the case gathered from the record and as found by the Court of Tax
Appeals may be briefly stated as follows: Hugo H. Miller, an American citizen, was born
in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the Philippines. From
1906 to 1917, he was connected with the public school system, first as a teacher and
later as a division superintendent of schools, later retiring under the Osmeiia
Retirement Act. After his retirement, Miller accepted an executive position in the local
branch of Ginn & Co., book publishers with principal offices in New York and Boston,
U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he
was stationed in the Philippines as Oriental representative of Ginn & Co., covering not
only the Philippines, but also China and Japan. His principal work was selling books
specially written for Philippine schools. In or about the year 1922, Miller lived at the
Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California,
but she used to come to the Philippines for brief visits with Miller, staying three or four
months. Miller also used to visit his wife in California. He never lived in any residential
house in the Philippines. After the death of his wife in 1931, he transferred from the
Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the
Pacific War. On January 17, 1941, Miller executed his last will and testament in Santa
Cruz, California, in which he declared that he was "of Santa Cruz, California". On
December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and
Miller joined the Board of Censors of the United States Navy. During the war, he was
taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was
transferred to Catbalogan, Samar, where he was reported to have been executed by
said forces on March 11, 1944, and since then, nothing has been heard from him. At
the time of his death in 1944, Miller owned the following properties:
 Real Property situated in Ben-Lomond, Santa Cruz, California
valued at ...................................................................... P 5,000.00
Real property situated in Burlingame, San Mateo, California
valued at
........................................................................................ 16,200.00
Tangible Personal property,
worth............................................. 2,140.00
Cash in the banks in the United
States.................................... 21,178.20
Accounts Receivable from various persons in the United States
including notes ............................................................... 36,062.74
Stocks in U.S. Corporations and U.S. Savings Bonds, valued at
........................................................................................ 123,637.16
Shares of stock in Philippine Corporations, valued at .......... 51,906.45

Testate proceedings were instituted before the Court of California in Santa Cruz County,
in the course of which Miller's will of January 17, 1941 was admitted to probate on May
10, 1946. Said court subsequently issued an order and decree of settlement of final
account and final distribution, wherein it found that Miller was a "resident of the County
of Santa Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary
proceedings were filed by the executors of the will before the Court of First Instance of
Manila, which court by order of November 21, 1946, admitted to probate the will of
Miller was probated in the California court, also found that Miller was a resident of
Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America,
National Trust and Savings Association of San Francisco California, co-executor named
in Miller's will, filed an estate and inheritance tax return with the Collector, covering
only the shares of stock issued by Philippines corporations, reporting a liability of
P269.43 for taxes and P230.27 for inheritance taxes. After due investigation, the
Collector assessed estate and inheritance taxes, which was received by the said
executor on April 3, 1950. The estate of Miller protested the assessment of the liability
for estate and inheritance taxes, including penalties and other increments at
P77,300.92, as of January 16, 1954. This assessment was appealed by De Lara as
Ancilliary Administrator before the Board of Tax Appeals, which appeal was later heard
and decided by the Court of Tax Appeals.

In determining the "gross estate" of a decedent, under Section 122 in relation to

section 88 of our Tax Code, it is first necessary to decide whether the decedent was a
resident or a non-resident of the Philippines at the time of his death. The Collector
maintains that under the tax laws, residence and domicile have different meanings;
that tax laws on estate and inheritance taxes only mention resident and non-resident,
and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax
Code; that Miller during his long stay in the Philippines had required a "residence" in
this country, and was a resident thereof at the time of his death, and consequently, his
intangible personal properties situated here as well as in the United States were subject
to said taxes. The Ancilliary Administrator, however, equally maintains that for estate
and inheritance tax purposes, the term "residence" is synonymous with the term
domicile.
We agree with the Court of Tax Appeals that at the time that The National Internal
Revenue Code was promulgated in 1939, the prevailing construction given by the courts
to the "residence" was synonymous with domicile. and that the two were used
intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs.
Posadas, 62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile"
interchangeably and without distinction, the case involving the application of the term
residence employed in the inheritance tax law at the time (section 1536- 1548 of the
Revised Administrative Code), and that consequently, it will be presumed that in using
the term residence or resident in the meaning as construed and interpreted by the
Court. Moreover, there is reason to believe that the Legislature adopted the American
(Federal and State) estate and inheritance tax system (see e.g. Report to the Tax
Commision of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National
Internal Revenue Code Annotated, p. 469-470). In the United States, for estate tax
purposes, a resident is considered one who at the time of his death had his domicile in
the United States, and in American jurisprudence, for purposes of estate and taxation,
"residence" is interpreted as synonymous with domicile, and that—

The incidence of estate and succession has historically been determined by

domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers,
(1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den (1928) 272 U.S.608).

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his
residence or domicile in Santa Cruz, California. During his country, Miller never acquired
a house for residential purposes for he stayed at the Manila Hotel and later on at the
Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his
savings and properties were in the United States. To his home in California, he had
been sending souvenirs, such as carvings, curios and other similar collections from the
Philippines and the Far East. In November, 1940, Miller took out a property insurance
policy and indicated therein his address as Santa Cruz, California, this aside from the
fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein
he stated that he was "of Santa Cruz, California". From the foregoing, it is clear that as
a non-resident of the Philippines, the only properties of his estate subject to estate and
inheritance taxes are those shares of stock issued by Philippines corporations, valued at
P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule
that personal property, like shares of stock in the Philippines, is taxable at the domicile
of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless,
when he during his life time,

. . . extended his activities with respect to his intangibles, so as to avail himself

of the protection and benefits of the laws of the Philippines, in such a way as to
bring his person or property within the reach of the Philippines, the reason for a
single place of taxation no longer obtains- protection, benefit, and power over
the subject matter are no longer confined to California, but also to the
Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil.
325). In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled herein: and besides, the right to
vote the certificates at stockholders' meetings, the right to collect dividends, and
the right to dispose of the shares including the transmission and acquisition
thereof by succession, all enjoy the protection of the Philippines, so that the right
to collect the estate and inheritance taxes cannot be questioned (Wells Fargo
 Bank & Union Trust Co. vs. Collector supra). It is recognized that the state may,
consistently with due process, impose a tax upon transfer by death of shares of
stock in a domestic corporation owned by a decedent whose domicile was
outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs.
Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)." (Brief for the
Petitioner, p. 79-80).

The Ancilliary Administrator for purposes of exemption invokes the proviso in Section
122 of the Tax Code, which provides as follows:

. . ."And Provided, however, That no tax shall be collected under this Title in
respect of intangible personal property (a) if the decedent at the time of his
death was a resident of a foreign country which at the time of his death did not
impose a transfer tax or death tax of any character in respect of intangible
personal property of citizens of the Philippines not residing in that country, or (b)
if the laws of the foreign country of which the decedent was resident at the tune
of his death allow a similar exemption from transfer taxes or death taxes of
every character in respect of intangible personal property owned by citizen, of
the Philippine not residing in that foreign country.

The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-
residents from the California inheritance taxes with respect to intangibles, and (b) the
exemption by way of reduction of P4,000 from the estates of non-residents, under the
United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of
1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads
as follows:

SEC. 6. The following exemption from the tax are hereby allowed:

xxx xxx xxx.

(7) The tax imposed by this act in respect of intangible personal property shall
not be payable if decedent is a resident of a State or Territory of the United
States or a foreign state or country which at the time of his death imposed a
legacy, succession of death tax in respect of intangible personal property within
the State or Territory or foreign state or country of residents of the States or
Territory or foreign state or country of residence of the decedent at the time of
his death contained a reciprocal provision under which non-residents were
exempted from legacy or succession taxes or death taxes of every character in
respect of intangible personal property providing the State or Territory or foreign
state or country of residence of such non-residents allowed a similar exemption
to residents of the State, Territory or foreign state or country of residence of
such decedent.

Considering the State of California as a foreign country in relation to section 122 of Our
Tax Code we beleive and hold, as did the Tax Court, that the Ancilliary Administrator is
entitled to exemption from the tax on the intangible personal property found in the
Philippines. Incidentally, this exemption granted to non-residents under the provision of
Section 122 of our Tax Code, was to reduce the burden of multiple taxation, which
otherwise would subject a decedent's intangible personal property to the inheritance
tax, both in his place of residence and domicile and the place where those properties
are found. As regards the exemption or reduction of P4,000 based on the reduction
under the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that
the amount of $2,000 allowed under the Federal Estate Tax Law is in the nature of
deduction and not of an exemption. Besides, as the Tax Court observes--.

. . . this exemption is allowed on all gross estate of non-residents of the United

States, who are not citizens thereof, irrespective of whether there is a
corresponding or similar exemption from transfer or death taxes of non-residents
of the Philippines, who are citizens of the United States; and thirdly, because this
exemption is allowed on all gross estates of non-residents irrespective of
whether it involves tangible or intangible, real or personal property; so that for
these reasons petitioner cannot claim a reciprocity. . .

Furthermore, in the Philippines, there is already a reduction on gross estate tax in the
amount of P3,000 under section 85 of the Tax Code, before it was amended, which in
part provides as follows:

SEC. 85. Rates of estate tax.—There shall be levied, assessed, collected, and
paid upon the transfer of the net estate of every decedent, whether a resident or
non-resident of the Philippines, a tax equal to the sum of the following
percentages of the value of the net estate determined as provided in sections 88
and 89:

One per centrum of the amount by which the net estate exceeds three thousand
pesos and does not exceed ten thousand pesos;. . .

It will be noticed from the dispositive part of the appealed decision of the Tax Court
that the Ancilliary Administrator was ordered to pay the amount of P2,047.22,
representing estate taxes due, together with interest and other increments. Said
Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was
passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who died
during the Japanese occupation. The provisions of this Act could not be invoked during
the hearing before the Tax Court for the reason that said Republic Act was approved
only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered
deprivation of the war, but was killed by the Japanese military forces, his estate is
entitled to the benefits of this Act. Consequently, the interests and other increments
provided in the appealed judgment should not be paid by his estate.

With the above modification, the appealed decision of the Court of Tax Appeals is
hereby affirmed. We deem it unnecessary to pass upon the other points raised in the
appeal. No costs.

Bengzon, Paras, C.J., Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., Endencia, and Felix, JJ., concur.
 EN BANC
[G.R. No. L-10128. November 13, 1956.]
MAMERTO C. CORRE, Plaintiff-Appellant, vs. GUADALUPE TAN
CORRE, Defendant-Appellee.

DECISION
BAUTISTA ANGELO, J.:
Plaintiff brought this action in the Court of First Instance of Manila seeking his legal
separation from Defendant, his wife, and the placing of their minor children under
the care and custody of a reputable women’s dormitory or institution as the court
may recommend.
Defendant moved to dismiss the complaint on the ground that the venue is
improperly laid. She claims that since it appears in the complaint that neither
the Plaintiff nor the Defendant is a resident of the City of Manila the court where
the action was filed is not the proper court to take cognizance of the case. The
court upheld the contention of Defendant and, accordingly, dismissed the case
without pronouncement as to costs. This is an appeal from this decision.
The pertinent portion of the complaint which refers to the residence of
both Plaintiff and Defendant is as follows:chan rob lesvi rtua l lawlibra ry
“1. That Plaintiff is an American citizen, 44 years of age, resident of 114 North Ist
Street, Las Vegas, Nevada, United States of America, master sergeant in the U. S.
Army with military service address of Ro-6739431, Army Section, Military
Assistance Advisory Group (MAAG) Formosa, APO 63, San Francisco, California, and
for the purpose of filing and maintaining this suit, temporarily resides at 576 Paltoc,
Santa Mesa, Manila;
“2. That Defendant is a Filipino, 40 years of age and resident of the municipality of
Catbalogan, province of Samar, Philippines, where summons may be served;”
Section 1, Rule 5, of the Rules of Court provides that Civil actions in Courts of First
Instance may be commenced and tried where the Defendant or any of
the Defendants resides or may be found, or where the Plaintiff or any of
the Plaintiffs resides, at the election of the Plaintiff.” From this rule it may be
inferred that Plaintiff can elect to file the action in the court he may choose if both
the Plaintiff and the Defendant have their residence in the Philippines. Otherwise,
the action can only be brought in the place where either one resides.
It the present case, it clearly appears in the complaint that the Plaintiff is a resident
of Las Vegas, Nevada, U. S. A. while the Defendant is a resident of the municipality
of Catbalogan, province of Samar. Such being the case, Plaintiff has no choice other
than to file the action in the court of first instance of the latter province. The
allegation that the Plaintiff “for the purpose of filing and maintaining this suit,
temporarily resides at 576 Paltoc, Santa Mesa, Manila” cannot serve as basis for the
purpose of determining the venue for that is not the residence contemplated by the
rule. If that were allowed, we would create a situation where a person may have his
residence in one province and, to suit his convenience, or to harass the Defendant,
may bring the action in the court of any other province. That cannot be the
intendment of the rule.
Indeed, residence as used in said rule is synonymous with domicile. This is define
as “the permanent home, the place to which, whenever absent for business or
pleasure, one intends to return, and depends on facts and circumstances, in the
sense that they disclose intent” (67 C.J., 123-124). This is what we said in the
recent case of Evangelista vs. Santos, 86 Phil., 387: cha nrob lesvi rtua llawli bra ry

“The fact that Defendant was sojourning in Pasay at the time he was served with
summons does not make him a resident of that place for purposes of venue.
Residence is ‘the permanent home, the place to which, whenever absent for
business or pleasure, one intends to return .’ (67 C.J. pp. 123-124.) A man can
cralaw

have but one domicile at a time (Alcantara vs. Secretary of Interior, 61 Phil. 459),
and residence is synonymous with domicile under section 1 of Rule 5 (Moran’s
Comments, supra, p. 104).”
The case of Dela Rosa and Go Kee vs. De Borja, 53 Phil., 990, cited by Appellant to
support his contention, is not controlling. In that case, the Defendant submitted to
the jurisdiction of the court and did not raise the point of venue until after
judgment had been rendered. And so it was held that Defendant was estopped to
raise this point on appeal, although in passing the court insinuated that residence
for purposes of venue need not be permanent. At any rate, this matter should now
be regarded as modified by our decision in the aforesaid case of Evangelista.
Wherefore, the decision appealed from is affirmed, with costs against Appellant.
Paras, C.J., Padilla, Montemayor, Labrador, Concepcion, Reyes, J. B. L.,
Endencia and Felix, JJ., Concur.

THIRD DIVISION
RAFAEL ARSENIO S. DIZON, in G.R. No. 140944
his capacity as the Judicial
Administrator of the Estate of
Present:
the deceased JOSE P.
FERNANDEZ,

Petitioner, YNARES-
SANTIAGO, J.,

Chairperson,

AUSTRIA-MARTINEZ,
- versus -
CHICO-NAZARIO,

NACHURA, and

REYES, JJ.
COURT OF TAX APPEALS
and COMMISSIONER OF
INTERNAL REVENUE, Promulgated:
Respondents.

April 30, 2008

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

DECISION

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

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter,

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

Petitioner alleged that several requests for extension of the

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

COMPUTATION OF TAX

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

Conjugal Personal Property (Sch.2) 3,460,591.34

Taxable Transfer (Sch. 3)

Gross Conjugal Estate 14,315,611.34

Less: Deductions (Sch. 4) 187,822,576.06

Net Conjugal Estate NIL

Less: Share of Surviving Spouse NIL .

Net Share in Conjugal Estate NIL

xxx

Net Taxable Estate NIL .

Estate Tax Due NIL .[11]

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

Petitioner requested the probate court's authority to sell

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

However, on November 26, 1991, the Assistant

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

Deficiency Estate Tax- 1987

 Estate tax P31,868,414.48

25% surcharge- late filing 7,967,103.62

late payment 7,967,103.62

Interest 19,121,048.68

Compromise-non filing 25,000.00

non payment 25,000.00

no notice of death 15.00

no CPA Certificate 300.00

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

In his letter[19] dated December 12, 1991, Atty. Gonzales moved

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

As found by the CTA, the respective parties presented the

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

Nature of Document (sic) Exhibits

1. Letter dated October 13, 1988

from Arsenio P. Dizon addressed

to the Commissioner of Internal

Revenue informing the latter of

the special proceedings for the

settlement of the estate (p. 126,

BIR records); "A"

2. Petition for the probate of the

will and issuance of letter of

administration filed with the

Regional Trial Court (RTC) of

Manila, docketed as Sp. Proc.

No. 87-42980 (pp. 107-108, BIR

records); "B" & "B-1

3. Pleading entitled "Compliance"

filed with the probate Court

submitting the final inventory

of all the properties of the

deceased (p. 106, BIR records); "C"

4. Attachment to Exh. "C" which

is the detailed and complete

listing of the properties of

the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"

5. Claims against the estate filed

by Equitable Banking Corp. with

the probate Court in the amount

of P19,756,428.31 as of March 31,

1988, together with the Annexes

to the claim (pp. 64-88, BIR records); "D" to "D-24"

6. Claim filed by Banque de L'

Indochine et de Suez with the

probate Court in the amount of

US $4,828,905.90 as of January 31,

1988 (pp. 262-265, BIR records); "E" to "E-3"

7. Claim of the Manila Banking

Corporation (MBC) which as of

November 7, 1987 amounts to

P65,158,023.54, but recomputed

as of February 28, 1989 at a

total amount of P84,199,160.46;

together with the demand letter

from MBC's lawyer (pp. 194-197,

BIR records); "F" to "F-3"

8. Demand letter of Manila Banking

Corporation prepared by Asedillo,

Ramos and Associates Law Offices

addressed to Fernandez Hermanos,

Inc., represented by Jose P.

Fernandez, as mortgagors, in the

total amount of P240,479,693.17

as of February 28, 1989

(pp. 186-187, BIR records); "G" & "G-1"

9. Claim of State Investment

House, Inc. filed with the

RTC, Branch VII of Manila,

docketed as Civil Case No.

86-38599 entitled "State

Investment House, Inc.,

Plaintiff, versus Maritime

Company Overseas, Inc. and/or

Jose P. Fernandez, Defendants,"

(pp. 200-215, BIR records); "H" to "H-16"

10. Letter dated March 14, 1990

of Arsenio P. Dizon addressed

to Atty. Jesus M. Gonzales,

(p. 184, BIR records); "I"

11. Letter dated April 17, 1990

from J.M. Gonzales addressed

to the Regional Director of

BIR in San Pablo City

(p. 183, BIR records); "J"

12. Estate Tax Return filed by

the estate of the late Jose P.

Fernandez through its authorized

representative, Atty. Jesus M.

Gonzales, for Arsenio P. Dizon,

with attachments (pp. 177-182,

BIR records); "K" to "K-5"

13. Certified true copy of the

Letter of Administration

issued by RTC Manila, Branch

51, in Sp. Proc. No. 87-42980

appointing Atty. Rafael S.

Dizon as Judicial Administrator

of the estate of Jose P.

Fernandez; (p. 102, CTA records)

and "L"

14. Certification of Payment of

estate taxes Nos. 2052 and

2053, both dated April 27, 1990,

issued by the Office of the

Regional Director, Revenue

Region No. 4-C, San Pablo

City, with attachments

(pp. 103-104, CTA records.). "M" to "M-5"

Respondent's [BIR] counsel presented on June 26,

1995 one witness in the person of Alberto Enriquez,
who was one of the revenue examiners who
conducted the investigation on the estate tax case
of the late Jose P. Fernandez. In the course of the
direct examination of the witness, he identified the
following:

Documents/

Signatures BIR Record

1. Estate Tax Return prepared by

the BIR; p. 138

2. Signatures of Ma. Anabella

Abuloc and Alberto Enriquez,

Jr. appearing at the lower

Portion of Exh. "1"; -do-

3. Memorandum for the Commissioner,

dated July 19, 1991, prepared by

revenue examiners, Ma. Anabella A.

Abuloc, Alberto S. Enriquez and

Raymund S. Gallardo; Reviewed by

Maximino V. Tagle pp. 143-144

4. Signature of Alberto S.

Enriquez appearing at the

lower portion on p. 2 of Exh. "2"; -do-

5. Signature of Ma. Anabella A.

Abuloc appearing at the

lower portion on p. 2 of Exh. "2"; -do-

6. Signature of Raymund S.

Gallardo appearing at the

Lower portion on p. 2 of Exh. "2"; -do-

7. Signature of Maximino V.

Tagle also appearing on

p. 2 of Exh. "2"; -do-

8. Summary of revenue

Enforcement Officers Audit

Report, dated July 19, 1991; p. 139

9. Signature of Alberto

Enriquez at the lower

portion of Exh. "3"; -do-

10. Signature of Ma. Anabella A.

Abuloc at the lower

portion of Exh. "3"; -do-

11. Signature of Raymond S.

Gallardo at the lower

portion of Exh. "3"; -do-

12. Signature of Maximino

V. Tagle at the lower

portion of Exh. "3"; -do-

13. Demand letter (FAS-E-87-91-00),

signed by the Asst. Commissioner

 for Collection for the Commissioner

of Internal Revenue, demanding

payment of the amount of

P66,973,985.40; and p. 169

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

The CTA's Ruling

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

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93

Gross Conjugal Estate 38,084,015.93

Less: Deductions 26,250,000.00

Net Conjugal Estate P 11,834,015.93

Less: Share of Surviving Spouse 5,917,007.96

Net Share in Conjugal Estate P 5,917,007.96

Add: Capital/Paraphernal

Properties P44,652,813.66

Less: Capital/Paraphernal

Deductions 44,652,813.66

Net Taxable Estate P 50,569,821.62

============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74

Add: Penalties for-No notice of death 15.00

 No CPA certificate 300.00

Total deficiency estate tax P 37,419,493.71

=============

exclusive of 20% interest from due date of its payment

until full payment thereof

[Sec. 283 (b), Tax Code of 1987].[25]

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

WHEREFORE, viewed from all the foregoing, the Court

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

SO ORDERED.[26]
Aggrieved, petitioner, on March 2, 1998, went to the CA via a
petition for review.[27]

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in

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

On May 31, 1999, petitioner filed a Motion for

Reconsideration [29]
which the CA denied in its Resolution [30]
dated
November 3, 1999.

Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were

not formally offered by the respondent BIR by the
Court of Tax Appeals which was subsequently upheld
by the Court of Appeals is contrary to the Rules of
Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court

of Appeals erred in recognizing/considering the estate
 tax return prepared and filed by respondent BIR
knowing that the probate court appointed administrator
of the estate of Jose P. Fernandez had previously filed
one as in fact, BIR Certification Clearance Nos. 2052
and 2053 had been issued in the estate's favor;

3. Whether or not the Court of Tax Appeals and the Court

of Appeals erred in disallowing the valid and
enforceable claims of creditors against the estate, as
lawful deductions despite clear and convincing evidence
thereof; and

4. Whether or not the Court of Tax Appeals and the Court

of Appeals erred in validating erroneous double
imputation of values on the very same estate
properties in the estate tax return it prepared and filed
which effectively bloated the estate's assets.[31]

The petitioner claims that in as much as the valid claims of

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

On the other hand, respondent counters that the documents,

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

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

First. Whether or not the CTA and the CA gravely erred in

allowing the admission of the pieces of evidence which were not
formally offered by the BIR; and

Second. Whether or not the CA erred in affirming the CTA in the

latter's determination of the deficiency estate tax imposed against
the Estate.

The Courts Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as

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

SEC. 34. Offer of evidence. The court shall consider no

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

From the foregoing provision, it is clear that for evidence

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

However, in People v. Napat-a [179 SCRA 403]

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

From the foregoing declaration, however, it is clear that Vda.

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

In this case, we find that these requirements have not been

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

A common fact threads through Vda. de

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

In this case, we find and so rule that these requirements

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

xxxx

But what further defeats petitioner's cause on this issue

is that respondents' exhibits were marked and admitted
 during the pre-trial stage as shown by the Pre-Trial Order
quoted earlier.[44]

While the CTA is not governed strictly by technical rules of

evidence,[45] as rules of procedure are not ends in themselves and
are primarily intended as tools in the administration of justice,
the presentation of the BIR's evidence is not a mere procedural
technicality which may be disregarded considering that it is the
only means by which the CTA may ascertain and verify the truth
of BIR's claims against the Estate.[46] The BIR's failure to formally
offer these pieces of evidence, despite CTA's directives, is fatal to
its cause.[47] Such failure is aggravated by the fact that not even
a single reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.

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

Strict adherence to the said rule is not a trivial matter.

The Court in Constantino v. Court of Appeals ruled
that the formal offer of one's evidence is deemed
waived after failing to submit it within a
considerable period of time. It explained that the
court cannot admit an offer of evidence made after
a lapse of three (3) months because to do so would
"condone an inexcusable laxity if not non-
compliance with a court order which, in effect,
would encourage needless delays and derail the
speedy administration of justice."

Applying the aforementioned principle in this case, we

find that the trial court had reasonable ground to consider
that petitioners had waived their right to make a formal
offer of documentary or object evidence. Despite several
extensions of time to make their formal offer, petitioners
failed to comply with their commitment and allowed
almost five months to lapse before finally submitting
it. Petitioners' failure to comply with the rule on
admissibility of evidence is anathema to the
 efficient, effective, and expeditious dispensation of
justice.

Having disposed of the foregoing procedural issue, we proceed to

discuss the merits of the case.

Ordinarily, the CTA's findings, as affirmed by the CA, are

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

It is admitted that the claims of the Estate's aforementioned

creditors have been condoned. As a mode of extinguishing an
obligation,[55] condonation or remission of debt[56] is defined as:

an act of liberality, by virtue of which, without receiving

any equivalent, the creditor renounces the enforcement
of the obligation, which is extinguished in its entirety or
in that part or aspect of the same to which the remission
refers. It is an essential characteristic of remission that it
be gratuitous, that there is no equivalent received for the
benefit given; once such equivalent exists, the nature of
the act changes. It may become dation in payment when
the creditor receives a thing different from that
stipulated; or novation, when the object or principal
 conditions of the obligation should be changed; or
compromise, when the matter renounced is in litigation
or dispute and in exchange of some concession which the
creditor receives.[57]

Verily, the second issue in this case involves the construction of

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

Claims against the estate, as allowable deductions from the gross

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

It is noteworthy that even in the United States, there is some

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

On the other hand, the Internal Revenue Service (Service)

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

In announcing its agreement

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

We are persuaded that the Ninth Circuit's

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

We express our agreement with the date-of-death valuation rule,

made pursuant to the ruling of the U.S. Supreme Court in Ithaca
Trust Co. v. United States.[68] First. There is no law, nor do we
discern any legislative intent in our tax laws, which disregards the
date-of-death valuation principle and particularly provides that
post-death developments must be considered in determining the
net value of the estate. It bears emphasis that tax burdens are
not to be imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.[69] Any doubt
on whether a person, article or activity is taxable is generally
resolved against taxation.[70] Second. Such construction finds
relevance and consistency in our Rules on Special Proceedings
wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the
deceased before his death.[71] Therefore, the claims existing at
the time of death are significant to, and should be made the basis
of, the determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the
assailed Decision dated April 30, 1999 and the Resolution dated
November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No.
46947 are REVERSED and SET ASIDE. The Bureau of Internal
Revenue's deficiency estate tax assessment against the Estate
of Jose P. Fernandez is hereby NULLIFIED. No costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
 MA. ALICIA AUSTRIA- MINITA V. CHICO-
MARTINEZ NAZARIO
Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached

in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the

Division Chairperson's Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts
Division.

REYNATO S. PUNO
Chief Justice

United States Supreme Court

CROOKS v. HARRELSON, (1930)
No. 24
Argued: October 31, 1930 Decided: November 24, 1930
[282 U.S. 55, 56] The Attorney General and Mr. Claude R. Branch, of Providence, R. I., Sp.
Asst. to Atty. Gen., for petitioner.

Messrs. Frank S. Bright, of Washington, D. C., and S. L. Swarts, of St. Louis, Mo., for
respondents.
Mr. Justice SUTHERLAND delivered the opinion of the Court.

Benjamin H. Harrelson, a resident of Missouri, died testate in 1920, leaving within the state
property and assets which included real property valued at over $269,000. The
Commissioner of Internal Revenue, upon[282 U.S. 55, 57] a final audit and review of the
federal estate tax return of the executors made under the Revenue Act of 1918, included
the real property as a part of the gross estate for the purpose of computing the tax. The
executors paid $37,762.20, the amount attributable to the value of the real property, and
subsequently claimed a refund thereof on the ground that the value of the decedent's real
property having its situs in Missouri was not, under the law of that state and the terms of
the federal statute, properly subject to an estate tax, and the amount was therefore illegally
assessed and collected. The estate having been closed and distributed and the executors
discharged, plaintiffs (respondents here), as sole beneficiaries and distributees, brought this
action in a federal district court against the defendant (petitioner here) to recover the
amount so paid and claimed, together with interest. Defendant demurred to the complaint
on the ground that the facts stated were not sufficient to constitute a caue o f action. The
district court overruled the demurrer, and, defendant having declined to plead further,
rendered judgment against him for the sum claimed, with interest and costs. 28 F.(2d) 510.
Upon appeal the Circuit Court of Appeals affirmed the judgment. 35 F.(2d) 416.

A correct determination of the question presented requires consideration of the provisions of

section 402 of the Revenue Act of 1918, c. 18, 40 Stat. 1057, 1097, 1098, the relevant
portion of which follows:

'Sec. 402. That the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or
intangible, wherever situated-

'(a) To the extent of the interest therein of the decedent at the time of his death which after
his death is subject to the payment of the charges against his estate and the expenses of its
administration and is subject to distribution as part of his estate.' [282 U.S. 55, 58] The
court below held: (1) That by the express provisions of the foregoing section, the value of
the interest of a decedent in any property at the time of his death may not be included in
the gross estate for the purpose of the tax unless there be a concurrence of the
requirements there set forth, namely, (a) that the interest of the decedent be subject to the
payment of the charges against his estate, (b) that such interest be subject to the expenses
of administration, and (c) that such interest be subject to distribution as part of his estate;
and (2) that by the law of Missouri such interest in real property is not subject to the
expenses of administration, and, therefore, the requirement in that respect is not met. Both
propositions are controverted by the petitioner.

First. The meaning of the provision in question, considered by itself, does not seem to us to
be doubtful. The value of the interest of the decedent is not to be included unless it 'is
subject to the payment of the charges against his estate and the expenses of its
administration'-not one or the other, but both. We find nothing in the context or in other
provisions of the statute which warrants the conclusion that the word 'and' was used
otherwise than in its ordinary sense; and to construe the clause as though it said, 'to the
payment of charges and expenses, or either of them,' as petitioner seems to contend, would
be to add a material element to the requirement, and thereby to create, not to expound, a
provision of law. Nor will it do to say that the words, 'charges against his estate,' include
expenses of administration, for plainly they are different and district things, generally so
classified in the settlement of estates of decedents, and so regarded by Congress, as
evidenced by the discriminating terms of the statute.

A similar question was presented to this court and decided in United States v. Field, 255
U.S. 257 , 41 S. Ct. 256, 18 A. L. R. 1461. It was there held that the interest of the
decedent, Mrs. Field, [282 U.S. 55, 59] was not taxable under section 202(a) of the
Revenue Act of 1916 (39 Stat. 777), re-enacted as clause (a) of section 402 now under
review, because it was not her property at the time of her death, nor subject to distribution
as part of her estate. The court said (page 262 of 255 U. S., 41 S. Ct. 256, 257):

'The conditions expressed in clause (a) are to the effect that the taxable estate must be (1)
an interest of the decedent at the time of his death, (2) which after his death is subject to
the payment of the charges against his estate and the expenses of its administration, and
(3) is subject to distribution as part of his estate. These conditions are expressed
conjunctively; and it would be inadmissible, in construing a taxing act, to read them as if
prescribed disjunctively. Hence, unless the appointed interest fulfilled all three conditions, it
was not taxable under this clause.'

It is to be observed that the court, by combining under one head the provision in respect of
charges against the estate and that in respect of expense of administration, treated clause
(a) as containing three conditions instead of four; but this does not alter the fact that,
whether stated separately or in combination, the second condition contains two distinct
requirements, expressed conjunctively, and may not be read as though stated disjunctively.
It seems clear enough that the Field Case is decisive of the question and requires us to hold
that, if the value of the interest of the decedent now being considered is not subject, under
the law of Missouri, to the expenses of administration, it forms no part of the gross estate
for the purpose of the federal estate tax.

It is urged, however, that if the literal meaning of the statute be as indicated above, that
meaning should be rejected as leading to absurd results, and a construction adopted in
harmony with what is thought to be the spirit and purpose of the act in order to give effect
to the intent of Congress. The principle sought to be applied is that [282 U.S. 55,
60] followed by this court in Holy Trinity Church v. United States, 143 U.S. 457 , 12 S. Ct.
511; but a consideration of what is there said will disclose that the principle is to be applied
to override the literal terms of a statute only under rare and exceptional circumstances. The
illustrative cases cited in the opinion demonstrate that, to justify a departure from the letter
of the law upon that ground, the absurdity must be so gross as to shock the general moral
or common sense. Compare Pirie v. Chicago Title & Trust Co., 182 U.S. 438, 451 , 452 S.,
21 S. Ct. 906. And there must be something to make plain the intent of Congress that the
letter of the statute is not to prevail. Treat v. White, 181 U.S. 264, 268 , 21 S. Ct. 611.

Courts have sometimes exercised a high degree of ingenuity in the effort to find justification
for wrenching from the words of a statute a meaning which literally they did not bear in
order to escape consequences thought to be absurd or to entail great hardship. But an
application of the principle so nearly approaches the boundary between the exercise of the
judicial power and that of the legislative power as to call rather for great caution and
circumspection in order to avoid usurpation of the latter. Monson v. Chester, 22 Pick.
(Mass.) 385, 387. It is not enough merely that hard and objectionable or absurd
consequences, which probably were not within the contemplation of the framers, are
produced by an act of legislation. Laws enacted with good intention, when put to the test,
frequently, and to the surprise of the lawmaker himself, turn out to be mischievous, absurd,
or otherwise objectionable. But in such case the remedy lies with the lawmaking authority,
and not with the courts. See In re Alma Spinning Company, L. R. 16 Ch. Div. 681, 686; King
v. Commissioners, 5 A. & E. 804, 816; Abley v. Dale, L. J. (1851) N. S. Pt. 2, Vol. 20, 233,
235. And see generally Chung Fook v. White, 264 U.S. 443, 445 , 44 S. Ct. 361;
Commissioner of Immigration v. Gottlieb, 265 U.S. 310, 313 , 44 S. Ct. 528. [282 U.S. 55,
61] In support of the claim that a literal construction is not admissible, it is said that by
other provisions of section 402 certain interests in real property, such as dower, etc., are
made subject to the tax without regard to the conditions set forth in subdivision (a), and
that this results in an incongruity amounting to an absurdity. But unless the Constitution be
violated, Congress may select the subjects of taxation and qualify them differently as it sees
fit; and if it does so in plain terms, as it has done here, it is not within the province of the
court to modify the law by construction. In any event, conceding that the conditions
assailed have produced the incongruous results complained of, they fall far short of that
degree of absurdity contemplated by the Holy Trinity Church Case, or by any other decision
of this court.

Finally, the fact must not be overlooked that we are here concerned with a taxing act, with
regard to whichthe general rule requiring adherence to the letter applies with peculiar
strictness. In United States v. Merriam, 263 U.S. 179, 187 , 188 S., 44 S. Ct. 69, 71, 29 A.
L. R. 1547, after saying that 'in statutes levying taxes the literal meaning of the words
employed is most important for such statutes are not to be extended by implication beyond
the clear import of the language used,' we quoted with approval the words of Lord Cairns in
Partington v. Attorney-General, L. R. 4 H. L. 100, 122, that 'if the crown, seeking to recover
the tax, cannot bring the subject within the letter of the law, the subject is free, however
apparently within the spirit of the law the case might otherwise appear to be. In other
words, if there be admissible in any statute what is called an equitable construction,
certainly such a construction is not admissible in a taxing statute, where you can simply
adhere to the words of the statute.'

Second. It is conceded by the petitioner, as it must be, that at common law real estate
cannot be sold to pay expenses of administration, and that this rule of the common law is in
effect in Missouri unless modified by statute. [282 U.S. 55, 62] It is further conceded that
there is no statute which permits real estate to be sold merely to pay such expenses. One
contention, however, is that an executor or administrator may be authorized by the proper
court to sell real estate to pay debts and legacies if the personal estate is insufficient; and
that upon such sale the executor or administrator is entitled to a commission on the
proceeds of the sale, which takes priority over the payment of debts against the estate. As
to this it is sufficient to say, as the court below said, that this commission is not an expense
of administration, but an expense incidental to the sale of the lands. The Missouri Court of
Appeals, in Elstroth v. Young, 94 Mo. App. 351, 355, 356, 68 S. W. 100, held that the
proceeds of the sale of lands so made could not be used to make good deficiencies in the
expenses of administration.

The further contention that, if the personal estate has been consumed by administration
expenses and real estate is sold to pay debts and legacies, as a practical matter, real estate
has been sold because of administration expenses, we put aside as inconsequential. In the
case supposed it is perfectly evident that the real estate has been sold, not to pay
administration expenses, but to pay debts and legacies, and that fact is in no wise altered
because the sale was necessistated by the consumption of the personalty for such
expenses. The cause of the sale must not be confused with its purpose.

Nothing would be gained by a review of the numerous decisions of the Missouri courts. They
are set forth and fully and well considered by the court below, and we entirely agree with
that court's conclusion that these decisions establish 'that real estate of a decedent in that
state cannot be sold for the payment of expenses of administration, nor can the proceeds of
land sold to pay debts be lawfully used to pay expenses of administration.' [282 U.S. 55,
63] We have not failed to note the decision of the Court of Claims in Steedman v. United
States, 63 Ct. Cl. 226, as well as the decision of the Board of Tax Appeals in Bartlett v.
Commissioner, 16 B. T. A. 811, 816, but, in so far as they conflict with the foregoing
conclusions, they are disapproved.

Judgment affirmed.

U.S. Supreme Court

United States v. Wells, 283 U.S. 102 (1931)

United States v. Wells

No. 252

Argued March 13, 1931

Decided April 13, 1931

283 U.S. 102

CERTIORARI TO THE COURT OF CLAIMS

Syllabus

1. Whether a gift inter vivos was made "in contemplation of death" within
the meaning of the Revenue Act of 1918 depends upon the donor's motive,
to be determined in each case from the circumstances, including his bodily
and mental condition. Pp. 283 U. S. 115, 283 U. S. 119.

2. A gift is made "in contemplation of death" when the motive inducing it is

of the sort that leads to testamentary disposition, but not when the motive is
merely to attain an object desirable to the donor in his life, as where the
immediate and moving cause of transfers was the carrying out of a policy,
long followed by the decedent in dealing with his children, of making liberal
girts to them during his lifetime. Pp. 283 U. S. 117, 283 U. S. 119.

3. A transfer may be "in contemplation of death" though not induced by a

fear that death is near at hand. Pp. 283 U. S. 113, 283 U. S. 119.

4. Upon review of a judgment of the Court of Claims, the findings of fact are
to be treated like the verdict of a jury and cannot be added to or modified by
reference to that court's opinion. P. 283 U. S. 120.

Page 283 U. S. 103

5. But absence of a finding of an ultimate fact does not require a reversal, if

the circumstantial facts a found are such that the ultimate fact follows from
them by necessary inference. Pp. 283 U. S. 111, 283 U. S. 120.

So held where the opinion of the Court of Claims showed clearly the
inference that it drew from its finding.

69 Ct.Cls. 485, 39 F.2d 998, affirmed.

Certiorari, 282 U.S. 822, to review a judgment recovered in the Court of

Claims on a claim for repayment of an estate tax.

Page 283 U. S. 104

MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

John W. Wells, a resident of Menominee, Michigan, died on August 17, 1921.

The Commissioner of Internal Revenue assessed additional estate taxes,
upon the ground

Page 283 U. S. 105

that certain transfers by the decedent within two years prior to his death,
were made in contemplation of death and should be included in the taxable
estate under the provisions of § 402(c) of the Revenue Act of 1918, 40 Stat.
1057, 1097. The amount of the additional tax was paid by the executors and
claim for refund was filed. The claim having been rejected, the executors
brought this suit in the Court of Claims to recover the amount paid. The
Court of Claims decided in favor of the executors, 69 Ct.Cls. 485, 39 F.2d
998, and this Court granted a writ of certiorari.
The substance of the findings of the Court of Claims with respect to the
circumstances of the transfers may be stated as follows:

The decedent died at the age of seventy-three years; his wife and five
children, three sons and two daughters, survived him. When a young man
he became interested in the business of acquiring and selling timber lands
and of manufacturing lumber. He continued in that business to the time of
his death.

As early as the year 1901, decedent began the making of advancements of

money and other property to his children. He kept a set of books on which
he charged to his children some, but not all, of the amounts transferred to
them. The decedent believed that the appropriate course for a man of wealth
was to give to his children substantial sums of money during his lifetime
while he could advise with them as to its proper use. He informed one of his
friends:

"I am making distribution from time to time of part of my property to see

what my children will do during my lifetime, and I will then know when my
time is up what I ought to do with the balance. [Footnote 1] "

Page 283 U. S. 106

In 1918, decedent advanced to three of his children, Ralph W. Wells, Mrs.

Edna Walsh, and Mrs. Florence Law, shares of stock in the Dunbar &
Wausaukee Railway Company for which he charged each of them, in the
equalization hereafter mentioned, the sum of $25,460. Neither this transfer,
nor any of the earlier transfers, is in controversy.

In December, 1919, decedent transferred to his son Artemus C. Wells, 343

shares, and to his son Daniel Wells, 73 shares, of the stock of the J. W.
Wells Lumber Company. He charged Artemus with $89,180, and Daniel with
$18,890, on account of these transfers.

On January 1, 1921, after carefully examining his accounts in preparing for

the final equalization of the prior advancements, decedent transferred to his
children 68,985 shares of the stock of the Girard Lumber Company. His
summaries of accounts with each of his children showed debit balances, on
which he had computed interest, as follows: Daniel Wells, $266,530;
Artemus C. Wells, $231,651; Ralph W. Wells, $214,008; Mrs. Florence Law,
$216,445, and Mrs. Edna Walsh, $180,662. The decedent indorsed each of
these statements with the words, "Account with _____," "This account is
cancelled and ledger balanced to date as a gift to _____" (the name of the
son or daughter being inserted), or with other words to the same effect.
In this process of equalization, decedent charged his children with a total of
3,458 shares of the capital stock of the Lloyd Manufacturing Company.
These shares were not delivered at that time, as decedent had agreed to
exchange them for a like number of shares in a new company to result from
an expected merger. On January 26, 1921, decedent transferred to Marshall
B. Lloyd, as trustee for the benefit of his wife and five children, 3,713 shares
of the stock of the Lloyd Manufacturing Company with authority to exchange
these shares for shares of the stock of the new corporation, on the issue of
which the trustee

Page 283 U. S. 107

was to assign the shares to decedent's wife and children, respectively, in

designated amounts, or, in the event that the exchange was not
consummated before December 1, 1921, to distribute to them the shares of
the Lloyd company. [Footnote 2] On April 6, 1921, Lloyd, the trustee,
distributed the certificates for the shares in the new company, but the
finding states that the decedent had divested himself of all interest in the
3,713 shares of the Lloyd stock when they were transferred in trust.

The transfers which the Commissioner deemed to be subject to the

additional estate tax are these:

That of December, 1919, to his sons Daniel and Artemus, of 416 shares of
the stock of the J. W. Wells Lumber

Page 283 U. S. 108

Company, increased by a subsequent stock dividend to 1,280 shares at the

date of the decedent's death;

That of January 1, 1921, to his children, of 68,985 shares of the stock of the
Girard Lumber Company:

That of January 26, 1921, in trust for his wife and children, of 3,713 shares
of the stock of the Lloyd Manufacturing Company.

The aggregate value at the time of the decedent's death of all the property
embraced in these transfers was $782,903. Excluding this property, the
value of decedent's estate at the time of his death was $881,314.61, on
which the decedent's annual income was approximately $50,000 a year.

The Court of Claims made detailed findings as to the state of decedent's

health. It appeared that, for some time prior to the year 1919, he had
suffered from attacks of asthma. In May of that year, he went to a hospital
in Chicago for treatment, and remained eleven days. About the middle of
April, 1920, decedent began to be afflicted with ulcerative colitis, a condition
in which the large intestine becomes inflamed. The finding states: "It is a
curable disease. About eighty to eighty-five percent of the cases are cured."
In June, 1920, decedent was advised by physicians in California that he was
suffering from cancer of the intestines. In the following July, decedent again
entered the hospital in Chicago and, on an examination by a specialist in
diseases of the bowels, the case was diagnosed as ulcerative colitis. Between
July and September, 1920, decedent was informed in detail of his condition.
His physician told him that "he would get well."

While at the hospital, following an inquiry by his business associate, Marshall

B. Lloyd, whether decedent had made any agreement with his second wife,
Katherine Wells, with reference to a division of property after his death,
decedent made such an agreement. Reciting his

Page 283 U. S. 109

illness, it provided that his wife "should have $100,000 in money and certain
other property in lieu of her statutory and dower rights." Mrs. Wells ratified
all gifts theretofore made by the decedent to his children and all gifts which
might be made to his children thereafter "and before his death whether any
of such gifts be made in contemplation of his death or otherwise." Pursuant
to the agreement, decedent made his will on August 18, 1920, the
provisions of which differed only slightly from those of an earlier will. After
providing for the payment of $100,000 to his widow and making other
bequests, decedent devised his residuary estate to his five children, with the
proviso:

"Provided, however, that the amount shown to be due me from each of my

children severally in accordance with my books at the time of my death shall
be considered advancement made by me to them from time to time and
shall be chargeable to each of them severally as advancements and shall be
deducted from their respective shares."

On September 14, 1920, decedent wrote to his son Ralph: "The doctors say
that I will be absolutely cured if I am careful for two or three months after
leaving and I certainly will be careful after this." [Footnote 3]

On September 22, 1920, decedent was discharged from the hospital in an

improved condition. His medial adviser stated that decedent's condition was
"excellent," "he had not fully at that time recovered, but he did within the
next two of three months." "His appearance was normal; he had gained an
appreciable amount of weight" and "he was in a very fair state of health." On
his return to Menominee, decedent said to his son, who had been in charge
of his affairs during his absence, that

Page 283 U. S. 110

"he was completely cured of the trouble that he had had, and he felt good."
Decedent then resumed his normal business activities. [Footnote 4]

Decedent was again admitted to the hospital in Chicago, on November 30,

1920, for the purpose of an operation to relieve his asthma. His physician
stated that, at that time, "he found him to be in good general condition."
[Footnote 5] On December 9, 1920, decedent was discharged from the
hospital and returned to his home. He went back to the hospital on January
10, 1921, for the completion of the nasal operation. [Footnote 6] At the time
of his discharge on January 14, 1921, the medical examination showed "a
very greatly improved condition," and that, "in respect to the ulcerative
colitis, it was 90 percent normal.'"

On January 26, 1921, the date of the trust agreement (constituting the last
of the transfers in question), decedent wrote to his son Ralph: "The doctors
pronounce me cured of bowel trouble, but I will always have asthma. I
weigh 140 stripped." On February 3, 1921, he left for California, where he
was accustomed to spend the winter months. His physician stated that
decedent at that time

"considered himself well, and I told him that he need have no anxiety
whatever about his state of health;

Page 283 U. S. 111

that I considered him in excellent condition; that he need have no fears of

any recurrence of the ulcerated colitis. [Footnote 7]"

But, in April, 1921, while still in California, decedent had such a recurrence.
He consulted a specialist of reputation who, after examination, informed him
that he might have a cancer, and advised an operation. In June, 1921,
decedent reentered the hospital in Chicago. His condition proved to be due
to a virulent form of infection that failed to yield to treatment. Returning to
his home, he continued to lose ground, and he died on August 17, 1921. An
autopsy disclosed a severe and extensive inflammation of the large intestine,
with ulceration of the bowel. No trace of cancer was found. The death
certificate signed by his physician set forth the cause of decedent's death as
"suppurative colitis" and its "duration one year."
The Court of Claims did not find, in terms, that the transfers in question
were not made in contemplation of death, but it is evident that the court
considered that its findings of fact amounted to that in substance, in view

Page 283 U. S. 112

of the conclusion of law, based upon these findings, that the executors were
entitled to recover the additional tax. This is also manifest from the
reasoning of the court's opinion. The court said:

"The plaintiffs have not only overcome the presumption created by the
statute that the transfers were made in contemplation of death, but have
definitely established the fact that the immediate and moving cause of the
transfers was the carrying out of a policy long followed by decedent in
dealing with his children of making liberal gifts to them during his lifetime.
He had consistently followed that policy for nearly thirty years, and the three
transfers in question were a continuation and final consummation of such
policy. In the last transfer, such amounts were given to his children as would
even them up one with another in the gifts and advancements made to
them."

"That this was the motive which actuated the decedent in making these
transfers seems unquestioned. He repeatedly, in letters to his children and in
statements to business associates at about the time the transfers were
made, gave this as his reason for such transfers. After the final transfer in
which the advancements and gifts to the children were evened up in
January, 1921, the decedent still possessed property of the value of nearly
$900,000, from which he drew an annual income of approximately $50,000.
At the time the transfers were made, decedent had no reason to believe
otherwise than, aside from his asthma, he was, for a man of his age, in
ordinary health. While he had gone through a most serious and painful
illness, he had, as he believed, made an almost complete recovery. He was
assured of this fact by his physician, an eminent specialist in whom he had
great confidence. The repeated statements made by him to close friends and
associates, his daily activities in matters connected with his business affairs,
his letters to his children assuring them of his renewed health, show

Page 283 U. S. 113

that he fully believed the assurances given him by his physician that he was
cured and had nothing to fear on account of his former illness."

"The presumption created by the statute that the transfers in question were
made in contemplation of death cannot stand against ascertained and
proven facts showing the contrary to be true. The best evidence of the state
of the decedent's health at the time the transfers were made is the
statement of his doctor. The best evidence of the decedent's state of mind at
that time and the reasons actuating him in making the transfers are the
statements and expressions of the decedent himself, supported as such
statements are by all the circumstances concerning the transfers. [Footnote
8]"

The government contests the decision of the Court of Claims upon the
ground that the conclusion was reached by an erroneous construction of the
words "in contemplation of death" as used in the statute. The court held that
"contemplation of death" does not mean that general knowledge of all men
that they must die, but that

Page 283 U. S. 114

there must be a present apprehension, from some existing bodily or mental

condition or impending peril, creating a reasonable fear that death is near at
hand, and that such reasonable fear or apprehension must be the direct or
animating cause, and the only cause of the transfer. [Footnote 9]

The government insists that this definition is too narrow; that transfers in
contemplation of death are not limited to those induced by a condition
causing expectation of death in the near future; that the character of such
gifts is determined by the state of mind of the donor at the time they are
made, and that the statutory presumption may be overcome only by proof
that the decedent's purpose in making the gift was to attain some object
desirable to him during his life, as distinguished from the distribution of his
estate as at death.

Page 283 U. S. 115

The phrase "in contemplation of death," previously found in state statutes,

was first used by the Congress in the Revenue Act of 1916, imposing an
estate tax. It was coupled with a clause creating a statutory presumption in
case of gifts within two years before death. [Footnote 10] The provision was
continued in the Revenue Act of 1918, [Footnote 11] which governs the
present case, and in later legislation. While the interpretation of the phrase
has not been uniform, there had been agreement upon certain fundamental
considerations. It is recognized that the reference is not to the general
expectation of death which all entertain. It must be a particular concern,
giving rise to a definite motive. [Footnote 12] The provision is not confined
to gifts causa mortis,
Page 283 U. S. 116

which are made in anticipation of impending death, are revocable, and are
defeated if the donor survives the apprehended peril. Basket v. Hassell, 107
U. S. 602, 107 U. S. 609-610. [Footnote 13] The statutory description
embraces gifts inter vivos, despite the fact that they are fully executed, are
irrevocable and indefeasible. The quality which brings the transfer within the
statute is indicated by the context and manifest purpose. Transfers in
contemplation of death are included within the same category, for the
purpose of taxation, with transfers intended to take effect at or after the
death of the transferor. The dominant

Page 283 U. S. 117

purpose is to reach substitutes for testamentary dispositions, and thus to

prevent the evasion of the estate tax. Nichols v. Coolidge, 274 U. S.
531, 274 U. S. 542; Milliken v. United States, ante, p. 283 U. S. 15. As the
transfer may otherwise have all the indicia of a valid gift inter vivos, the
differentiating factor must be found in the transferor's motive. Death must
be "contemplated" -- that is, the motive which induces the transfer must be
of the sort which leads to testamentary disposition. As a condition of body
and mind that naturally gives rise to the feeling that death is near, that the
donor is about to reach the moment of inevitable surrender of ownership, is
most likely to prompt such a disposition to those who are deemed to be the
proper objects of his bounty, the evidence of the existence or nonexistence
of such a condition at the time of the gift is obviously of great importance in
determining whether it is made in contemplation of death. The natural and
reasonable inference which may be drawn from the fact that but a short
period intervenes between the transfer and death is recognized by the
statutory provision creating a presumption in the case of gifts within two
years prior to death. But this presumption, by the statute before us, is
expressly stated to be a rebuttable one, and the mere fact that death ensues
even shortly after the gift does not determine absolutely that it is in
contemplation of death. The question, necessarily, is as to the state of mind
of the donor.

As the test, despite varying circumstances, is always to be found in motive,

it cannot be said that the determinative motive is lacking merely because of
the absence of a consciousness that death is imminent. It is contemplation
of death, not necessarily contemplation of imminent death, to which the
statute refers. It is conceivable that the idea of death may possess the mind
so as to furnish a controlling motive for the disposition of property, although
death is not thought to be close at hand. Old age
Page 283 U. S. 118

may give premonitions and promptings independent of mortal disease. Yet

age, in itself, cannot be regarded as furnishing a decisive test, for sound
health and purposes associated with life, rather than with death, may
motivate the transfer. The words "in contemplation of death" mean that the
thought of death is the impelling cause of the transfer, and, while the belief
in the imminence of death may afford convincing evidence, the statute is not
to be limited, and its purpose thwarted, by a rule of construction which, in
place of contemplation of death, makes the final criterion to be an
apprehension that death is "near at hand."

If it is the thought of death, as a controlling motive prompting the

disposition of property, that affords the test, it follows that the statute does
not embrace gifts inter vivos which spring from a different motive. Such
transfers were made the subject of a distinct gift tax, since repealed.
[Footnote 14] As illustrating transfers found to be related to purposes
associated with life, rather than with the distribution of property in
anticipation of death, the government mentions transfers made

"for the purpose of relieving the donor of the cares of management or in

order that his children may experience the responsibilities of business under
his guidance and supervision."

The illustrations are useful but not exhaustive. The purposes which may be
served by gifts are of great variety. It is common knowledge that a frequent
inducement is not only the desire to be relieved of responsibilities, but to
have children, or others who may be the appropriate objects of the donor's
bounty, independently established with competencies of their own without
being compelled to await the death of the donor and without particular

Page 283 U. S. 119

consideration of that event. There may be the desire to recognize special

needs or exigencies or to discharge moral obligations. The gratification of
such desires may be a more compelling motive than any thought of death.

It is apparent that there can be no precise delimitation of the transactions

embraced within the conception of transfers in "contemplation of death," as
there can be none in relation to fraud, undue influence, due process of law,
or other familiar legal concepts which are applicable to many varying
circumstances. There is no escape from the necessity of carefully scrutinizing
the circumstances of each case to detect the dominant motive of the donor
in the light of his bodily and mental condition, and thus to give effect to the
manifest purpose of the statute.

We think that the government is right in its criticism of the narrowness of

the rule laid down by the Court of Claims, in requiring that there be a
condition "creating a reasonable fear that death is near at hand," and that
"such reasonable fear or apprehension" must be "the only cause of the
transfer." It is sufficient if contemplation of death be the inducing cause of
the transfer whether or not death is believed to be near. But it does not
appear that the decision of the court rests upon the limitation thus
expressed. The court did not rely merely upon the fact that, at the time of
the transfers, decedent considered that he had recovered from his former
illness and believed the assurances given him by his physician that he need
have no fear of its recurrence or any "anxiety whatever about his state of
health." That fact was manifestly important, but, in addition to that, the
court held that

"immediate and moving cause of the transfers was the carrying out of a
policy, long followed by decedent in dealing with his children of making
liberal gifts to them during his lifetime."

The court regarded the transfers in question as "a continuation and and final
consummation of such policy," saying "that this was the motive

Page 283 U. S. 120

which actuated the decedent in making these transfers seems

unquestioned." In the view of the court as thus explicitly stated, not only
was there no fear at the time of the transfers that death was near at hand,
but the motive for the transfers brought them within the category of those
which, as described by the government, are intended by the donor "to
accomplish some purpose desirable to him if he continues to live." In the
presence of such a motive, appropriately found, and of the underlying facts
which have been expressly found, there would be no ground for a reversal of
the judgment merely because of an inaccuracy in the general statement as
to the meaning of the statutory phrase.

The only difficulty presented by the record is that this statement with
respect to the motive of decedent appears in the opinion of the court and
not in its findings of fact. We are not at liberty to refer to the opinion for
additional findings. The findings of fact of the Court of Claims are to be
treated like the verdict of a jury. [Footnote 15] We cannot add to them, or
modify them, but the absence of the finding of an ultimate fact does not
require a reversal of the judgment if the circumstantial facts as found are
such that the ultimate fact follows from them as a necessary inference.
[Footnote 16]

It is evident that the court did not consider the statements in its opinion,
which we have quoted, as additional findings of fact, but as an argument
with respect to the conclusion to be drawn from its findings. In its opinion,
the court was summarizing what it considered to be the effect of its findings,
and no useful purpose would be served in returning the case for a specific
finding that the motive which impelled the decedent to make the transfers

Page 283 U. S. 121

was precisely that which the court has thus definitely stated. While, in
accordance with proper practice and the rule of this Court, [Footnote 17] the
Court of Claims should have found the ultimate fact, and we do not approve
the method it adopted, we are of the opinion that, in view of the findings of
fact actually made and the conclusion they import, the judgment should be
sustained. [Footnote 18]

Judgment affirmed.

MR. JUSTICE ROBERTS took no part in the consideration or decision of this

case.

[Footnote 1]

Speaking of a less liberal policy of a former business associate who died in or

about the year 1918, decedent frequently expressed his opinion that his
friend "had made a big mistake in not distributing his property to his
children while he was alive to help them handle it properly," and said "that is
not my policy."

[Footnote 2]

On the day that this trust agreement was made, decedent wrote to his son
Ralph (then in England):

"I am going to divide Lloyd pref. stock and most of G.L. Co. (Girard Lumber
Co.) among you children at once so you will have enough to keep you from
hunger at least. I own now 5,103 Lloyd stock, $100 per share. Income
$35,721. I am going to even up my gifts to all now, and the following is the
way they stand before the evening up [inserting statement]. I have charged
all of you interest on your accounts at 5% and I have charged you and Art
$50,000 apiece for motor loss and credit you for W. P.L. Co. stock charged
you. I am mighty busy getting ready for the West, so goodbye."

On February 3, 1921, on leaving for California, decedent wrote to his

daughter, Mrs. Edna Walsh:

"I have been working on my books and evening up all your accounts. Dan,
Art, and Ralph have had advances that were more than you and Florence
had, and I have equalized one with the other by charging each with what
they have had and charging them interest on the account to date, and the
inclosed sheet shows what each has had and how I equalized your a/cs by
giving stock to even. Your Lloyd stock will be delivered as soon as the deal is
closed, which will be very soon. Your Lloyd stock is worth $108,600 and the
Girard stock is worth $252000, so you need not take in washing for support
unless you throw it away on copper or other junk. In making out these
accounts, the thing that seems most important is how interest runs up. Good
safe bonds are the best investment for a person who does not understand
business. Well, my dear girl, take good care of this, remember the poor and
needy, and you will receive your reward. Goodbye."

[Footnote 3]

At about this time, the hospital physician found marked evidence of an

inflammation of the ethmoid cells which are connected with the nasal cavity,
and concluded that there was very likely a close relation between the
ethmoiditis and the asthma.

[Footnote 4]

Writing to his son Ralph on October 30, 1920, decedent said:

"I am around about the same as usual. . . . I feel as well as ever, and
bowels seem normal, but doctor says I must diet and take bismuth medicine
for a while and be careful. Gained six pounds since I came home."

[Footnote 5]

The physician said that decedent

"came to the hospital for treatment of the asthma, not for the bowel trouble.
In fact, it was by arrangement when he left the hospital in September that
he came back at this time, in November, to have the operative work done on
the nose that was designed to clear up the asthma."
[Footnote 6]

His physician then made the following entry in the hospital record with
respect to decedent's condition:

"In general feels very well. Gained six pounds in weight. Asthma has been
somewhat troublesome at times. Has had very good bowel function. No pain.
Returns for completion of nasal operation."

[Footnote 7]

In February, 1921, friends of the decedent, visiting him in California, were

taken by him on extended motor trips.

"Decedent drove the car himself through the congested portion of the city
(Los Angeles), as well as around or over the mountains near that city. At
places on these mountain roads the automobile party driven by the decedent
traversed roads that ran along a precipice where there is a sheer fall of six
or seven thousand feet without any apparent concern or distress on the part
of the decedent."

His friends "did not see any difference in his appearance. He seemed to be
just as spry as he ever was, and handled the car in pretty good shape." He
was thought to be "very cheerful."

In a letter dated February 21, 1921, written to his children, decedent said:

"I am about free of my bowel trouble, but have my old complaint, asthma,
but I have taken treatment at Batch Creek Treatment Rooms here the last
two years, and they have cleared it up and they are now treating me and it
is clearing up."

[Footnote 8]

Referring to the agreement made in the summer of 1920 with the decedent's
wife as to her share of his property, and to the making of his will, the court
said:

"While these transactions are entitled to consideration in connection with all

the other facts and circumstances shown, we do not regard them as having
a great deal of weight in determining the question as to the decedent's state
of mind, and the motives actuating him in making transfers of property, four
months later. No transfers of property were made to the children at the time
of the execution of the property agreement with his wife, and the provisions
made for their benefit in the will executed at that time were identical with
the provisions of a former will. Whatever apprehensions the decedent
entertained at the time of the making of the property agreement with his
wife as to the chances of recovery from the illness from which he was
suffering at that time had ceased to exist before the transfer of the Girard
Lumber Company stock on January 1, 1921, and the Lloyd Manufacturing
Company stock on January 26, 1921."

[Footnote 9]

In support of this view, the court cited Spreckels v. State, 30 Cal.App. 363,
158 P. 549; Shwab v. Doyle, 269 F. 321; Meyer v. United States, 60 Ct.Cls.
474; Rea v. Heiner, 6 F.2d 389, and Appeal of Starck, Executor, 3 B.T.A.
514. See also Phillips, Executor, 7 B.T.A. 1054; Stein et al., Executors, 9
B.T.A. 486; Gimbel et al., Executors, 11 B.T.A. 214; George A. Wheelock's
Estate, 13 B.T.A. 831; Commonwealth v. Fenley, 189 Ky. 480, 225 S.W.
154; State v. Pabst, 139 Wis. 561, 121 N.W. 351; State v. Thompson, 154
Wis. 320, 142 N.W. 647; Gaither v. Miles, 268 F. 692; Vaughan v.
Riordan, 280 F. 742; Flannery v. Willcuts, 25 F.2d 951; Beeler v. Motter, 33
F.2d 788; Rosenthal v. People, 211 Ill. 306, 71 N.E. 1121; People v.
Burkhalter, 247 Ill. 600, 93 N.E. 379; People v. Carpenter, 264 Ill. 400, 106
N.E. 302; People v. Northern Trust Co., 324 Ill. 625, 155 N.E. 768; Matter of
Baker, 83 App.Div. 530, 82 N.Y.S. 390, aff'd, 178 N.Y. 575, 70 N.E.
1094; Matter of Palmer, 117 App.Div. 361, 102 N.Y.S. 236; Matter of
Baird, 219 App.Div. 418, 219 N.Y.S. 158. But compare Estate of
Reynolds, 169 Cal. 600, 147 P. 268; Estate of Pauson, 186 Cal. 358, 199 P.
331; Chambers v. Larronde, 196 Cal. 100, 235 P. 1024; Armstrong v.
Indiana, 72 Ind.App. 303, 120 N.E. 717; Matter of Crary, 31 Misc. Rep. 72,
64 N.Y.S. 566; Matter of Price, 62 Misc. Rep. 149, 116 N.Y.S. 283; Tax
Commission v. Parker, 117 Ohio St. 215, 158 N.E. 89; Rengstorff v.
McLaughlin, 21 F.2d 177.

[Footnote 10]

39 Stat. 756, 777, 778.

[Footnote 11]

40 Stat. 1057, 1097. Section 402(c) provides:

"To the extent of any interest therein of which the decedent has at any time
made a transfer, or with respect to which he has at any time created a trust,
in contemplation of or intended to take effect in possession or enjoyment at
or after his death (whether such transfer or trust is made or created before
or after the passage of this Act), except in case of a bona fide sale for a fair
consideration in money or money's worth. Any transfer of a material part of
his property in the nature of a final disposition or distribution thereof, made
by the decedent within two years prior to is death without such a
consideration, shall, unless shown to the contrary, be deemed to have been
made in contemplation of death within the meaning of this title. . . ."

[Footnote 12]

Article 23 of Regulations 37, under the Revenue Act of 1918, contained the
following:

"Art. 23. Nature of Transfer. -- The words 'in contemplation of death' do not
refer to the general expectation of death which all persons entertain. A
transfer, however, is made in contemplation of death wherever the person
making it is influenced to do so by such an expectation of death, arising
from bodily or mental conditions, as prompts persons to dispose of their
property to those whom they deem proper objects of their bounty. The
cause which induces such bodily or mental conditions is immaterial, and it is
not necessary that the decedent be in the immediate expectation of death.
Such a transfer is taxable although the decedent parts absolutely and
immediately with his title to and possession of the property. Transfers made
within two years of a decedent's death are presumed to be taxable if they
are of a material part of his property and are in the nature of a final
disposition thereof. . . . All facts relating to the transfer should be stated,
including the motive therefor, the decedent's state of health, and his
anticipation of death. The presumption of taxability may be rebutted by
proof that the transfer was not induced by bodily or mental conditions
leading the grantor to make a disposition of property testamentary in its
nature. The fact that a gift was made as an advancement, to be taken into
account upon the final distribution of the decedent's estate, is not enough,
standing alone, to establish taxability, but it is a circumstance to be
considered in determining whether the transfer was made in contemplation
of death."

[Footnote 13]

In Matter of Seaman, 147 N.Y. 69, 76, 41 N.E. 401, 403. the court, referring
to the words "in contemplation of death" in the Inheritance Tax Law of New
York, said that the clause "evidently referred to grants or gifts causa
mortis." See also Matter of Edgerton, 35 App.Div. 125, 54 N.Y.S.
700, aff'd, 158 N.Y. 671, 52 N.E. 1124; Matter of Spaulding, 49 App.Div.
541, 63 N.Y.S. 694, aff'd 163 N.Y. 607, 57 N.E. 1124; Matter of Baker, 83
App.Div. 530, 82 N.Y.S. 390, aff'd 178 N.Y. 575, 70 N.E. 1094. But compare
Matter of Palmer, 117 App.Div. 361, 366-368, 102 N.Y.S. 236; Matter of
Crary, 31 Misc. Rep. 72, 75, 64 N.Y.S. 566; Matter of Price, 62 Misc.Rep.
149, 151, 152, 116 N.Y.S. 283; Matter of Dee, 148 N.Y.S. 423, aff'd 161
App.Div. 881, 145 N.Y.S. 1120, aff'd210 N.Y. 625, 104 N.E. 1128; Matter of
Hodges, 215 N.Y. 447, 109 N.E. 559.

[Footnote 14]

Revenue Act of 1924, §§ 319-324, 43 Stat. 253, 313, and § 319, as

amended by Revenue Act of 1926, § 324, 44 Stat. 9, 86; Bromley v.
McCaughn, 280 U. S. 124. Revenue Act of 1926, § 1200(a), 44 Stat. 9, 125,
126.

[Footnote 15]

Stone v. United States, 164 U. S. 380, 164 U. S. 382-383; Crocker v. United

States, 240 U. S. 74, 240 U. S. 78; Brothers v. United States, 250 U. S.
88, 250 U. S. 93.

[Footnote 16]

United States v. Pugh, 99 U. S. 265, 99 U. S. 269-270; Botany Worsted Mills

v. United States, 278 U. S. 282, 278 U. S. 290.

[Footnote 17]

Rule 41.

[Footnote 18]

Act of February 26, 1919, c. 48, 40 Stat. 1181, U.S.C. Tit. 28, § 391.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-34937 March 13, 1933

CONCEPCION VIDAL DE ROCES and her husband,

MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.

Feria and La O for appellants.

Attorney-General Jaranilla for appellee.

IMPERIAL, J.:

The plaintiffs herein brought this action to recover from the defendant, Collector of
Internal Revenue, certain sums of money paid by them under protest as inheritance
tax. They appealed from the judgment rendered by the Court of First Instance of Manila
dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated
certain parcels of land situated in Manila to the plaintiffs herein, who, with their
respective husbands, accepted them in the same public documents, which were duly
recorded in the registry of deeds. By virtue of said donations, the plaintiffs took
possession of the said lands, received the fruits thereof and obtained the corresponding
transfer certificates of title.

On January 5, 1926, the donor died in the City of Manila without leaving any forced heir
and her will which was admitted to probate, she bequeathed to each of the donees the
sum of P5,000. After the estate had been distributed among the instituted legatees and
before delivery of their respective shares, the appellee herein, as Collector of Internal
Revenue, ruled that the appellants, as donees and legatees, should pay as inheritance
tax the sums of P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was
levied as tax on the donation to Concepcion Vidal de Roces and P1,481.52 on her
legacy, and, likewise, P12,388.95 was imposed upon the donation made to Elvira Vidal
de Richards and P1,462.50 on her legacy. At first the appellants refused to pay the
aforementioned taxes but, at the insistence of the appellee and in order not to delay
the adjudication of the legacies, they agreed at last, to pay them under protest.

The appellee filed a demurrer to the complaint on the ground that the facts alleged
therein were not sufficient to constitute a cause of action. After the legal questions
raised therein had been discussed, the court sustained the demurrer and ordered the
amendment of the complaint which the appellants failed to do, whereupon the trial
court dismissed the action on the ground that the afore- mentioned appellants did not
really have a right of action.

In their brief, the appellants assign only one alleged error, to wit: that the demurrer
interposed by the appellee was sustained without sufficient ground.

The judgment appealed from was based on the provisions of section 1540
Administrative Code which reads as follows:

SEC. 1540. Additions of gifts and advances. — After the aforementioned

deductions have been made, there shall be added to the resulting amount the
value of all gifts or advances made by the predecessor to any those who, after
his death, shall prove to be his heirs, devisees, legatees, or donees mortis causa.

The appellants contend that the above-mentioned legal provision does not include
donations inter vivos and if it does, it is unconstitutional, null and void for the following
reasons: first, because it violates section 3 of the Jones Law which provides that no law
should embrace more than one subject, and that subject should be expressed in the
title thereof; second that the Legislature has no authority to impose inheritance tax on
donations inter vivos; and third, because a legal provision of this character contravenes
the fundamental rule of uniformity of taxation. The appellee, in turn, contends that the
words "all gifts" refer clearly to donations inter vivos and, in support of his theory, cites
the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289). After a
careful study of the law and the authorities applicable thereto, we are the opinion that
neither theory reflects the true spirit of the aforementioned provision. The gifts referred
to in section 1540 of the Revised Administration Code are, obviously, those
donations inter vivos that take effect immediately or during the lifetime of the donor
but are made in consideration or in contemplation of death. Gifts inter vivos, the
transmission of which is not made in contemplation of the donor's death should not be
understood as included within the said legal provision for the reason that it would
amount to imposing a direct tax on property and not on the transmission thereof, which
act does not come within the scope of the provisions contained in Article XI of Chapter
40 of the Administrative Code which deals expressly with the tax on inheritances,
legacies and other acquisitions mortis causa.

Our interpretation of the law is not in conflict with the rule laid down in the case
of Tuason and Tuason vs. Posadas, supra. We said therein, as we say now, that the
expression "all gifts" refers to gifts inter vivos inasmuch as the law considers them as
advances on inheritance, in the sense that they are gifts inter vivos made in
contemplation or in consideration of death. In that case, it was not held that that kind
of gifts consisted in those made completely independent of death or without regard to
it.

Said legal provision is not null and void on the alleged ground that the subject matter
thereof is not embraced in the title of the section under which it is enumerated. On the
contrary, its provisions are perfectly summarized in the heading, "Tax on Inheritance,
etc." which is the title of Article XI. Furthermore, the constitutional provision cited
should not be strictly construed as to make it necessary that the title contain a full
index to all the contents of the law. It is sufficient if the language used therein is
expressed in such a way that in case of doubt it would afford a means of determining
the legislators intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.)
Lastly, the circumstance that the Administrative Code was prepared and compiled
strictly in accordance with the provisions of the Jones Law on that matter should not be
overlooked and that, in a compilation of laws such as the Administrative Code, it is but
natural and proper that provisions referring to diverse matters should be found. (Ayson
and Ignacio vs. Provincial Board of Rizal and Municipal Council of Navotas, 39 Phil.,
931.)

The appellants question the power of the Legislature to impose taxes on the
transmission of real estate that takes effect immediately and during the lifetime of the
donor, and allege as their reason that such tax partakes of the nature of the land tax
which the law has already created in another part of the Administrative Code. Without
making express pronouncement on this question, for it is unnecessary, we wish to state
that such is not the case in these instance. The tax collected by the appellee on the
properties donated in 1925 really constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or in consideration of the donor's death
and under the circumstance that the donees were later instituted as the former's
legatees. For this reason, the law considers such transmissions in the form of gifts inter
vivos, as advances on inheritance and nothing therein violates any constitutional
provision, inasmuch as said legislation is within the power of the Legislature.

Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies to

all property within the power of the state to reach passing by will or the laws
regulating intestate succession or by gift inter vivos in the manner designated by
statute, whether such property be real or personal, tangible or intangible,
corporeal or incorporeal. (26 R.C.L., p. 208, par. 177.)
In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540
of the Administrative Code did not violate the constitutional provision regarding
uniformity of taxation. It cannot be null and void on this ground because it equally
subjects to the same tax all of those donees who later become heirs, legatees or
donees mortis causa by the will of the donor. There would be a repugnant and arbitrary
exception if the provisions of the law were not applicable to all donees of the same
kind. In the case cited above, it was said: "At any rate the argument adduced against
its constitutionality, which is the lack of Uniformity, does not seem to be well founded.
It was said that under such an interpretation, while a donee inter vivos who, after the
predecessor's death proved to be an heir, a legatee, or a donee mortis causa, would
have to pay the tax, another donee inter vivos who did not prove to he an heir, a
legatee, or a donee mortis causa of the predecessor, would be exempt from such a tax.
But as these are two different cases, the principle of uniformity is inapplicable to them."

The last question of a procedural nature arising from the case at bar, which should be
passed upon, is whether the case, as it now stands, can be decided on the merits or
should be remanded to the court a quo for further proceedings. According to our view
of the case, it follows that, if the gifts received by the appellants would have the right
to recover the sums of money claimed by them. Hence the necessity of ascertaining
whether the complaint contains an allegation to that effect. We have examined said
complaint and found nothing of that nature. On the contrary, it be may be inferred from
the allegations contained in paragraphs 2 and 7 thereof that said donations inter
vivos were made in consideration of the donor's death. We refer to the allegations that
such transmissions were effected in the month of March, 1925, that the donor died in
January, 1926, and that the donees were instituted legatees in the donor's will which
was admitted to probate. It is from these allegations, especially the last, that we infer a
presumption juris tantum that said donations were made mortis causa and, as such, are
subject to the payment of inheritance tax.

Wherefore, the demurrer interposed by the appellee was well-founded because it

appears that the complaint did not allege fact sufficient to constitute a cause of action.
When the appellants refused to amend the same, spite of the court's order to that
effect, they voluntarily waived the opportunity offered them and they are not now
entitled to have the case remanded for further proceedings, which would serve no
purpose altogether in view of the insufficiency of the complaint.

Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance
against the appellants. So ordered.

Avanceña, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.

Separate Opinions

VILLA-REAL, J., dissenting:

I sustain my concurrence in Justice Street's dissenting opinion in the case of Tuason
and Tuason vs. Posadas (54 Phil., 289).

The majority opinion to distinguish the present case from above-mentioned case
of Tuason and Tuason vs. Posadas, by interpreting section 1540 of the Administrative
Code in the sense that it establishes the legal presumption juris tantum that all
gifts inter vivos made to persons who are not forced heirs but who are instituted
legatees in the donor's will, have been made in contemplation of the donor's death.
Presumptions are of two kinds: One determined by law which is also called presumption
of law or of right; and another which is formed by the judge from circumstances
antecedent to, coincident with or subsequent to the principal fact under investigation,
which is also called presumption of man (presuncion de hombre). (Escriche, Vol. IV, p.
662.) The Civil Code as well as the code of Civil Procedure establishes
presumptions juris et de jure and juris tantum which the courts should take into
account in deciding questions of law submitted to them for decision. The presumption
which majority opinion wishes to draw from said section 1540 of the Administrative
Code can neither be found in this Code nor in any of the aforementioned Civil Code and
Code of Civil Procedure. Therefore, said presumption cannot be called legal or of law.
Neither can it be called a presumption of man (presuncion de hombre) inasmuch as the
majority opinion did not infer it from circumstances antecedent to, coincident with or
subsequent to the principal fact with is the donation itself. In view of the nature, mode
of making and effects of donations inter vivos, the contrary presumption would be more
reasonable and logical; in other words, donations inter vivos made to persons who are
not forced heirs, but who are instituted legatees in the donor's will, should be presumed
as not made mortis causa, unless the contrary is proven. In the case under
consideration, the burden of the proof rests with the person who contends that the
donation inter vivos has been made mortis causa.

It is therefore, the undersigned's humble opinion that the order appealed from should
be reversed and the demurrer overruled, and the defendant ordered to file his answer
to the complaint.

Street, J., concurs.

U.S. Supreme Court

Graves v. Schmidlapp, 315 U.S. 657 (1942)

Graves v. Schmidlapp

No. 604

Argued March 12, 1942

Decided March 30, 1942

315 U.S. 657

Syllabus

1. The due process clause of the Fourteenth Amendment did not preclude
the New York from taxing the effective exercise, by the will of a domiciled
resident, of a general power of appointment of which he was the donee
under the will of a resident of Massachusetts, the property appointed being
intangibles held by trustees under the donor's will. Wachovia Bank Trudt Co
v. Daughton, 272 U. S. 567, overruled. Pp. 315 U. S. 660, 315 U. S. 665.

2. Control by the the donee's domicile over his person and estate and his
duty to contribute to the support of government there afford adequate
constitutional basis for the imposition of a tax. P. 315 U. S. 660.

The donee of the power the exercise of which was taxed was also one of the
trustees named by the Massachusetts will, and the paper evidences of the
intangibles, which consisted wholly of receivables

Page 315 U. S. 658

and corporate stock and bond, were kept by him at the time of his death and
for some years before, in New York, the State of his residence. He and other
trustees accounted to a Massachusetts probate court for the administration
of the fund.

286 N.Y. 596, 35 N.E.2d 937, reversed.

Certiorari, 314 U.S. 601, to review a judgment of the Court of Appeals of
New York affirming without opinion an order of the Surrogate's Court of the
County of New York reducing an estate tax assessment. 172 Misc. 426, 15
N.Y.S.2d 208.